High End Luxury Cars

brightness04 · March 2007

Not sure where the "cast iron V8" came from. I was talking about aluminum V8 having lower weight than cast iron I6; perhaps even aluminum I-6 with turbo charger strapped to the top of it. A turbo charger is certainly much more complicated and weighs more than a V6 with bigger bore would have been, if the goal is 306hps.

"The 300 HP I6 twin-turbo is one of the best powerplants to grace our shores in generations."

The best for BMW, perhaps. Turbo-charged 6 cylinder developing more than 300hp were available nearly a decade a half ago from Toyota (Supra Turbo), Nissan (300Z) and Mitsubushi (3000GT). It's no co-incidence that BMW is sourcing the turbo charger itself from Mitsubishi. For what it's worth, the 1993 Supra Turbo had 320hp! That's the state of art at Toyota a decade and half ago, if it bothers to play with the turbo charger.

So, don't jump to conclusions by stating that this M3 V8 engine will be the mainstream 3-series engine any time soon.

I take it that you are preparing to defend yourself in the future by emphasizing "_this M3_ V8 engine" as opposed to just any other V8 engine finding its way into regular 3 series :-)

BTW, just to reinterate, my point was that, if the inline configuration is limiting BMW to 3 liters for practical packaging reasonss, the I-6's is an evolutionary dead end. To keep 3 series competitive in the future, BMW will have to bring in the V8 unless it joins the club and make V6.

brightness04 · March 2007

Like I said before, turbo is a make-do measure when the company doesn't feel like spending more money on researching and developing a new and more powerful engine block. Hopefully BMW at least did the plumbing right, and this overheating thing is not a common phenomenom when driven enthusiasticly.

tagman · March 2007

BTW, today's horsepower ratings are generally more conservative as well as subject to regulatory rating standards that were not in place back then.

I'm not trying to disqualify your statements, just making some clarification when we are slinging HP numbers around.

TagMan

tagman · March 2007

You know, I really want to test this twin-turbo engine for myself. It continues to get so much praise heaped on top of even more praise... the reviews are terrific.

Wow... such an incredible engine... and to think that it's only an I6.

TagMan

houdini1 · March 2007

Apparently an incredibly bad engine. It was throughly trounced by the Infinity G37 in a recent Edmunds test. The 335I overheated and had to retire from the competition. Even when they could keep it running the BMW was beaten badly in the turns. Not as "sporty" as the Infinity.

When you take your test drive be careful that you don't get stranded!

brightness04 · March 2007

I see what you are trying to insinuate, and that would be very wrong. HP has been defined for well over a cetury. The exact testing method for engines used in cars get refined by various industrial associations from time to time on an on-going basis, as usual. The fluctuation has not been huge since the 1970's. Much of the advertised HP numbers for the early 90's turbo engines had a lot to do with drive train ability to put power to the ground, marketting and gentlemen's agreements in Japan. There were quite a few Mitsubishi 3000GT VR4 that had more than 400+hp, some of which I witnessed first-hand on dynometers.

tagman · March 2007

Apparently an incredibly bad engine.

Do you really believe that? Or are you milking the Edmunds situation for all its worth?

The reason I ask, is whether or not you want to be on record as saying that the twin-turbo I6 is a bad engine... or not.

TagMan

tagman · March 2007

I see what you are trying to insinuate, and that would be very wrong.

You actually believe it is wrong of me to remind you that today's HP numbers have an updated standard for measurement compared to decades ago? You should check the facts first.

In addition, I mentioned that any HP differences were not worthy of argument anyway, only for clarification.

Sorry you misunderstood my post.

TagMan

tagman · March 2007

turbo is a make-do measure when the company doesn't feel like spending more money on researching and developing a new and more powerful engine block.

Gee, I'll let Porsche know that you disapprove of the 911 Turbo, and that they should have spent more money on researching a better engine block.

Give it a break. Yikes!

TagMan

houdini1 · March 2007

Do you really believe that? Or are you milking the Edmunds situation for all its worth?

Milking? Oh, you mean in the same way you carried on about the
brakes on the pre production LS 460 and what a dangerous situation that was? I would think complete engine failure would be somewhat more serious and certainly just as dangerous.

