BMW focuses on X5 profit levels first

UPDATED: 22/11/2013FOR profitability’s sake BMW hopes the mid-range xDrive30d will continue to be the most popular X5 version in the new F15 series, counting on at least half of all buyers choosing the evergreen six-cylinder turbo-diesel with four-wheel drive.

This is despite a near-$20,000 gap between it and the newly announced entry-level sDrive25d with an X5-first four-cylinder engine and two-wheel drive, which opens the third-generation range from $82,900 plus on-road costs.

BMW’s call comes in the light of arch rival Mercedes-Benz’s result for the matching M-Class, which sees its base ML 250 accounting for fewer than 30 per cent of all volume.

Since BMW has more or less aligned the pricing of its best-selling luxury SUV range with its arch-rival, the signs strongly suggest the sDrive25d won’t topple its money-spinning bigger-engined brother.

“Clearly the X5 is one of the bedrocks of our profitability in Australia, our second best selling car in our range after the 3 Series, and we do good numbers pretty much across the board,” said Phil Horton, managing director of BMW Group Australia.

“With Mercedes-Benz in particular going down to that (price point), I think about 25 to 30 per cent of their mix is at that bottom end.

“I wouldn’t like our car to be doing more than that to be quite honest, because from overall profitability, the more of the higher-range models we sell the better.

“But it is very useful having that part of the range covered off. Of course we also have the X3 until they get the GLK, so for them it was a bit of a no-brainer to have that model to push as far down as possible.” Nevertheless, Mr Horton hopes the sDrive25d and its $5000 more expensive xDrive25d AWD sibling will bring in new buyers to the X5 fold – and keep them coming back when the time comes to trade up.

“I certainly think there is a market for a two-wheel drive X5,” he said.

“It’s good for bridging the gap between it and the X3. And we can certainly see hooking people into X5s earlier with that car.

“Also it is a car that could generate a lot of loyalty. There seems to be significantly less loyalty these days to a particular brand or a particular model, with people having more than one marque.”

The X5 has been the dominant force at the top of the charts for a decade, unsurpassed by M-Class or any other vehicle in its category since 2003.

Its sales this year are up 19.6 per cent, with the SUV commanding a 19 per cent share of the market from 2848 new registrations to the end of October.

The M-Class, by comparison, has experienced more modest growth of 6.3 per cent, which translates to 2339 sales over the same period and a 15.6 per cent share of the segment.

That said, the changeover with the new model saw only 13 X5s registered last month compared to 220 for the M-Class, setting up another close contest for end-of-year bragging rights.

In 2012, the X5 just managed to outsell the M-Class for market segment honours – only 49 units separated them, with the BMW on 2778 (lineball with the previous year) and the Benz on 2729 (up 31 per cent).

This year, the Land Rover Discovery and Lexus RX are fighting for podium honours, with 1896 and 1818 sales respectively YTD (each with around 12 per cent market share), while the Volkswagen Touareg (1491) and Audi Q7 (1213) are not far behind.

However, despite the inevitable excitement surrounding the new X5, Mr Horton concedes it will not be enough for his company to overhaul Mercedes-Benz in this year’s race to be the leading luxury carmaker.

To the end of October, BMW is trailing the Three-Pointed Star by nearly 5600 units (although that figures also includes Mercedes’ commercial vehicles too), even though its volume is up 11 per cent compared to the same time last year.

“We’re something like 1400 (passenger car and SUV) units behind with six weeks to go, and we’re certainly not going to be able to close that gap, and we’re not going to do something ridiculous to try and achieve that,” he said.

With Mercedes’ unprecedented new-model wave continuing unabated well into 2014 and beyond, Mr Horton added that BMW would not sacrifice profits just to be first over the line.

“Next year we’re going to do what we always do – have a number of cars that we need to sell because that’s our budget and our prime focus. And if that brings us out ahead of Mercedes, then that’s good. It’s nice to be number one. But if it doesn’t then it doesn’t.

“They’ve certainly been very aggressive, certainly with the new cars at the bottom of the range.

“I see no reason why they shouldn’t continue with that, particularly with the CLA that’s already in and aggressively priced, and it will be interesting to see what effect if any it will have on the C-Class.

“And also with the GLA comes in mid year, and that will give them another string in their bow. They’ve basically gone from having one car in that ($40,000-plus luxury small car) segment from the beginning of this year (with the B-Class), to having four cars within the space of about 18 months – and that’s a pretty radical shift.

“So we’ll have to see how that goes next year.”