BMW: Historical Background
Being one of the greatest automobile manufacturers in the world, BMW’s existing reputation and fame can be mostly connected with models produced in the last two decades. It has a history of 90 years in the field of production of motor vehicles and achieved numerous achievements by its efforts. This way BMW has established a unique and incomparable status in the automobile world. BMW, as everyone knows, got its popularity due to its incomparable quality which is distinct and best among other automobiles. The level of comfort that it provides is very high.
The Origin
In 1913, Mr. Karl Friedrich Rapp, a Bavarian, a renowned engineer in a German aircraft company, formed a company in a suburb of Munich called Rapp Motoren Werke. The company was exclusively established for making airplane engines for which it got specialization. But Rapp noticed these engines problematic as they suffered from excessive vibration. Mr. Gustav Otto who was also an airplane specialist, set up his own establishment nearby called Gustav Flugmaschinefabrik and started building small aircraft.
The company flourished and expanded very quickly. But Rapp, who failed to finish the contract of building V12 Aero engines under license with Austro-Daimler due to faulty engines, resigned from the company due to some financial problems. Consequent to his resignation Franz Josef Popp and Max Friz, two Austrians, took over the company. In the same year, Rapp Motoren Werke and Gustav Flugmaschinefabrik merged with each other and formed Bayersiche Flugzeungwerke. Shortly the merged firm was renamed as Bayersiche Motoren Werke (Bavarian Motor Works), or BMW, which is widely popular today.
In 1917, BMW developed its first aircraft engine with 6 cylinders called Type IIIa But in the same year the Treaty of Versailles was signed that prohibited BMW from manufacturing aircraft engines. As a result that the company switched the production over to air brakes for railway cars. Again BMW started building aircraft engines in 1922.
(The origin of the BMW logo –fact and fiction – Page-41).
BMW: Maker of Motorcycles
The company manufactured its first BMW motorcycle, R 32, in 1923. It has a power of 8.5 horsepower at 3300 rpm using a flat-twin engine transversely mounted in a double-tubular frame.
BMW Cars Pre-War Arrivals
The year 1928 was important for BMW’s automobile history as in that year it developed an opened roof, 743cc 4 cylinder 15 HP car, Dixi 3/15 PS, at the Eisenbach factory. The successor to the Dixi, BMW AM 4 called BMW’s first ‘real’ car was built entirely in-house by BMW in 1932. It was equipped with a 782cc 4 cylinder unit with suspended valves and a double chain driving the camshafts, producing 20 horsepower at 3500 rpm give a 50 mph top speed. The next year the first BMW inline-six-cylinder power unit called 303 was developed that used twin-kidney shaped radiator grilles, a welded tubular steel frame, independent front suspension, and rack and pinion steering, and it was a touchstone in technological achievements.
BMW Cars Post-War Models
Unfortunately, the company’s success came to an end with the Second World War as the automobile manufacturing factories had been dismantled or demolished. It got a three-year ban from Allies on production rockets and aircraft engines. The V8 equipped 501 luxury sedan was the first post-war model was delivered in 1951. But the after-war devastation adversely affected the sale of the 501. The next era started in 1962 with the inception of the model 1500, which is considered the predecessor of today’s BMW. It has a remarkable and striking design with an excellent suspension.
The company re-entered the field of aircraft engine manufacturing business In 1990 with the combined efforts with Rolls Royce thereby forming BMW Rolls-Royce GmbH. In 1998, BMW bought Rolls Royce’s name and logo from Volkswagen. In 2000 after suffering from heavy losses the company sold Rover Group PLC which was acquired in 1994.
Modern BMWs
At present, the Z3, Z8 along with all the 3, 5, 7, and Motorsport series models are reigning on the road across the world and got their unique recognition as excellent automobiles with respect to their style, performance, and technological advancements. BMW outsold Mercedes in Europe in the year 1992. Today you can find a number of different exclusive models like X3 X5 X6 Z4 and M. It is anticipated that BMW will continue to deliver great cars which would be identified for its performance, style, and best quality in the highly competitive world.
