BMW's Phantom Is a Rolls All Right

But can its $320,000 luxury liner scare up fancy sales?

When BMW bought the Rolls-Royce Motor Cars (RYCEY ) marque back in 1998, it took on a big challenge. In a complicated deal that split the assets of Rolls and Bentley with Volkswagen (VLKAY ), BMW acquired the 99-year-old brand name of the world's most elegant car, but nothing else. So the company had to start from scratch to build a car worthy of the Spirit of Ecstasy hood ornament and the thrilling snobbishness she evokes. "The dream behind buying a Rolls is that you are buying a place in the British aristocracy," says Daniel T. Jones, professor of manufacturing at the Cardiff University Business School. Delivering on that fantasy is a tough assignment for a Munich-based auto maker that caters mostly to businesspeople, not bluebloods.

Well, the day of judgment has arrived. On Jan. 3, BMW unveiled the Phantom at Rolls-Royce's new $100 million plant in England. Measuring almost 19.5 feet long and weighing 5,478 pounds, the car is imposing, with a $320,000 price tag to match. The look is indisputably Rolls, from the big grille to the rear-hinged back doors, which let passengers gracefully exit the car--just the thing for red-carpet appearances. Inside, no luxury has been spared: It takes 16 cowhides and an abundance of hardwood veneer to outfit the interior. "Our aim is to recreate the legend of Rolls-Royce, to rekindle the flame that burned so fiercely in the heyday of the marque," said Rolls-Royce CEO Tony Gott at the car's Jan. 5 U.S. debut at the Detroit Auto Show.

Still, there's no denying that the Phantom is of mixed parentage. Although conceived by a British-led design team, the car features BMW touches, such as a body of lightweight aluminum alloy. The new Rolls V12 engine also borrows from the BMW 7 series: It can do zero to 60 in 5.7 seconds. "They've modernized the brand in a way that still evokes the traditional values," says Susan Jacobs, president of Jacobs & Associates, a Rutherford (N.J.)-based firm that tracks the luxury-car market.

Accolades aside, the Phantom is a gamble. Analysts estimate BMW spent some $250 million to buy the marque, build the plant, and develop the car. But it's rolling into a marketplace far less inviting than the era of dot-com millionaires in which it was conceived. The global car market, down 1% in 2002, will likely be flat in 2003, says Waltham (Mass.)-based Global Insight Inc. And the ultraluxury segment is bursting with new entrants from Mercedes-Benz, Bentley, and soon Aston Martin.

The Germans figure the party's just getting started. "If you look in Miami and Palm Beach at all the boats and private aircraft, you'll see there's a very large market for products like this. `Should I buy a Rolls-Royce or a villa in Saint-Tropez?' That [is] the mind-set," says Tom Purves, head of BMW North America LLC. The company is shooting for sales of 1,000 Phantoms a year once the Goodwood plant reaches full production--no mean feat, considering Rolls-Royce's annual sales have dwindled to only a few hundred. The Flying Lady is spreading her wings once more.

By Heidi Dawley in London, with bureau reports

    Before it's here, it's on the Bloomberg Terminal.