By the way, you kept wanting a definitive answer on the LS brakes. Since the very positive answer was posted I haven't heard a peep out of you on the subject.

brightness04 · March 2007

The minute difference in testing method is easily swamped by the margin of superiority the early 90's 3 liter turbos, not to mention that some of those specific turbos of the early 90's were grossly understated for their output. The clarification you proferred is like saying 335i gets quicker 0-60 than an Accord from the test numbers that we have, but let's not forget different drivers with different weight ran those two tests.

brightness04 · March 2007

In case it is not obvious, Porsche was run on a shoe-strong engine R&D throughout most of its existence. Yes, profit margin per vehicle is high, but the total profit was low, and the company was on the verge of bankruptcy several times. It had to rely on VW to get a V8. I mean, seriously, how long did it take Porsche to move from air-cooled engine to water-cooled engine? Decades after the rest of the industry made the switch. Porsche has a lot of talent massaging existing engine blocks, but the moolah for coming up with new engine blocks is hard to come by when the production volume is that low. Take a loot at Brabus and Alpina: both are good at massaging engines; sometimes even strap on a supercharger or turbo-charger, but they don't have the R&D funds to come up with entirely new engines.

brightness04 · March 2007

There is nothing special about a twin-turbo I-6 that develops 300hp. Toyota had one as early as the 1993 model year in the Supra Turbo. Yes, that was an I-6 engine. Toyota strapped on a turbo, too, until a new V6 engine with greater bore diamter and hence power output than the normally aspiriated I-6 became available in the following economic cycle. BMW is simply a decade or more behind in that evolutionary path.

The test vehicle failure is very disconcerting, especially since it's not the first BMW 3 series to fail catastrophicly in tests in recent memory. It's not like they do comparos on thousands of 3 series cars, for crying out louder.

houdini1 · March 2007

Yes, two for two. The engine quit on one and the other one spun out of control. Some record.

Not to mention that these things are tiny. Made for teen age girls and diminutive grown ups.

tagman · March 2007

Take a loot at Brabus and Alpina: both are good at massaging engines; sometimes even strap on a supercharger or turbo-charger, but they don't have the R&D funds to come up with entirely new engines.

I beg to differ... I believe that the latest Brabus engine is almost entirely "Brabus". And just "strapping on" components is a pitifully weak explanation for the serious work that goes into some of those engine modifications and reconstructions.

TagMan

tagman · March 2007

There is nothing special about a twin-turbo I-6 that develops 300hp.

I completely disagree with you... as usual.

Too bad that you do not know much about the merits of this engine... with its almost non-existent turbo lag.

TagMan

lexusguy · March 2007

Too bad that you do not know much about the merits of this engine... with its almost non-existent turbo lag.

Right, there's more to it than just horsepower per litre. Volvo's S60R makes 300hp from just a 2.5L five. BMW could easily get 400hp out of the 335i if they wanted to. They don't want to. They are more interested in BMW smoothness throughout the rev range and banishing turbo lag. This is a luxury-sports car, not a Lancer EVO. Having zilch for power below 3000rpm is just not acceptable.

dewey · March 2007

Your knowledge of BMW biturbos is equivalent to your knowledge of BMW V6s. I found your posts in another forum quite amusing. :P

Well at least your knowledge of BMW biturbo engines is a bit better than your knowledge of how "realized resale values and inflated residuals are linked."

mariner7 · March 2007

I urge caution on the edmunds test between G37 and 335Ci, because it was set up by Infiniti. It wouldn't be the first time a comparo set up by a manufacturer manages to make that manufacturer's car shine.

I remember a few years back journalists coming out of an introductory comparo set up by Lincoln raved about the Aviator against X5 and MDX. Can anyone even remember what the Aviator looks like if it runs over you, if one exists to run over you? Maybe the manufacturer tunes their cars and detunes the rivals.

But it's worrisome when BMW's keep go belly up during strenuous tests. A year ago the BMW 330i that won the C&D multicar comparo also gave up.

1st gen G coupe was one of the best looking non-exotics ever, IMO. But new one looks much worse, reminds me of SC430!

brightness04 · March 2007

I believe that the latest Brabus engine is almost entirely "Brabus".

