[cptobvious]

Hey guys,

TLDR: I think we're getting an absolutely amazing deal on the M2C!!!


Long-version:

I was talking my buddy's ear off about my coming M2C (only reason my wife is letting me buy the M2C when I have a perfectly great 328i, is because I'm giving the 328i to my buddy - long story for another time) and so we decided to try to figure out BMW's business strategy as relates to the M Division. (In real life, we're business strategy geeks.)

Check out these three links:

https://www.press.bmwgroup.com/latin...an?language=en

https://www.businesswire.com/news/ho...-2017-Year-End

https://www.bmwblog.com/2018/01/12/b...-year-in-2017/

1) BMW sold nearly 2.5M vehicles across its different brands in 2017! 2) On top of that, for BMW-specific branding, at least in the U.S., nearly 1/3 of all sales are X vehicles! 3) Finally, 2017 was a record year for the M division, which sold 80,000 M and M Performance vehicles. The best selling M model was the M2 with 12,293 units sold.

Now, think about all 3 of those things in conjunction. BMW sold nearly 2.5M vehicles! And only 80,000 of those were M or M Performance! On top of that, M Performance vehicles are just the ones that are the normal cars / SUVs that customers pay extra for in order to get the M steering wheels and cool looking grills and some badging, etc. So, if you take true M cars, maybe BMW sells ~40,000 total M2's, M3's, M4's, M5's, and M6's.

In the business world, this is what we call a "loss leader." BMW is specifically using the M Division as a loss leader! If you think about how much R&D goes into the engines in M cars, all the fine tuning on suspension, all the specialized parts, etc., etc., I honestly would be surprised if BMW breaks even on each sale of an M car.

"Well, if BMW isn't making money on the M Division, and may even be losing money, why in world do they do it?" one might ask.

There are 3 revenue streams that come from the M-Division: 1) Revenue from M cars: I'd assume this is, at best, breakeven. 2) Revenue from M Performance sales: BMW charges ~$5k to turn, for example, your 330i into a 330i M-Sport package car. No changes to the engine, no changes to performance, it's all just cosmetic, which means that $5k is nearly 100% margin. And if BMW sells ~40k of these M-Performance vehicles / year, that means the company generates ~$200M in pure margin! 3) Revenue from increased brand affinity: Finally, having the M-Division serve as the performance R&D arm of the company enables BMW to develop world-class performance which then rubs off onto all its vehicles, whether it's sedans or SUVs or whatever. (For example, when it came time to buy a family sedan, BMW was the only brand I would consider, because it's widely recognized as the sportiest of the big 3 German brands.)

So, in the end, when we end up paying ~$60k for an M2C, we're probably getting a car that BMW is selling to us at breakeven, at best. In fact, in all likelihood, given all the R&D, I'd bet all the money in my pockets for all the money in your pockets that BMW probably even loses money on any given M2C sale. They make up the money on all the "positive externalities" associated with M-Performance sales and brand affinity.

It's like this one restaurant where I live in San Diego. It's located in this historic hotel / luxury resort / golf course. Dinner there costs less than what you'd pay at any run-of-the-mill restaurant here, and yet you're in a dining room filled floor to ceiling with antique Stickley and Arts & Crafts furnishings, with stunning views of the ocean, top-notch service, etc., etc. My wife said, "How can they afford to charge so little?" Well, they make all their money on people who pay $500/night at the hotel and who buy memberships to the golf course for god-knows-how-much-money, and so provide dining at breakeven for their esteemed guests.

Same thing with our M2's and M2C's. We're getting a screaming deal on an absolutely amazing F'ing car, because everyone who ends up buying a 330i M-Sport edition or who comes to the BMW brand because it's the sportiest of the German luxury brands is subsidizing us.

Makes me love my coming M2C even more! I just can't wait for it to arrive!!!

[m20e3087]

Originally Posted by cptobvious

Hey guys,

TLDR: I think we're getting an absolutely amazing deal on the M2C!!!


Long-version:

I was talking my buddy's ear off about my coming M2C (only reason my wife is letting me buy the M2C when I have a perfectly great 328i, is because I'm giving the 328i to my buddy - long story for another time) and so we decided to try to figure out BMW's business strategy as relates to the M Division. (In real life, we're business strategy geeks.)

