Image from: BMW Logo / Grcea.com
5-Series sales have been consistent for the past year, averaging between 4k and 5k units per month; in August, Wards reported 1,688 sales, down 70% month over month (m-o-m), 61% year over year (y-o-y), and the lowest monthly sales this decade.
What’s the cause behind the BMW’s 5-Series significant sales drop? Two factors lead to sales: a brand’s ability to generate shoppers, and its ability to convert those shoppers into buyers. Compete investigated both demand (shoppers) and conversion, and factors that may influence each to determine causality.
This analysis leverages Compete’s proprietary in-market automotive shopper metrics, which are based on unique consumers (i.e., no double-counting of consumers doing the same activity more than once in the same month). Those metrics in turn leverage Compete’s patented normalization technology. Shopping behavior is based on lower funnel shopping activity (e.g., request a quote) on key shopping areas for any of the 40+ 3rd Party online automotive sites that Compete tracks.
In the luxury market, BMW has been a segment leader in generating demand. Compete has analyzed key players in the luxury segment, here; BMW has generated greater monthly demand than rivals Audi, Infiniti, Lexus and Mercedes over the past 12 months. BMW demand increased 24% m-o-m in August. Brand-level increased demand did not correlate with the 5-Series sales drop.
Compete then looked at model-level demand. Even though 5-Series shopper demand has decreased 44% since its August 2011 (when demand was strong on the 2012 model year introduction), it has remained relatively stable since April, with a 5% m-o-m demand decrease in August. A 5% decrease in demand may partially contribute to fewer sales, but it can’t be the only culprit for the 70% m-o-m sales drop.
Shoppers are only part of the equation. To drive sales, a brand must not only generate interest, but also effectively convert shoppers into buyers. Conversion can be hindered by tight supplies, sub-optimal mix, and uncompetitive incentives; conversion can be aided by optimized mix, competitive incentives, and “showroom redirect.”
While a small part of the sales decline is due to demand, most is due to a significant drop in conversion. On the heels of a three month high, conversion plummeted month over month, from 25.7% in July to 8% in August.
Compete first looked into incentives, to see whether changes in incentives may have caused the cause of poor conversion. Higher incentives are coincident with higher conversion in May, but incentives continued to increase in August, therefore a drastic change in incentives did not correlate with a drastic change in conversion. Incentive information comes from AutoData.
The three month spike in conversion on higher incentives could have caused would-be August buyers to be pulled ahead into May, June and July, leaving the 5-Series dry of buyers in August.
Next, Compete looked at inventory. Between August 2011 and June 2012, BMW averaged a 38 month-end days supply, according to Wards. In July 2012, it dropped to 7 days. The month-end days supply numbers look to average across all BMW models, which masks nuances. A 7 days’ supply leading into the month of August would suggest that inventory constraints were the cause of low conversion; low inventory may be related to model year changeovers. No other BMW model recognized a significant drop in sales; 7-Series sales dropped, but sales tend to be volatile on that model.
BMW needs to drill further into the driver of the sales collapse. Compete has identified a number of factors that have not attributed to the collapse, and at least one factor (inventory) that may be a culprit. Moving forward, BMW should investigate the following:
- Determine whether 5-Series conversion was affected by rival models conquesting 5-Series buyers
- Look at demand and conversion for all BMW models to determine if the 5-Series ever suffers from “showroom redirect”
- Look at Month End Days’ Supply on a model level to determine whether the inventory shortage was indeed reflective of the 5-Series
- Investigate demand and conversion tactics used by set rivals leading sales
- Determine if the would-be August buyers were pulled ahead into May, June and July
Leslie Griffin is a Client Services Associate in Compete's Automotive department, analyzing Compete data to provide marketing insights to the auto industry. Before Leslie joined Compete in 2012, she was in the digital ad sales department in the Motor Trend Automotive Group. Connect with Leslie on LinkedIn.