BMW's Accelerated U.S. Push

Incoming CEO Norbert Reithofer lays out a 300,000-car sales target and a likely expansion of Stateside production in 2008

BMW Chief Executive Helmut Panke left no doubt in recent weeks that he would have been pleased to have his contract extended beyond the mandatory retirement age of 60. As the "captain of the team," he's having great fun, Panke said earlier this month. But when the company's supervisory board announced the week of July 16 that Production Chief Norbert Reithofer, 50, would succeed Panke as CEO on Sept. 1, the day after Panke's 60th birthday, the energetic physicist switched gears quickly. "Where's the top dog?" he joked, referring to his successor, after a luncheon meeting on July 24 with Reithofer and journalists at the company's Munich research center.

That's classic BMW. Few large corporations enjoy the kind of team culture BMW works to foster from production-line workers through the ranks of top management. And even fewer companies discourage the cult of the CEO with the vigor that BMW does. So the intimate luncheon in which Panke and Reithofer took gentlemanly turns fielding questions offered a rare glimpse into a smooth and collegial top management transition at the world's No. 1 premium auto maker.

The message from Reithofer, not surprisingly, is that BMW will continue on the path that Panke has forged. Why change a winning formula? And there's no doubt that BMW's expansion of its premium car lineup under Panke has reestablished BMW as the industry leader in premium cars. Reithofer promised to keep building cars that push the envelope on production flexibility and efficiency. As production chief, he's already delivered annual productivity gains of 5% and worked closely with development engineers to make BMW's factories among the most flexible in the industry.


  Still, plenty of challenges lie ahead. Japanese challenger Lexus is likely to invest in production in Germany's backyard. To develop premium engineering cachet, Lexus might locate in the golden luxury-car triangle in southern Germany between Mercedes in Stuttgart, BMW in Munich, and Audi in Ingolstadt. That would put Toyota right in the heart of a region rich in auto engineering expertise. "They need to take the step into Germany's heartland to say, 'We play in the top league,' " says Panke. Nissan's luxury brand, Infiniti, is likely to follow the same path.

Reithofer says BMW will turn up the pressure in the U.S. market as it strives to boost sales to exceed 300,000 autos. As part of that effort, BMW is likely to expand production and purchasing in America in 2008 when it launches a new crossover model likely to be built in its Spartanburg (S.C.) plant. "The U.S. could play a bigger role," says Reithofer, who as head of U.S. operations during the 1990s ran the Spartanburg plant, reporting to Panke.

One thing Reithofer is not likely to do is chase a big global alliance. BMW learned its lesson about such marriages with Britain's Rover. Instead, BMW prefers highly targeted collaborations, such as the link with Austrian supplier Magna Steyr to produce BMW's X3 baby SUV. Linking up with Magna helped get the X3 to market faster. "We think we need cooperation partners, but not an additional car company," says Reithofer.


  With sales up 8% in the first half of 2006 and forecasts for operating margins hovering around an enviable 7%, Reithofer has no pending crisis, but he may eventually need to steer BMW through a shift in direction. With oil prices soaring, Reithofer and his team will have to figure out how to sell cars that are not just fun to drive but also do better on fuel economy. Making cars that deliver the joy of driving but are in step with a growing social consciousness about fuel consumption is one of the biggest challenges for BMW, Panke says.

Panke will likely be remembered most for his success in globalizing BMW's operations, with manufacturing now in the U.S., China, and India. Reithofer's reputation may rise or fall on how well he adjusts BMW to a new era of high oil prices and renewed environmental concerns.

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