Check out these three links:

https://www.press.bmwgroup.com/latin...an?language=en

https://www.businesswire.com/news/ho...-2017-Year-End

https://www.bmwblog.com/2018/01/12/b...-year-in-2017/

1) BMW sold nearly 2.5M vehicles across its different brands in 2017! 2) On top of that, for BMW-specific branding, at least in the U.S., nearly 1/3 of all sales are X vehicles! 3) Finally, 2017 was a record year for the M division, which sold 80,000 M and M Performance vehicles. The best selling M model was the M2 with 12,293 units sold.

Now, think about all 3 of those things in conjunction. BMW sold nearly 2.5M vehicles! And only 80,000 of those were M or M Performance! On top of that, M Performance vehicles are just the ones that are the normal cars / SUVs that customers pay extra for in order to get the M steering wheels and cool looking grills and some badging, etc. So, if you take true M cars, maybe BMW sells ~40,000 total M2's, M3's, M4's, M5's, and M6's.

In the business world, this is what we call a "loss leader." BMW is specifically using the M Division as a loss leader! If you think about how much R&D goes into the engines in M cars, all the fine tuning on suspension, all the specialized parts, etc., etc., I honestly would be surprised if BMW breaks even on each sale of an M car.

"Well, if BMW isn't making money on the M Division, and may even be losing money, why in world do they do it?" one might ask.

There are 3 revenue streams that come from the M-Division: 1) Revenue from M cars: I'd assume this is, at best, breakeven. 2) Revenue from M Performance sales: BMW charges ~$5k to turn, for example, your 330i into a 330i M-Sport package car. No changes to the engine, no changes to performance, it's all just cosmetic, which means that $5k is nearly 100% margin. And if BMW sells ~40k of these M-Performance vehicles / year, that means the company generates ~$200M in pure margin! 3) Revenue from increased brand affinity: Finally, having the M-Division serve as the performance R&D arm of the company enables BMW to develop world-class performance which then rubs off onto all its vehicles, whether it's sedans or SUVs or whatever. (For example, when it came time to buy a family sedan, BMW was the only brand I would consider, because it's widely recognized as the sportiest of the big 3 German brands.)

So, in the end, when we end up paying ~$60k for an M2C, we're probably getting a car that BMW is selling to us at breakeven, at best. In fact, in all likelihood, given all the R&D, I'd bet all the money in my pockets for all the money in your pockets that BMW probably even loses money on any given M2C sale. They make up the money on all the "positive externalities" associated with M-Performance sales and brand affinity.

It's like this one restaurant where I live in San Diego. It's located in this historic hotel / luxury resort / golf course. Dinner there costs less than what you'd pay at any run-of-the-mill restaurant here, and yet you're in a dining room filled floor to ceiling with antique Stickley and Arts & Crafts furnishings, with stunning views of the ocean, top-notch service, etc., etc. My wife said, "How can they afford to charge so little?" Well, they make all their money on people who pay $500/night at the hotel and who buy memberships to the golf course for god-knows-how-much-money, and so provide dining at breakeven for their esteemed guests.

Same thing with our M2's and M2C's. We're getting a screaming deal on an absolutely amazing F'ing car, because everyone who ends up buying a 330i M-Sport edition or who comes to the BMW brand because it's the sportiest of the German luxury brands is subsidizing us.

Makes me love my coming M2C even more! I just can't wait for it to arrive!!!

Good read. M2C is a bargain for sure. For me it i was sold on the M2 for its simplicity and handling. Now with a S55 is a bonus which also include other goodies. When I talk about handling and simplicity, anyone who previously owned an E30M and E30IS will understand where I am coming from.

[Transfer]

OP don't quit your day job.

[dmboone25]

Originally Posted by Transfer

OP don't quit your day job.

He's excited - nothing wrong with that.

I agree that the M2C is a great value - just not quite as big of a value proposition as the OG M2. But that's another conversation.

