Driving Machine

As the auto industry ponders 2003, BMW AG is looking beyond the near-term and pegging its future to an aggressive 40% growth target: 1.4 million vehicles over the next six years.

Unlike some manufacturers struggling to survive, BMW has set its sights on expanding its global manufacturing and product footprint to capture a bigger share of the world market and boost already healthy profits.

On deck is the new 5-Series, 6-Series coupe and X3 cross/utility vehicle, all slated to bow this year. In '04, the focus will shift to the 1-Series entry-level car and the 6-Series convertible. In all, the BMW Group (which includes BMW, Mini and Rolls-Royce brands) plans to increase its product breadth from two brands and seven model lines at the end of 2002 to three brands and eleven model lines by the end of 2004.

“We are not telling the world that with the product program we have in place today we will sell 40% more cars, no,” BMW Chairman Helmut Panke tells Ward's in an interview at the North American International Auto Show in Detroit.

“Our strategy is to keep growing in the market (segments) where we are with the products that we have, but at the same point to expand into new markets and new segments with new products.”

Panke, 56, took the helm at BMW in May 2002, after Joachim Milberg unexpectedly announced he would step down. Panke started at BMW in 1982 as head of planning in the company's research and development department. He later spent nearly two years at the helm of BMW (U.S.) Holding Corp., overseeing the company's North American sales operations.

While many view the 40% target as challenging, Panke points out it is actually less than the growth rate BMW has enjoyed over the last 10 years. BMW is investing billions of euro in research and development to support future product programs. The result will be minimal increases in sales volumes for each model line, but the total growth pace should meet Panke's plan.

While expanding the product lineup will be crucial, the Bavarian auto maker also plans to broaden its global sales and production footprint to capture share in the leading growth markets in Asia/Pacific, most notably China.

BMW already is making inroads in the region with its joint venture plant in Shenyang, China. The plant, a joint venture with Brilliance China Automotive Holdings Ltd., is slated to begin production of 30,000 3- and 5-Series cars in second-half 2003.

Panke hardly can control his excitement over China's prospects. Sales of luxury vehicles in the country have tripled in the past three years, he points out, and there remains an enormous amount of unsatisfied demand.

“There is money available, there is an affluent group of entrepreneurs (in China) who are willing to act just like the successful entrepreneurs in America and Europe,” he says.

While the long-term outlook is bright, Panke remains a bit tepid in his optimism for the coming year.

In the U.S., Panke expects BMW to increase its market share marginally during the year. Most of the growth in the U.S. will come from better availability of the flagship 7-Series sedan, and new variants, including the 12-cyl. and long-wheelbase models, due to arrive in the spring. Sales also should get a boost from full availability of the Z4 roadster.

“We expect that based on the product program we have, we should be able to grow our market share,” he says. “The Z4 was just introduced at the end (of 2002) and is clearly going to gain in volume in the U.S. for '03. And we have the update for the 3-Series coupe and convertible, and that's something where we feel we should be able to continue growth.”

In Europe, Panke says he'd be happy if BMW ended the year on par with 2002, in which BMW sold 627,350 units, according to Ward's data. The overall European auto market should start the year on a negative trend, but end flat to slightly down, he predicts.

“It's going to be a red zero,” he says. “We'll probably see something where…we have a continued minus situation for the first half of 2003 (in Europe), but with the assumption we will have an improvement in the economic condition (in the region) in the second half of 2003. Europe, basically, is going to be slightly below the 2002 figures for the total market.”

On the production front, Panke says the launch of the redesigned '04 5-Series remains on track for the second half of 2003 at BMW's Dingolfing, Germany, plant.

Sales of the current 5-Series are expected to decline slightly due to the changeover to the new model, Panke admits.

“We should have a hiccup in the (sales) volume there, but I'm quite sure we will not have a major impact (on our sales),” he says. “Still, a model change in one of the core model lines that we have is quite a challenge for the organization.”

Changes to the European block exemption rules by the European Commission (EC) also will impact BMW. In 2002, the EC adopted new rules that make it easier for European auto dealers to establish multi-brand dealerships and sell their vehicles throughout the EU.

The rules, which take full effect in September 2005, also make it easier for consumers to obtain repair services at non-dealer locations. The rules are a result of attempts by the EC to remove a long-standing “block exemption” clause that enabled auto makers to dictate dealership locations and limit the number of brands a dealer could sell.

The exemptions also prohibited the sale of vehicles outside the home country of each dealer. The EC hopes the new rules will harmonize vehicle pricing throughout Europe, while enabling consumers to obtain the best prices.

Panke says these changes mark a monumental shift in the sales and distribution system within the European Union.

“It is a fundamental change in the structure of how business is done in Europe, because in the end it takes away an area of protection or some exclusivity in a sense that manufacturer and dealer can assign areas but only one dealer can be positioned in there,” he says. “(The new rules allow) every dealer in Europe to sell cars (anywhere) in Europe, which is completely unthinkable in the United States.”

In line with the rule changes, BMW terminated all of its dealer contracts throughout Europe in October 2002 and is rewriting new contracts that meet the new framework established by the EC. Panke doesn't expect the changes to negatively impact BMW's sales operations in Europe.

“We expect, with the strong product program that we have, that it is going to be in the best interest of each individual dealer to continue working in such a way that the close cooperation and the protection of the brand identity in the showroom environment will continue,” he says.