Audi’s History
AUDI Automobile makers history comprising of the amalgamation of four different companies viz; Audi, DKW, Horch, and Wanderer. Its history has seen considerable changes from a century back of its tradition of building cars and motorcycles. The brands were basically from Saxony – Wanderer in Chemnitz-Siegmar, DKW in Zschopau, and Audi and Horch in Zwickau, all of which contributed a significant role to the upliftment of the automotive industry in Germany.
In 1932 the above branded were merged and Auto Union AG was formed. On a comprehensive analysis, it is seen as the second-largest motor vehicle company in the world. Consequent to the Second World War, Auto Union AG’s production plant in Saxony was destroyed and dismantled by Soviet forces. After that, some of the top management officials assembled at Bavaria to have a discussion to form a new company. As a result, a company known as Auto Union GmbH was established in 1949 with a brand sign of the four rings.
In 1969 Audi NSU Auto Union AG was formed by merging two companies Auto Union GmbH and NSU. Soon after merging Audi NSU developed an entirely new car, the Audi 80 which was voted as ‘Car of the Year 1969’ in four countries. Later Audi 100 of similar series was launched in 1972. The last model of this ‘building block’ series, the Audi 50 was developed with weight-saving design and tailgate, modern overhead camshaft engines, and front-wheel drive and got international acclaim. In the second generation, Audi 100 the initiative of using 5 cylinder petrol engine was introduced in 1976. After four years the Audi 200 was launched.
In December 1980, a unique car with four-wheel drive technology, the Audi Quattro Coupe was built. The word Quattro is a system exclusively developed and patented by Audi that transfers the car’s power across every wheel, which results in great stability, handling, lower tire wear, better traction, and thereby better safety in different road conditions. It gained special recognition from the entire world for its power to pass the steepest roads without having any traction-related problems. The quality of traction less drive of Audi Quattro is maintained up until now.
The merged company was later renamed AUDI AG in 1985 and its head office was shifted to Ingolstadt. The four rings emblem was unchanged and remain as its brand symbol.
Due to their two great innovations regarding fully galvanized, rust-resistant bodies and the Procon-ten system in 1986 Audi secured a powerful position in the world market. The anti-corrosion system of their car provides a guarantee for six years. The second innovation, Procon-ten, was an early precursor of airbag passenger safety technology, and considerably minimized the risk of an accident by hitting the driver’s head/chest at the steering wheel.
Due to all of these innovations, Audi won many international recognitions and awards like German Industry’s Innovation Prize. As the best example of its performance to cost ratio regarding petrol consumption a modified Audi 100 TDI drove 4814 km by crossing nine countries in Europe by consuming only one tank of petrol.
In this modern world, Audi has introduced many luxurious models like Audi Q5, A3, A4, A5, R8, TT lounge, Q7 Globe. The difference in ideas and technology provides a particular category of customers to Audi. With the continuous exploration of technological research and innovations in the automobile field, its business arena will be extended across the world.
BMW – Environmental contribution
In terms of efforts to environmental sustainability and contribution, the company is doing a very credible job. BMW had already incorporated the concept of environmental protection way back in 1970 itself. As a part of its policy, the company expects each and every employee to act in the interest of the environment. The company has integrated the concept of sustainable development into the company strategy as well as culture.
According to the BMW Group website, the company conforms to the ten principles of the Global Compact and the Cleaner Production Declaration of the United Nations Environment Program (UNEP), agreements of the International Labor Organization (ILO) and the OECD guidelines for multinational companies, and the Business Charter for Sustainable Development of the International Chamber of Commerce (ICC).
The company also boldly states that all these efforts are intended as ways to building the image of the company along with a contribution towards sustainability. It does not want its efforts to be seen as an act of philanthropy and patronage. Conscious efforts are being made towards “the most efficient and conservation-oriented deployment of resources” across all its production facilities and markets worldwide. The company claims that its resource deployment is five times more efficient than the German national average. (Achievements, Strategy and organization, Page 12, Sustainability Management).