You gotta be kidding on this one. Brabus takes a MB production car off the production line then do modifications to it. Apparently Brabus has progressed to boring/stroking out existing engine cylinders; that's the next step among mod shops, after years of strapping turbo chargers and superchargers onto existing engines. Porsche turbo and BMW turbo's are not even messing with bore or stroke cylinders. In the case of BMW, it entails the taking away of maganesium components that were hailed as the best thing since sliced bread only a few years before.

brightness04 · March 2007

Too bad that you do not know much about the merits of this engine... with its almost non-existent turbo lag.

"Almost non-existent turbo lag" is one of those descriptions that get lavished on every generation of turbo cars not built for ultimate power (sort of like an excuse), and only get trashed as "full of lags in the previous generation" when the next generation comes out. One of my cars actually fits that description.

Frankly, turbo lag vs. transmission shift logic is a tricky thing to test anyway. If one really wants low lag turbo, Mitsubishi is not the source, but UTX is the specialist in low-weight low lag turbos. The fact that BMW sourced from Mitsubishi is either due to cost reasons or due to future plans for much more power output. Mitsubishi turbo's are known for their high pressure high output turbo applications, not low lag low pressure ones.

brightness04 · March 2007

Your knowledge of BMW biturbos is equivalent to your knowledge of BMW V6s.

hmm, interesting take. BMW biturbos exist in real life, but BMW V6's are frolicking with unicorns.

Well at least your knowledge of BMW biturbo engines is a bit better than your knowledge of how "realized resale values and inflated residuals are linked."

I'm not the one arguing that they are linked. You are. Now please tell me how and why a buyer in January 2009 would pay $5000 more for a used 2006 R class than he would for a used 2007 R class when both are comparably equipped and have identical mileage, as the residuals in MB leases insist. Please show me how realized resale value and residuals are linked in that case.

brightness04 · March 2007

I doubt any manufacturer would send a sabotaged car for a comparo . . . if for nothing else, sabotage is hard to be so precise as to cause the engine overheat only when driven hard. It's not hard to beat the original X5 3.0; it had very little power for a 4500+lb truck.

I do hope BMW's streak of bad luck with their cars in comparo's can stop soon.

dewey · March 2007

Yup,

that was my point. There is little difference between the truth of Unicorns, BMW v6s and your BMW biturbo notions.

Inflated Resale Values = Residual - Realized Resale Value

They're not linked are they?

Realized resale values are very relevant for any auto maker's lease program. It determines whether a lease is profitable or not for any auto firm. If realized resale values are high then there will be no hit on a car manufacturers bottom line.

In the case of the MB R Class, yes there will definitely be a big hit on Daimler's bottom line due to the above mentioned link.

brightness04 · March 2007

So, are we going to debate what the word "linked" means?

Dewey - money/all asset = homelessness

So is Dewey linked to homelessness or more appropriately not having any money or asset being linked to homelessness? Likewise, if manufacturer is willing to significantly subsidize leases, the difference in resale value in the future does not weigh nearly as much as the willingness with which the mfr is subsidizing the deal.

Realized resale values are very relevant for any auto maker's lease program. It determines whether a lease is profitable or not for any auto firm. If realized resale values are high then there will be no hit on a car manufacturers bottom line.

Or it could be that the car is not worth that much to begin with ;-) I can underwrite a Corolla lease deal at 90% MSRP if I MSRP the car at $200k! $20k amortization over three years would still be quite profitable for the underwriter even if the residual is vastly inflated at $180k. Heck, I can even afford to toss in a $10k discount for California factory delivery! ;-) Still amortizing $10k over three years, still beats the car's real worth. Of course, once in a while if I reel in a $200k cash buyer, I'd be even happier.

Sure, real life resale missing residual (i.e. future real liability exceeding estimate liability) will hurt profitability in the future, either reducing profit (compared to a fictitious projection) or causing real loss _in the future_. However, if the "sale" does not happen now without the subsidy, it hurts the bottom line right now! Isn't that the standard motivation for vendor financing? the common motivation for cooking books? the reason why there are auditors? a big reason why CPA's have jobs? :-)

dewey · March 2007

High realized resale values is what makes leasing profitable for BMW (at least for most their cars). Low realized resale values is what makes leasing unprofitable for many Ford vehicles.

