BMW's Little Car That Could--Again

Its revival of the classic Mini is a hit, but for how long?

When BMW rolled out its Teutonic take on the classic Mini in Britain last July, German executives had their misgivings. Some Britons felt bitter about the Munich-based auto maker's decision a year earlier to dump the Rover Car business, retaining only Rover's Mini line. "There were people in Britain saying, `these bloody Germans, they'll destroy our Mini,"' recalls BMW sales and marketing chief Michael Ganal.

Well, the bloody Germans saved the Mini instead. Across the Continent and in the U.S., orders are pouring in faster than BMW can churn out the retro-styled minicars with bulging headlights. It's a hit even in Britain, where the beloved icon was launched 43 years ago by British Motor Corp. A dearth of investment had brought the Mini to the brink of extinction. But in the first eight months of this year, BMW sold 20,360 in Britain, 25% above its goal. When Ganal recently stopped by a showroom on London's exclusive Park Lane, salesmen had sold their allotment of 520 Minis for 2002 and expected to sell more than 750 next year. "Nobody could have foreseen this," he says.

So how does BMW keep the Mini roaring? The pint-sized car is rolling out of showrooms for the moment, but the Germans still have to prove that customer enthusiasm is more than an infatuation with the latest toy. Retro-styled cars risk looking dated once the novelty wears off. So BMW has to keep the appeal fresh--something of a challenge for a car that's an exercise in nostalgia to begin with.

If anyone can do it, it's the boys from Bavaria. After acquiring the rights to the Mini, BMW completely reworked the car, keeping the signature flat top and stubby shape. Just 12 feet long, it's smaller than any car in the U.S. market, but one-third larger and pricier than the original. Fitted with sturdier engines and a stronger chassis and packed with airbags and safety features, the Mini is as happy cruising the Autobahn as taking corners on London's narrow streets. The interior features familiar touches, such as the big, round speedometer in the center of the dashboard, harking back to the Mini's days as a 1960s champion rally car. But it also offers gizmos seldom seen in minicars, like a leather-bound steering wheel and eight-speaker disk player.

Starting at $14,200 in Europe, the Mini costs about 50% more than a Renault Twingo or Ford Ka. But Paris dealer Christophe Caillaud says his customers are willing to shell out. "Because it's built by BMW, there's a feeling that it's more solidly built," he says. In the U.S., where only top-end Mini Cooper and Mini Cooper S models are sold, prices start at $16,850.

Despite a weakening global car market, BMW expects to sell 120,000 Minis this year, 20% above its goal. For 2003, BMW CEO Helmut Panke expects Mini sales to grow to 132,000. BMW plans to run assembly lines around the clock at the Oxford Mini factory and boost capacity by 10%.

The German company also plans to introduce a diesel version next year, with a motor supplied by Toyota Motor Corp. (TM ), and later a convertible. The sporty appeal of a top-down mini on a summer day is clear. But the cost savings from a diesel-powered Mini could be spectacular: Diesel engines are now 30% more fuel-efficient than gasoline engines.

BMW will also have to keep up the marketing blitz. In the U.S., it has already hauled Minis into stadium stands at baseball games and heralded an "SUV backlash" in irreverent ads. So far, BMW has racked up orders for double the 20,000 Minis it had planned to sell in the U.S. this year. Jim Brown, general manager of Classic Mini, a dealer outside Cleveland, is sold out of high-end Mini Cooper S models through next March.

The Mini's success is not all good news. Profits on a Mini are a fraction of those on a $65,000-plus BMW 7 Series sedan. BMW is also developing a 1 Series compact that will probably be priced above $21,000. The foray into small cars might undermine BMW's rank as the second most profitable carmaker after Porsche. BMW's answer: Tempt customers with options like the $400 roof flag, that add, on average, 20% to a Mini's price. Sure, it's a toy. But it might as well be a profitable one.

By Christine Tierney in Munich, with bureau reports

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