Another feature of its policy is that instead of relying on rigid rules of implementation, the company relies more on the knowledge and responsibility of its nearly 106,000 employees. The company also views all its stakeholders seriously and engages in constant interaction with them. The group website has produced a graphical representation of its sustainability policies as well as the relationships between its stakeholders, both of which are reproduced in the appendix as figures one and two.
Moreover, stakeholder perception of BMW towards its efforts at sustainability is also given in Figure 3. The figure shows that nearly 71% of stakeholders view its commitment as ranging from good to very good (35% very good and 36% good). The company has ISO EMAS and ISO 1400 environmental management system certification across all its plants and CKD facilities worldwide. The company also puts a lot of resources into producing low emission automobiles and bikes and also fuel-efficient and low pollution hybrid cars.
BMW- Contribution towards the economy
BMW automobiles are renowned for their quality and also for the high prices of their models. Due to this commitment, the company employs only the best workers and pays them accordingly. This is true for all its plants whether in Germany or other places. It contribution to the economy can be illustrated by its investment in South Carolina. The company invested nearly 1.9 billion USD for its South Carolina plant providing jobs for nearly 4000 workers.
This facility indirectly provides an additional 16,000 jobs with wages to the tune of nearly 700 million USD. It has had a employment multiplier effect of 3-9, meaning for every direct job in the plant, additional 3.9 jobs are created elsewhere in support and other related activities. BMW pays nearly 300 million in wages (2001 figures) in its South Carolina plant which is spent by the employees mainly in the local establishments and shops which will in turn boost up the economy. This feature can be seen in varying levels for any large investments made by huge organizations. This benefit has accrued to all the places where the company has plants boosting the economy of the region by varying degrees depending on the volume of investment.
BMW – Contribution towards product lines
BMW has high commitment to quality which can be seen across all its product lines. As mentioned earlier its efficient deployment of resources has not resulted in a compromise of the quality for their vehicles. The Company’s commitment to quality cars has also reflected in its efforts to reduce environmental pollution. For example, their production facility in Leipzig, Germany has an ultramodern sophisticated system that can handle up to five different models at a time.
Moreover, a new production process can be added to an exiting one without stoppage of work. Normal production lines are unable to do this and they have to stop work to start on a new process. The production process is also handled to customize vehicles within the assembly line itself. Workers stationed at required points in the line enables them to do this, thereby reducing wastage of time and resources.
Their concept of BMW EfficientDynamics has equipped nearly one million of their cars with fuel saving technology as standard. The company has also manufactures and markets highly efficient hybrid cars using multiple drive trains and incorporating petrol/diesel engines with electric motors. Some of the company’s outside suppliers are situated within the plant itself, again eliminating wastage of resources like high inventory or scarcity of inventory.
Audi – Environmental contribution
Like BMW, Audi is also an international brand renowned for its commitment towards quality. The company has also a high commitment towards production of low emission vehicles. It has been successful in this regard by taking into consideration the fact that the company sports the European Union Emblem for environment protection as a trademark. (Awarded by the European Union, Commitment to the environment, Audi).
The web site adds that “Audi was the first car manufacturer in the premium segment to have its plants – Neckarsulm in 1995 and Ingolstadt in 1997 – validated in accordance with the European Union Eco-Audit and Management Scheme”. The company follows its policy of environment protection in the following three ways namely vehicle technology, production technology and customer/traffic conditions. The company focuses on production of light weight bodies using aluminium in order to reduce emissions. The company also incorporates alternate fuel technologies, principles of dynamics and electronic assistance systems for many of its models.