(Please refer to the link provided in the luxury lounge for BMW's financials)

High realized values is what makes leasing profitable and is a main reason for BMW's double digit returns on capital(a claim that very few auto makers can make). And earning a high return on capital while increasing unit sales by over five percent annually these past ten years is phenomenal and does not in anyway indicate that BMW is suffering from inflated residuals.

High realized values is the reason BMW has a pristine and cash rich balance sheet. In fact net of cash it does not even have any debts. Vice versa for Ford.

So yes Brightness real realized values are not a fictional pie in the sky number. In fact they are a reality and it is this reality that makes BMW leasing very profitable even if it appears to us consumers that BMW must be losing their shirts. This false perception of ours definitely works more in favor of BMW than us consumers.

God forbid if BMW's resale values begin dropping like an anchor. Then those great lease deals that BMW is offering us will disappear as fast as you can say the words "inflated residuals".

brightness04 · March 2007

I have no idea what link you are referring to in the luxury lounge. In any case, by your logic, BMW leasing must be making a profit on charging 0.00125 Money Factor, too, then. Obviously that's not the case: 3% lending can not possibly be profitable in the US interest environment where the prevailing prime rate for business loan is 6+%.

Just look at the overwhelming per centage of returns at the end of leases, that's the best indicator that the residual is out of wack with reality.

Like I said before, residual does not have to be in line with reality for car company to make money: if the real production cost of car is much lower than MSRP, profitability can be sustained even if the lease division itself lose money like a sieve. For example, if the real production cost of a new HELC called Macrolla (which is really a Corolla with a new badge) is only $12k, if the MSRP is $200k, the manufacturer can lease the car out with 90% 36mo residual and still make handsome profit. That does not necessarily mean the car is really worth $180k after 36 months. The real life resale value after 36months can be zero for all we care, the amortized $20k is enough to make the manufactuer profitable. The $200k MSRP and $180k residual do not have to reflect real life value of the car at all, so long as enough people can be found to amortize $20k over three years for the car. If that is not achievable, a $10k discount for California factory delivery may just get enough people interested ;-) Then the car company can be profitable even if the real life resale value of the car is little over $2000 despite the $180,000 residual assigned to it.

BMW is profitable, so we are told. BMW leasing arm itself can not possibly be highly profitable when it is offering 3% interest and takig back cars at prices that are far in excess of real life auction values. If the residual were not excessive, we wouldn't be seeing such a high per centage of lease returns. After all, the first driver knows the history of the vehicle, the car should be worth more to him/her than to some random joe or jill at auction. If the first driver is not buying the car for the residual amount, you know the car can not fetch that amount at auctions.

So what we are left with are two possible scenrios:

(1) BMW is cooking books, and relying on growing lease vehicle count to cover up for under-stated lease return liabilities. That may well be the case as the company profit growth is stalling despite rapid unit growth; the classic symptom of earning quality erosion.

(2) It costs BMW far less money than MSRP or Invoice to make the car. Subsidized leases are just there to prop up a fictional inflated MSRP. The company can afford to sell these cars at much lower prices. There may be an element truth in that too.

dewey · March 2007

have no idea what link you are referring to in the luxury lounge

That is my fault for not providing the link.

Fortunately BMW updated their finacials and here is the 06 one versus the 05 one that we were discussing weeks ago. As you can see BMW still maintains double digit returns of capital and sales growth.

link title

It costs BMW far less money than MSRP or Invoice to make the car. Subsidized leases are just there to prop up a fictional inflated MSRP. The company can afford to sell these cars at much lower prices. There may be an element truth in that too.

Absolutely agree with what you are saying. Our disagreement boils down to semantics.

You call it inflated MSRP or inflated residual.
I call it profitable and healthy sales at BMW.

Your perspective and mine are simply different sides of the same coin.

BMW cooking their books? Depends on what you call cooking. Every accountant does funny things with reserves, accruals and write offs. If that is what you define as cooking then cooked books are not only in the BMW menu but also on the menus of Toyota, GM and in fact every single multinational corporation in this globe of ours. Singling out the chefs from BMW for their cooking is a bit unfair, dont you think?

If you want to see the true health of BMW or any corporation with minimal cooking ( eliminating the affects from reserves and accurals) the the best financial statements to use are cash flow statements. And based on those statements BMW has been consistently generating ooodles and oooodles of cash.

