BMW article in Fortune Magazine

[bmwboy88]

There is a very interesting article in the latest issue of Fortune's magazine.
The article talks about BMW's vision and the direction.
According to the article, BMW is coming out with a minivan by the end of this decade.

Very interesting reading.

[Chopper]

Minivan?! NOt sure if I can stick around if that happens. Even VW hasn't gone that low yet... :thumbsdow :mad:

[bmwboy88]

Here is the article...sorry for the long post...(PART 1)

Helmut Panke, chairman of BMW, hates to say the word. He's in his stark, white office at the company's headquarters near Munich, describing a future vehicle his team is developing. A precise man who has a doctorate in nuclear science as well as a deep appreciation for exquisite engineering, Panke is fond of talking about the "DNA" of BMW. When he talks about the company's tradition and values, his entire body contorts with emotion. "A BMW will always be true BMW," he says. "We will never build a boring BMW." And yet the more he describes his new dream machine, the more the word he's avoiding hangs in the air. This means of conveyance will be large and roomy. (Min ...) It will have the utility of an SUV yet the handling of a BMW. (Miniv ...) As Panke talks, it's hard not to think "juice boxes" and "soccer practice." It can't be. A minivan?

Actually, Panke would prefer you use the term "space-functional concept." But in essence, yes, BMW is planning a minivan. It won't be out until the end of the decade, which will come as some relief to Beemer purists, but still. A BMW minivan?

Panke's loathing of the m-word has less to do with snobbery than with the fact that he's forcing the company through a major change. The minivan is just one part of a strategy to transform BMW from a specialized producer of sporty rides for high-income aesthetes into a full-line automaker, with a complete range of sedans, wagons, SUVs, roadsters, all of it. (Except pickup trucks. There's no danger that there will ever be a BMW pickup truck.) He has pledged to boost sales of the BMW group, which includes MINI and Rolls-Royce, from 1.1 million cars last year to 1.4 million by 2008. And his latest step in that direction is to head into unfamiliar territory: downmarket. In mid-September, BMW added a new, entry-level model called the 1 Series. The 1 Series won't be a small-volume promotional leader either—BMW expects to sell some 120,000 next year. After that will come the space-functional concept.

Panke is walking a dangerous line. On the one hand, he knows growth means expanding into new markets with new kinds of products. BMW ranks only 14th among the world's automakers, ahead of Mazda and behind Mitsubishi in global unit sales, which severely limits its economies of scale. Worse, all of its luxury competitors are divisions of larger, deep-pocketed corporations. Mercedes can tap the resources of DaimlerChrysler, and Lexus has a direct line into the cash vaults of Toyota. Enmeshed in a brutal competitive struggle, BMW needs all the resources it can muster. Because it is an independent company, it could plausibly become a takeover target at the first sign of weakness. (There is no hint that its controlling shareholders, Munich's very private Quandt family, who own 46.6% of the voting stock, have any intention of selling. But that could change if BMW's leadership position starts to slip. There's no reason for the family to own the stock if the company stops growing and paying dividends.)

[bmwboy88]

On the other hand, there's the high-end BMW cachet to protect. The company is revered by millions of owners and fans for engineering cars that put the driver first. For many customers, buying a BMW is like joining a semi-exclusive club. "BMW is the most charismatic brand, and charisma is something you can't buy or manufacture," says analyst Rebecca Lindland of Global Insight in Boston. "People would rather have a used BMW than a new anything else. And once they are in it, people don't leave." High prestige, of course, is highly valuable: BMW's profit margins are among the richest in the industry.

Panke's mass-with-class strategy puts that cachet in peril. BMWs command premium prices partly because of their scarcity. Once BMWs turn up at every mall and hockey rink, the snob appeal will disappear. Panke and his team are painfully aware of the case of Cadillac, whose long decline accelerated in 1982 after it bolted its wreath-and-crest to the hood of a humble Chevrolet Cavalier and renamed it the Cimarron. Buyers were not amused.

Even in times of stability, BMW executives tend to be anxious. Acutely conscious of the value of the brand, they fret endlessly about what BMWs look like and how they perform. The slightest model changes cause endless handwringing by the company—and relentless backseat driving by financial analysts, the automotive press, and all those Beemer fanatics the world over. Typical is chief designer Chris Bangle, who worried that buyers might confuse the new entry-level car with the 3 Series, the next most expensive model in the BMW lineup, and then declared, "The 1 from every angle is not a 3."