Audi also produces a series of models named efficiency models like A3 1.9 TDI e, A4 1.9 TDI e, and the 2.0 TFSI e. The company has since the last nine years installed a plant that can generate steam to produce electricity. This has resulted in lower consumption of natural gas and CO2 emissions by about 25%. Audi has a team of specialists labelled energy officers whose task is to take periodic checks on machinery for any wastages or leakages. Optimising logistics through IT is also a step taken by the company to reduce emissions by transportation of cars and spare parts. Taking care to purchase energy efficient machinery for manufacturing and recycling of up to 95% of waste materials (100% for metals) are other ways by which Audi plays its part in environmental protection.
Audi – Contribution towards society
The investments made by Audi will also have some of the benefits that were enjoyed by the society due to the investment made by BMW. So a similar comparison is not required here. But, Audi has a different way to contributing to society. The company usually donates its top models to non-profit foundations which will use it or auction it to use the money from its proceedings. Audi donated a TT Coupe to the Cheetah Conservation Fund in the year 2005.
In a more recent happening, the company donated a Audi A5 Sports coupe to the G & OP Foundation for Cancer Research which was subsequently auctioned and the proceeds used for research purposes. The previous year a R8 Sports car was donated to the Elton John Aids Foundation which was also auctioned for 210,000 USD. Audi has formulated a profit sharing plan with its employees. In the year 2007 a record amount of 81 million euros were distributed among its employees due to outstanding performance the previous year. This was almost four times of the amount paid in the previous year.
Audi – Contribution towards product lines
Like BMW Audi is also a technology intensive company that uses high levels of technology in the manufacture of its cars. The philosophy followed by Audi is reflected in the German phrase “Vorsprung durch Technik” which roughly translates to advancement through technology. This philosophy is adopted in developing new models as well as improving existing ones. Research has enabled the company to produce high performing, but fuel efficient engines. For example, the three liter TDI V6 diesel engine has a top speed of 137 miles has an efficiency of 33.5 mpg. New developments include the seven speed S Tronic dual clutch transmission and the Audi select drive select control system.
Legal forms of business
There are many legal forms of business that can be adopted to do business. They include the sole proprietorship, partnerships, companies, cooperatives etc. These type of business and the laws that govern them vary from country to country. For example, the four business forms that can be adopted usually in Germany are sole proprietorship, branch offices, partnerships and corporations. (Step one; Choosing the legal form, Invest in Germany).
A sole proprietorship is the easiest to form and conduct. It does not require too many legal and other regulations. The drawback is that the amount of capital that can be raised by this method is limited. This type of form is more suited for individuals who run small to medium sized organizations. The sole proprietorship in Germany must be registered with the local trade office. An entry in the commercial register is required only if annul sales exceeds EUR 250,000 and the profit is over EUR 25,000.
This form is again divided into Small business person and commercial business person (sales exceeding 250,00 EUR). A branch office is when a foreign company establishes its office in Germany. A branch office can be autonomous or dependent depending upon the level of head office control in the branch. Partnerships are when partners pool in their commercial and personal resources to form a business entity. There are many forms of partnerships with regard to liability of the partners.
This form is better than sole proprietorship in the sense that more capital can be raised and the existence of a team to run the business. But problems will arise in case of disagreements or if a partner wants to retire. There are four types in Germany namely Civil Law Partnership (GbR), General Commercial Partnerships (oHG), Limited Partnership (KG), Partnership Company (PartG) and Corporate Partnership (GmbH & Co. KG).
The final form is the corporation or companies. This form of business is complicated, but is useful for forming large companies that require huge capital. Another advantage is that companies can be formed with limited liability which is beneficial for its promoters and share holders in case the company business fails. Capital us usually raised though private investment of the promoters or from the public, both by issue of shares. Three types of corporations can be formed in Germany namely Limited Liability Company (GmbH), Stock Corporation (AG) and Partnership Limited by Shares (KGaA). Both BMW and Audi are stock corporations and have the words AG along with their names.