It is not only high resale values that makes BMW leasing profitbale but also their strong balance sheets. BMW has the fortune of financing its leases with one of the strongest balance sheets in the industry.

The prognosis: Leasing remains a healthy activity for BMW

hpowders · March 2007

I am renting my 545i for 2.4% interest.

You don't have to understand 'em to lease 'em, but it does pay to do your homework on residuals and money factors to get the best deals.

I'll leave the "hows and the whys" to BMW. :shades:

tagman · March 2007

For example, if the real production cost of a new HELC called Macrolla (which is really a Corolla with a new badge) is only $12k, if the MSRP is $200k, the manufacturer can lease the car out with 90% 36mo residual and still make handsome profit.

Hey, brightness, I want one of those Macrolla cars... that's an even better deal than hpowder's BMW deal. Since it's made by Toyota, it won't fall apart piece by piece the way the BMW does, according to houdini. And, I'll bet that Mcdonalds granted rights after a hefty palm greasing from Toyota to use the name Macrolla. Certainly such a car comes with a strong warranty and maintenance plan, and a 3-year supply of Big Macs. No doubt, CR LOVES the Macrolla... and has placed it on its recommended list as well.

TagMan

pat · March 2007

You have the Luxury Lounge for topics that do not involve the subject here. Please use it.

You have got to stick to the topic in this discussion.

tagman · March 2007

Sorry, Pat. To assist, I have copied and pasted my last post from here over to the Luxury Lounge... so we can continue there.

TagMan

brightness04 · March 2007

You may want to take a closer look at the 2006 annual report in that link, not just the management prepared headlines. Cash flow is down 13% despite increasing vehicle sales; "Liquid funds fell by 8.8%"; "Financial assets increased by 19.8% . . . mainly as a result of higher fair values of derivative financial instruments." "The main factors behidn the increase on the assets side were the increased level of leased products (+19.9%), financial assets (+19.8%) . . ." ". . . the total carrying amount of leased products increased sharply by 19.9% . . .. Adjusted for chagnes in exchange rates, leased products would have risen by 29.9%."

No wonder German financial analysts are crying foul. Looks to me like the company is making cars to sell to itself as "assets." Marking up financial assets in the derivative market. Liquid funds fell by 8.8% despite a 6+ billion Euro bond issuance . . . hmm, perfect time to increase dividends, eh? Are the Quandts cashing out?

mariner7 · March 2007

Year after year, BMW profits increase because of increasing sales. Unlike something like energy transactions (ie. Enron), how do you fake car sales? When you can add up cars by dealers, regions, countries, etc. Every brokerage firm in the world has legions of auto analysts watching like hawks over every major car company. And you can't fool everyone over such a long span.

GM has had a lot of accounting irregularities, but GM suffers declining sales over decades. And GM was fudging financial transactions, not car sales.

And remember BMW stocks are controlled by one family for a long time, maybe since the very beginning. If that family has no incentive to sell, what incentive is there to cheat?

I think the reason BMW keeps setting records on sales, profits & stock price despite its spotting reliability records is that it's perceived to be king of the hill in performance and desirability. When Infiniti wants to compare its brand new G37c, it takes the 335Ci, not the CLK. When Acura needs something to compare its brand new MDX, it chooses the X5, not the FX35. When it comes to performance, BMW is the gold standard, and it makes money off that.

cdnpinhead · March 2007

"BMW leasing arm itself can not possibly be highly profitable when it is offering 3% interest and takig back cars at prices that are far in excess of real life auction values."

This is the nut of what I've been interested in discussing for quite some time.

It'll be interesting to see how it all turns out.

tagman · March 2007

The words "far in excess" are far in excess of the real situation. BMW has historically had very high resale values. Brightness's statement that BMW is taking back cars at prices that are far in excess of real life auction prices doesn't yet apply, as that won't be the potential secenario until these leases expire years from now... and it is then, and only then, when those residuals will be subject to real-life valuations... it's all in the future.

As you said, it'll be interesting to see how it all turns out... in the future. Good point, cdnpinhead.

TagMan

brightness04 · March 2007

Year after year, BMW profits increase because of increasing sales. Unlike something like energy transactions (ie. Enron), how do you fake car sales?