That obsessiveness should give you some idea of the intensity with which Panke and his engineers are gauging reactions to the 1 Series. It's still too early to say for sure whether BMW has avoided a Cadillac-like detour. The response at the Paris Auto Show, where the car was introduced, was tepid. The sweltering crowd of journalists in the humid exhibition hall was far more interested in the unveiling of the M5, BMW's superfast, limited-production sedan. And BMW itself made a much bigger deal out of its new, hydrogen-powered racecar (see Clean Fuel the BMW Way). But early reviews have been positive, and customers in Europe and Asia have been enthusiastic. They bought more than 5,600 of the 1 Series cars in a little under two weeks.

Clearly BMW is embarking on its expansion from a position of strength. Unit sales are up 8.8% so far this year, and it sold more cars in September than in any other month in its history. In the U.S. it sold 240,859 BMW-branded cars in 2003, beating Mercedes for the third year in a row and making America its largest single market. Although BMW's revenues are a fourth of GM's, its market cap is $27.2 billion to GM's $23.6 billion.

With a base price of about $25,300, the 1 Series costs about $5,000 less than BMW's current lowest-priced sedan and makes club membership available to a whole new kind of customer. Moreover, the 1 enters BMW into the burgeoning global market for compact cars, a segment populated by such stalwarts as the Volkswagen Golf and Toyota Corolla. About 12.6 million such cars were sold last year. Panke figures that demand will increase 20% by 2010, while the market for more expensive models in that class—the Mercedes A Class, Audi A3, and BMW 1 Series—will grow 50%. So far the idea of a small luxury car is a European phenomenon. The Mercedes A Class won't arrive in the U.S. for several years, and the Audi A3 isn't expected here at all.

[bmwboy88]

BMW is proceeding gingerly with the 1 in the U.S. because it was burned by the reception given an earlier entry-level car. It sold the two-door hatchback 318ti in the U.S. from 1995 to 1999 before withdrawing it from the market. The 318ti bore a strong family resemblance to the full-size 3 Series and competed with it for customers, rather than attracting the younger buyers BMW had hoped for. The other problem: Americans don't believe in hatchbacks on fancy cars. While hatches are becoming accepted by upscale customers in Europe and Asia, Panke has decreed that the hatch does not fit BMW's American image. The U.S. won't get a 1 Series car until 2007, when BMW will export one with a proper trunk and a six-cylinder engine.

Panke and design chief Bangle have made sure that the 1 Series looks and feels every bit the BMW. While every other car in the segment is driven through its front wheels, the 1 Series has rear-wheel drive, as does the rest of the BMW line. That layout extends the engine bay back toward the passenger compartment, cramping rear seat room, but it provides the kind of dynamic handling that BMW is convinced separates its cars from the competition's. Everything from the steering wheel and the gearshift lever to the dials on the instrument panel looks and feels comfortably Beemerian. (About 60% of the 1 Series' parts as measured by value come from the 3.)

A brief test drive into the countryside south of Munich confirms the value of the rear-drive/rear-legroom tradeoff. Acceleration is brisk (0 to 62 mph in 8.7 seconds), and the 1 Series carves a tight line through turns while tracking solidly at speeds over 100 miles per hour. Analysts at Bernstein Research expect sales to reach 300,000 annually once all the body styles are on the market. That would make the 1 the second most popular BMW after the 3 Series.

Convincing buyers that the 1 Series is echt BMW will be easy compared with winning them over on minivans. Panke sees two potential models. The first is supposed to be a roomy sports tourer similar to the Chrysler Pacifica, only with lots more amenities. The second would be a nimbler half-SUV/half-car crossover vehicle that sounds a bit like an Infiniti FX45. But, without getting into the details, Panke says he's going for something different. Whatever he has in mind, he'll have to make a decision soon if he wants to have his space-functional concept on the market by 2007 or 2008 as planned.

Panke's decision to grow BMW organically is a 180-turn from a strategy that blew up in the company's face a decade ago. In 1994, Panke's predecessor Bernd Pischetsrieder bought Rover Cars in the belief that BMW could convert the failing British brand into a second line of cars. Rover continued to decline under BMW ownership. By the time the company woke up to that fact and tried to fix it by airlifting in German engineers and investing millions of deutsche marks, it was too late. Rover's collapse forced Pischetsrieder's resignation in 1999, and in 2000 the company paid a British private-equity group $755 million to take Rover off its hands. The misadventure cost the company more than $4 billion. The sole reward has been Rover's MINI, which has developed into a robust business since its relaunch in 2002.

After the Rover catastrophe, BMW flirted with artistic disaster in its design department. Traditionally, BMWs have borne a distinct family resemblance, with the small 3 Series sharing the same proportions and design cues as the mid-sized 5 and top-of-the-line 7. That was reassuring to longtime customers, but in the late 1990s, executives decided that the similarity was dampening sales. "BMW was criticized, clobbered, and basically nailed to the wall for having identical designs for the 3, the 5, and the 7," says Panke.

