International Business: Autos
BMW Could Use a Little Skid Control
Market share slips as energy is diverted to Rover
BMW kicked off its presentation at the Detroit car show this year with all the trappings one would expect from the maker of "the ultimate driving machine." Dancers pranced around its new models while music from the latest James Bond movie blared from loudspeakers. But unlike archrival Mercedes-Benz, which drew cheers for its pair of sleek concept roadsters, BMW had no "wow" car to unveil. The best it could muster was a convertible version of its $25,000 3 Series.
The absence of a cutting-edge model underscores growing concern that the German auto maker may be devoting too much energy to Rover, its troubled British operation. To revive what skeptics have dubbed "the English patient," BMW is pouring money and talent into a make-or-break turnaround effort. But some worry that by diverting resources, BMW will hamper development of its own luxury sedans--and ultimately risk losing more market share.BOSS BREAKER. Rover has been a problem ever since BMW bought it for $1.2 billion in 1994 to break into the mass market. Indeed, Joachim Milberg moved up from head of production to CEO last February when his predecessor, Bernd Pischetsrieder, resigned after a boardroom dispute over Rover. Milberg's goal is for Rover to match BMW quality standards, and turn a profit, by 2002.
It's a tough challenge, considering that Rover lost $1 billion in 1999 alone. Milberg plans to invest about $5.3 billion in Rover over the next five years--one-third of BMW's total spending. That's on top of the $3.4 billion BMW has already poured into the company. In December, Milberg dispatched a BMW engineer to run Rover's main plant at Longbridge. And this month, BMW is sending about 200 specialists to Rover's research and development center in Gaydon, Britain, to develop a small car. Milberg wants to avoid snafus like last year's six-month delay in the launch of the Rover 75, a $30,000 luxury sedan that was supposed to mark a renaissance in Rover workmanship. As it turned out, the quality of the car was so poor that BMW had to fly in a crack team of engineers to fix it.AMERICAN WOES. Throughout the Rover saga, BMW has promised investors that the BMW brand would remain unscathed. "There has never been a trade-off situation with Rover not to do a BMW project," says BMW Chief Financial Officer Helmut Panke. Indeed, BMW's luxury-sedan division is still richly profitable. Analysts estimate the company earned $2.1 billion on sales of $22 billion last year. But there is cause for concern. Sales of its $38,000 5 Series and $60,000 7 Series sedans fell nearly 10% in 1999. That means BMW'S sales growth was generated almost exclusively by the lower-margin 3 series.
BMW also lost its lead among the German luxury carmakers to Mercedes in the lucrative U.S. market in 1999. In Europe, its market share has declined to about 3.1%, from 3.4% in 1996. "They have a lot of competition snapping at their heels," says John K. Lawson, an analyst with Salomon Smith Barney in London. Even Audi sells more cars in Western Europe these days than BMW.
The pressure has never been greater to roll out new models. But with the exception of its $130,000 retro Z8 roadster, BMW's luxury lineup is a row of familiar faces. Panke says 20 introductions are planned, but most of these are derivatives of existing models. Investors are getting restless as BMW's share price languishes. But Panke dismisses the suggestion that BMW is suffering. "I would say that we have never been as strong as we are right now," he says.
BMW has made progress at Rover, cutting 8,000 jobs and putting suppliers on notice that they will have to trim prices by at least 10% or risk losing Rover business. But the Germans have a long way to go before the English patient is healthy.By Matt Karnitschnig in DetroitReturn to top