I have been pointing at the rat hole for some time: subsidized leases. Look at the link to BMW AG's 2006 annual report, provided by Dewey, and you can find confirmaton right there. Read the details for yourself. Here are some gems buried in the pages:

"The main factors behind the increase on the assets side were the increased level of leased products (+19.9%), financial assets (+19.8%) . . ." ". . . the total carrying amount of leased products increased sharply by 19.9% . . .. Adjusted for changes in exchange rates, leased products would have risen by 29.9%."

What does that mean? Well, when someone leases a car from BMW, the company sells a car to BMWFS for the nominal transaction price that the consumer never really pays. It's chalked up as a sale, and booked as profit. The full residual amount plus the yet unamortized amount is put in the books as assets. In other words, the company is selling cars to itself and booking as profit for every sale. No wonder the "leased product financial asset" is mashrooming. No wonder cash flow is down despite increased "sales." No wonder liquid asset is down despite 6 billion Euro bond issuance. Just like we found out in the dot-com bust, sales and profits can be faked with vendor financing. Cash flow and liquid asset are much more accurate guages. BMW is essentially turning cash into lease returns that can never fetch the residual asset value in the books.

brightness04 · March 2007

The reality is already kicking in: the over whelming per centage of lease returns vs. lease-end buy-out at previously agreed residual price is proof that residual is way above real life resale value. That's been the case for a few years now.

In order to cover the residual asset write-downs at the back end, the company has been forced to market more and more lease deals at the front end in order to have the new book sales and book profit to compensate the profit short-fall created by the write-downs. It's like a hamster on a wheel, forced to peddle ever more furiously. The lease deals have to be made sweeter and sweeter to get new signatures. Consumers notice this too, and lease vs. buy per centage become lop-sided. That's why we are seeing a mushrooming of leased-product asset in the balance sheets, accompanied by declining cash flow and declining liquid asset despite increasing "sales." The process is already quite far along.

dewey · March 2007

You may want to take a closer look at the 2006 annual report in that link, not just the management prepared headlines.

No I did not even have the priviledge of reading the 2006 BMW headlines this morning. I didn't even know the 06 results were out until today.

LOL Brightness is this the basis of your doom and gloom prophecy for BMW?

Cash flow is down 13 percent? Cash flows in all companies fluctuate since they are not smoothed by accruals. You got to look at the average Free Cash Flows (CF from Operations -Cap EX) in the last few years to find out how a company is performing. And the average Free Cash flow yields of BMW are nothing short of being amazing.

Liquid funds fell 8 percent? Yeah so? What does that mean anyways? Most companies with good cash management try to reduce their cash balances. There is an opportunity cost in holding liquid assets.

Increase in financial derivatives? Yeah so? Good risk management involves using derivatives to hedge currency, commodity and interest rate risks? Where oh where is this doom and gloom you are talking about?

Leased products increased significantly? That's wonderful! Especially when it is profitable:

The Financial Services segment continued to grow
profitably in 2006, again making an important contribution
to the overall performance of the BMW
Group. The business volume of the segment in balance
sheet terms rose by 8.9% to euro 44,010 million.
Adjusted for exchange rate impact, the increase
would have been as much as 14.4%. At the yearend,
2,270,528 lease and financing contracts were
in place with dealers and retail customers, equivalent
to a growth of 8.8% in comparison with one year
earlier. The proportion of new cars of the BMW Group
leased or financed by the Financial Services segment
was 42.4 %, 1.3 percentage points above the
proportion recorded in 2005.
Regional expansion continuing
The business activities of the Financial Services

So Brightness according to you BMW leasing activities are equivalent to Enron's activities. LOL you are funny!

Oh and did you notice how their Returns on Capital and gross margins increased ? Naaah I didn't think you would. Next time Brightness look at the bright side of life instead of the darkness. Apparently you cant see too well in the darkness :P

dewey · March 2007

And for the sake of BMW I hope performance will remain a priority for many consumers.

Here in Canada our Government is imposing hefty taxes on gas consuming performance cars . I've a feeling that Canada will not be alone with these kinds of taxes(Governments always try to find new excuses to tax their constituents especially when guilt is involved---cigarettes, alcohol and the newest of sins called gas consumption). Not good news at all if you are sitting in BMW's boardroom.

dewey · March 2007

Yeah you are missing one minor detail about leasing.