[kfscoll]

Originally Posted by cptobvious

M Performance vehicles are just the ones that are the normal cars / SUVs that customers pay extra for in order to get the M steering wheels and cool looking grills and some badging, etc.

This isn’t true. For example, if you want a six-cylinder engine in your new X3, the only way you’re going to get it from here on out is to buy the M Performance variant (i.e. the X3 M40i). Pretty soon it’ll be this way across the board; in other words, if you want something other than the base engine, you’re getting (at least) the M Performance model.

Maybe you’re thinking of the M-Sport packages.

Your invalid assumption about what comprises an M Performance variant kind of kills your argument already, but there’s one other thing... A base 230i stickers at ~$35K and an M2C stickers at ~$60K. There is no way in the world that it costs BMW anywhere near $25K more to build an M2C than a 230i. They’re definitely not just “breaking even” on M cars. The M Division isn’t a loss-leader; on the contrary, it’s a cash cow.

Enjoy your new car!

[cptobvious]

Originally Posted by kfscoll

This isn’t true. For example, if you want a six-cylinder engine in your new X3, the only way you’re going to get it from here on out is to buy the M Performance variant (i.e. the X3 M40i). Pretty soon it’ll be this way across the board; in other words, if you want something other than the base engine, you’re getting (at least) the M Performance model.

Maybe you’re thinking of the M-Sport packages.

Oh! Apologies, apologies! You're exactly right!

This actually makes much more sense now. Yes, I was thinking of the M-Sport packages.

This actually makes the numbers even starker. Back-of-the-envelope, BMW is selling something like ~40,000 M cars, and then another ~40,000 M Performance models... And it's anyone's guess how many people buy the M-Sport packages, right? When I was doing my calculation, I'd assumed they sold ~40,000 M-Sport packages, but they probably sell quite a few more than that, given that consumers are buying 40,000 M Performance models!

And on the 330i, if you get the M-Sport package, that costs $5,000 in the U.S.

Just goes to show how much money BMW is making on the "halo effect" from the M Division.

[3tekcorps]

I'm not sure about that. You could buy a Miata, Boat, and a Motorcycle.. Plus have enough money left over for an amazing European Vacation.

Or you get ONE hot-rod 2 series with shitty wheels.

[cptobvious]

Originally Posted by 3tekcorps

I'm not sure that. You could buy a Miata, Boat, and a Motorcycle.. Plus have enough money left over for an amazing European Vacation.

Or you get ONE hot-rod 2 series with shitty wheels.

Ha! Very true! Honestly, one car I had perfunctorily cross shopped was the Toyota 86. All the reviews I've read have been universally positive and everyone says it's a great driver's car. Would be nice to have something really cheap that you can throw around, have fun in, and never worry about dings or scratches because it's just your beater / fun car.

Would also save enough money to send my kids to college.

[3tekcorps]

Originally Posted by cptobvious

Ha! Very true! Honestly, one car I had perfunctorily cross shopped was the Toyota 86. All the reviews I've read have been universally positive and everyone says it's a great driver's car. Would be nice to have something really cheap that you can throw around, have fun in, and never worry about dings or scratches because it's just your beater / fun car.

Would also save enough money to send my kids to college.

Yeah.. As a fellow parent I'm thinking it's a absurd purchase, but so was the last three motorcycles and so on.

We'll have the scholarship talk soon I guess.

[cptobvious]

Originally Posted by 3tekcorps

Yeah.. As a fellow parent I'm thinking it's a absurd purchase, but so was the last three motorcycles and so on.

We'll have the scholarship talk soon I guess.

Dude, you are hilarious. I'll bet your wife is as pleased with you as mine is with me!

[3tekcorps]

Originally Posted by cptobvious

Dude, you are hilarious. I'll bet your wife is as pleased with you as mine is with me!

She didn't think I was very funny after 10 years of picking up my dirty socks. If I was still married they're be no motos in the garage and no M2c on order.

[3tekcorps]

Originally Posted by cptobvious

Ha! Very true! Honestly, one car I had perfunctorily cross shopped was the Toyota 86. All the reviews I've read have been universally positive and everyone says it's a great driver's car. Would be nice to have something really cheap that you can throw around, have fun in, and never worry about dings or scratches because it's just your beater / fun car.

