BMW Group Diversifying - Sales Strong

BMW Group ("BMW" or the "Company") has a strong balance sheet, is highly
profitable and potentially less cyclical than most other auto
manufacturers. The Company is operating its plants at full capacity with
its strong model lineup positioned in the higher-priced premium
segments. Because of these attributes, DBRS expects that BMW will be one
of the few small volume auto manufacturers that will be able to compete
effectively in the future without merging with another car company. BMW
has done well in diversifying sales, with North America passing Germany
in 2000 to become the largest market on a revenue basis. Given this and
the segment that BMW competes in, the Company is less sensitive to the
state of the European auto industry which is suffering from too many
competitors and excess capacity. BMW has achieved strong sales and
volume growth over the past five years due mainly from expansion in
North America and from the three series models. While the high growth
rate for both North America and its three series models is expected to
slow, BMW expects to drive the bulk of its growth in the next ten years
from both small cars and SUVs. Given BMW's high level of efficiency and
its strong balance sheet, it is well positioned to weather a cyclical
downturn. Cash flow has generally been sufficient to fund all internal
needs. Challenges include: (1) Although most customers do not switch
brands, BMW is facing increased competition from certain Japanese
manufacturers offering lower priced luxury automobiles. (2) Earnings may
come under pressure this year with the slowdown in industry volumes and
since the Company has a lot of new products that are being launched
which carry high research and development expenses. (3) Most growth is
coming from lower margined small cars which may hurt margins.