The high returns on capital for BMW refutes your notion about leases. High and healthy returns on capital and a disasterous subsidized lease program are contradictions.

brightness04 · March 2007

Accruals is where much of book cooking is done. A company that has supposedly nearly 9% sales growth faces 13% drop in cash flow and nearly 9% liquid asset decline, and that does't make you suspicious? On top of the company re-marking derivative market asset, presumably to make balance book look better. Exactly how does 8.8% lease/finance contract increase translates to 19%-29% increase in leased-product "asset" in the books? I will tell you how, massive increase in lease to finance ratio and very very sweetened lease deals.

The Financial Services segment continued to grow
profitably in 2006, again making an important contribution
to the overall performance of the BMW
Group.

BMWFS is paying 5.5% to its savings account customers in Europe, and even higer on bonds, yet collecting only 3% or less on most US leases. Obviously it's not making profit when dealing with consumers. So where is the profit coming from? Well, we know that from the Annual Report: 19+% increase in derivative values. Is that Yen or Euro or SwissFranc carry trade? Talk about poor earning quality and a house of cards!

Returns on Capital and gross margins numbers can not be trusted when the "sales" and "profits" are based on sales made from BMW to BMWFS; in other words, self-dealing, with "leased-product asset" taking place of hard cash from consumers.

dewey · March 2007

Accruals is where much of book cooking is done

Cash flows at BMW are healthy. Cash flows are as uncooked as a platter of raw sushi and sashimi.

Unless you want to accuse BMW of doing what Ernie Ebbers did at WorldCom (he played around with cash flow numbers and is now serving a quarter century prison sentence).

In fact it would not surprise me if you would make such an accusation about BMW.

brightness04 · March 2007

Return on Capital is simply caculated by dividing profit into capital base. When the profit number is cooked (when $7k account receivable from real customer in a lease plus $30k "lease product residual asset" is counted as a $37k sales, despite the eventuality of marking the $30k residual to $25k or even $20k), ROC number is quite meaningless.

Cooking books result in higher profit number, and therefore higher return on capital. That's the purpose of book cooking.

brightness04 · March 2007

Accruals is not cash flow. That's why I said cash flow is a more reliable indicator than revenue and profit numbers that take into account of "accruals." You are the one who said cash flows are unreliable because they fluctuate too much, not me. Please stop arguing against yourself :-)

dewey · March 2007

As I said forget all the accural numbers. Just focus on BMW's healthy cash flows. Oh yes this years cash flows are healthy too!

By the way Toytota has phenemonal accural numbers. And we all know those Toyota accountants all have halos on their heads while BMW accountants have horns on their heads.

Amen!

Nuff is Nuff. I am out of here.

brightness04 · March 2007

As I said forget all the accural numbers. Just focus on BMW's healthy cash flows.

Hmm, now you want to toss away accruals, just like I suggested. BMW cash flow is down 13% according to the 2006 Annual Report. That's not healthy.

By the way Toytota has phenemonal accural numbers.

Toyota actually does account very conservatively. They expense R&D in the current year, and their residuals are below real life resale. Toyota has growing cash flow and liquid asset, as one would expect a company that is genuinely growing sales and profit without cooking books.

dewey · March 2007

What Free Cash Flow yield do you define as healthy?

Despite the decline this years yield is amazing!

Toyota actually does account very conservatively. They expense R&D in the current year, and their residuals are below real life resale. Toyota has growing cash flow and liquid asset, as one would expect a company that is genuinely growing sales and profit without cooking books.

Amen again!

Byebye

brightness04 · March 2007

Cash flow should not decline as much as 13% in a year when the company is supposedly having nearly 9% sales and profit growth. Where did the money disappear into? Why aren't the customers paying? Signing up dead beats or signing up such sweet deals that they never are expected to pay in the full amount that is booked as sales and profit?

This is such drivel! What a waste of time.

Should have thought through that one before launching into an argument against yourself in terms of accruals vs. cash flow validation.

Kirstie_H · March 2007

This is such drivel! What a waste of time.

I could not agree more, as it is
1) completely off-topic, and
2) boring

Let's say "byebye" to this conversation (this can be done concurrent with your reciprocal "byebyes" to dewey) and get back to discussing the high-end luxury vehicles (not the manufacturers, accounting, or leasing deals).

High End Luxury Cars

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