Comparative financial analysis between BMW and Audi Car Companies
BMW fundamentally caters to the premium car segment and is strategically positioned to meet future customer requirements, in fulfillment of international market demands for premium cars. It projects itself to be the No. 1 provider of premium automobile products, accessories and services, in order to maintain its market niche in this segment and desires to maintain this position in the long term by emphasizing on excellent safety, economy and design aspects while ensuring highest degree of comfort and riding benefits in its automobiles. However, Audi’s sports models are hot favourites in racing tracks; it has only recently come into the luxury car segment to offer competition to Mercedes Bentz or BMW.
How liquid are these organizations?
It is seen in terms of liquidity, Audi is far behind BMW in that while BMW’s cash position during 2007 has been € 2393 million during 2007, Audi’s has been around 7.9 billion during this year. Even in terms of net profits, while BMW recorded around €3134 Million during 2007, during this year Audi recorded over 2.7 Billion turnover. (Axel Strotbell: Members of the Board of Management: of Audi AG: P. 2: Finance and Organization: Speech at the 119th Annual General Meeting.
Therefore it could be said that the liquidity position of BMW could be assessed as follows:
Current Assets/ Current Liabilities: for financial year 2007 = 32,378/33469 = 0.96
BMW Group: Group and sub-group balance sheet.
In the case of Audi Company, their liquidity could be seen as below:
Current Assets = 14,253, Current liabilities = 8,954
14,253/ 8954 = 1.59.
It is seen that while BMW’s current ratio is 0.96 that of Audi is higher at 1.59 times.
Therefore it could be safety said that Audi enjoys greater liquidity status than BMW.
Is the management generating adequate operating profits on the firm’s assets?
This could be analyzed by checking out the return on total assets of these two companies. The formula would be: Net income available to shareholders/ total assets
In the case of BMW, this is 3126/ 88,997 = 0.03
Again in the case of Audi, it could be seen as follows:
1654/22,578 = 0.07.
It is observed that Audi group makes lesser use of its assets than BMW, and is not generating adequate operating profits commensurating with its asset usage.
How are the firms financing their assets?
From a perusal of the financials of Audi, it could be seen that the company wishes to resource its assets and growth prospect entirely with its own internal resources and internal reserves, without resorting to any outside borrowings.
In the case of BMW it is seen that the underlying long-term objective of the Group’s internal management system is to increase the value of the BMW Group. The targets set for the Automobiles, Motorcycles and Financial Services segments all begin from this objective. Within the Automobiles and Motorcycles segments, this approach is implemented for specific product, process and structure-related projects.
In contrast, the Financial Services segment is primarily concerned with cash flows and risk positions resulting from its credit and lease portfolio. Therefore there is matching of assets with outputs and credit needed for its operational success, which is done through WACC techniques.
(BMW Group: Minimum rate of return derived from cost of capital)
Therefore it could reasonably be said that while BMW may be resorting to external debts and borrowings for asset accretion, Audi may be keener in investing internally created reserves and surpluses to finance capital projects. This is evident from the fact that the financial liabilities are to the tune of € 21,428 while current assets are € 32,378. (BMW Group: Group and sub-group Balance Sheets.)
What are the returns on investments (ROI) of each company?
For BMW, the ROI is as follows: Net income available for stockholders/ equity capital
3126 / 21,744 = 14.3 %
For Audi group the ROI is 18.6%, measures as a percentage of operating results after tax/average invested assets. (Management Report of the Audi group for 2007 fiscal year: P 141)
It is seen that the Audi group ROI is higher at 18.6% as compared to only 14.3% derived by BMW. Therefore, in terms of stakeholders returns and benefits being derived by stockholders from investments, Audi group has a better deal.
It would be unfair to judge a comparative rival business, especially in the automaker industry since a lot of factors impinge including the business milieu in which they operate and the global demand and acceptance of the kinds of cars they make catering to legal and statutory requirements of importing countries.
Financial aspects like import duties, excise duties, octroi, fuel charges and surcharges and plus the prevailing maintenance and resale value of the vehicle in its importing countries are also major factors. It has to be seen in the long term when brands cater to specialized individual requirements and changing trends in car designing, ownerships and performance criteria.
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