Would also save enough money to send my kids to college.

PS You could have low T if you're serious about that 86. You'll get spanked by miatas off the line.

[bwhouse]

Well I don't know about elsewhere, but in Aus basically every BMW now seems to have some form of M badge on it. So I would say they are doing very well out of the M-Sport line.

Lets face it the general punters don't know any better, they think they are getting an M sports car for a $5,000 option

I am not convinced that the M2C / M cars are loss leaders as I suspect the R&D cross pollinates to the regular side of the business. But I agree the M2C is fantastic value!!

[Blue2]

I’m pretty surprised that they sold more M2s than other M cars in 2017. I probably see 2-3 M4s on the roads every day. I may see an M2 once every week — probably even less. I know the F82 M4 has has a longer model run, but still, I see maybe 20 M4s for each M2.

[dmk08]

I wouldnt call the M2C a value but I would say I think its priced correctly. Thats not a bad thing just my opinion.

[10"]

As for the original post; no offense but I'm not convinced you understand how the car industry works. Lol. What R&D? They probably had one dude spend 2 days retuning their already developed S55 for the M2. Most of the M2 is the same as the M2C. They spent another few days developing software changes...then basically paid a bunch of random people money to put miles on them so they can tweak the software. Design wise they made some tweaks...

If you think all of this equates to loss you don't understand how BMW works. If anything they make the most money on M cars as the people buying them tack on useless options which are just cash cows....BMW's average profit from each car they sell varies from $2500 to $7500 most likely since the average profit is around $5k.

They are not Bugatti. They don't put a car on the market which will lose money just to get it on sale.

Ultimately what constitutes a "good deal" is simply what a buyer can spend. When the F80 M3 first came out it was around the same price as the M2C....which isn't cheap by any means.

[IAF]

Originally Posted by 10"

They probably had one dude spend 2 days retuning their already developed S55 for the M2

You start off sounding like you know more than the OP .... then you say this LOL

[aminz]

OP, I agree with your point about M2C being a great bang for your buck compared to M3/M4. However, being new to BMW brand, what is your take on depreciation on M2C? Do you think it would hold its value down the road like M3's do?

[dmk08]

Originally Posted by aminz

OP, I agree with your point about M2C being a great bang for your buck compared to M3/M4. However, being new to BMW brand, what is your take on depreciation on M2C? Do you think it would hold its value down the road like M3's do?

If it continues to be produced at a normal rate for 2-3 years and then is followed up by an updated M2 w/ an "S" engine I would expect the M2C to follow a normal BMW M depreciation curve. This means the first owner will eat the brunt of the depreciation.

[cptobvious]

Originally Posted by 3tekcorps

PS You could have low T if you're serious about that 86. You'll get spanked by miatas off the line.

Yeah, you're right. I can't get an 86. I would feel like too much of a loser whenever I get passed by a Ford Aerostar.

[cptobvious]

Originally Posted by bwhouse

Well I don't know about elsewhere, but in Aus basically every BMW now seems to have some form of M badge on it. So I would say they are doing very well out of the M-Sport line.

Lets face it the general punters don't know any better, they think they are getting an M sports car for a $5,000 option

I am not convinced that the M2C / M cars are loss leaders as I suspect the R&D cross pollinates to the regular side of the business. But I agree the M2C is fantastic value!!

Yeah, I am a bit worried about the cache of the M-brand being diluted by all the M-Sport packages being sold. But, then again, I was one of those "punters"! I got the M-Sport 328i years ago, because I couldn't afford a real M car, but wanted at least some of the magic pixie dust on my car.

[cptobvious]

Originally Posted by dmk08

If it continues to be produced at a normal rate for 2-3 years and then is followed up by an updated M2 w/ an "S" engine I would expect the M2C to follow a normal BMW M depreciation curve. This means the first owner will eat the brunt of the depreciation.

Aminz, I think dmk08 is precisely right here.

I'd read that the M2 was holding its value better than the M3 and M4 for a bit there, but that was probably due to pent up demand. As supply catches up, it's bound to follow the usual depreciation curve.