BMW's American-born designer Bangle took on the task of stretching the company's design envelope. Bangle performed his first makeover on the 2002 model 7, restyling the front end, stretching the passenger compartment, and creating a high-deck, short-lid trunk that was quickly dubbed the "Bangle butt." Customers and critics who were put off by the shock of the new also hated the decision of BMW engineers to try something different inside the car. They installed a tilting, plunging, rotating knob on the console to control hundreds of electronic features—and managed to complicate life for drivers rather than simplify it.

Traditionalists were outraged by both changes, and Bangle was subject to virulent personal attacks on the Internet, including a "Stop Chris Bangle" website that collected more than 10,000 signatures. (Sample: "Bangle is the worst that's ever happened in BMW's history of making the finest cars in the world!") Another wave of criticism broke when Bangle's new 5 Series, in some ways even more radically reshaped, appeared in 2003. Yet for all the brouhaha, BMW sales haven't noticeably suffered, and the cars retain more of their value than almost any other make. Automotive Lease Guide projects that 7 Series cars will be worth 54% of their new-car price after three years of ownership, vs. 52% for the Mercedes S Class and 50% for the Audi A8.

Panke defends the decision to inaugurate the new styling direction with the 7 Series because that was the first model due for an overhaul, but concedes that his call "can be challenged." He is beginning to feel vindicated, though. With the styling of the 1 Series creating only a quiet murmur, he says, "I would say the controversy over the design is basically not there anymore, at least in Europe." Many analysts agree. "I think Bangle has been proved mostly right," says Graeme Maxton of Britain's Autopolis consultants. "His designs are not to everyone's taste, but they are also distinctive and bold in an industry that often fears any radical change."

The controversy may have died down, but life won't be getting any easier. Mercedes is expanding its range of models; Lexus continues to add style to its already superbly built cars, and Cadillac is in the midst of a $4 billion makeover. BMW has to continue to move faster than everyone else in order to stay on top.

And even if the 1 Series does become a hit, there's still that cachet problem. Imagine the dealerships: Big shots shopping for $76,000 6 Series convertibles while sneering at entry-level couples asking about cupholders. It is not a recipe for retail harmoniousness. "I think the plans are risky," says Maxton. "Taking a brand like this into the middle market is a mistake to me, and one that could be hard to reverse. It carries the risk of brand degradation." There's a potential financial impact too: More small cars will dilute the fat margins BMW enjoys on large cars. And the 1 Series could cannibalize sales of the more expensive 3 Series, just as the 318ti did.

But this is a road that BMW must travel. The risks of not growing are too high. The 1 Series, the minivans, and whatever other downmarket line extensions BMW dreams up give it an opportunity to attract younger buyers. It wants to lure budding careerists even if they never make their first million.

Panke likes to say BMW shares a philosophy with another purveyor of premium products: Starbucks. When customers go to a Starbucks, they know they are getting Starbucks coffee, whether they order espresso or a Frappuccino. "You would not go to Starbucks to look for some freshly made carrot soup." It's the DNA thing again. When you buy a BMW, you don't want a cheap imitation. The hardest part of his job now is making sure that never happens.

[audiophilia]

"Imagine the dealerships: Big shots (http://www.adsrve.com/linkredirect.php?h=41,30755299,e46toronto.ca,1) shopping for $76,000 6 Series convertibles while sneering at entry-level couples asking about cupholders.'


What an image! What a great line!:D

[eezzie]

Minivan?! NOt sure if I can stick around if that happens. Even VW hasn't gone that low yet... :thumbsdow :mad:
VW came out w/a Vanagon years ago.

[Chopper]

VW came out w/a Vanagon years ago.

Man...I forgot about the "love" vans VW has. My bad. Same point though...why are they eroding their brand so much. They should just splinter off another division (aka Mini-type) and use that to promote crappier products in stead of cheapening BMW.

[dieselgrl]

I haven't read the three articles yet...haven't had time. but i'll add a few comments for now....I can't believe they are coming out with a mini-van line?!?!?!?! My gosh...what has this world come to. A few weeks ago, I was actually having a conversation with someone that mini-vans are normally introduced in the lower line of vehicles...i.e. Infiniti does not offer mini-vans, but Nissan has the Quest....there's no vans in the Acura line, whereas Honda has the Oddessey...Lexus doesn't offer vans, but Toyota has the Sienna...Mazda has the MPV...I mean, i thought the high-end alternative to vans was an SUV. I agree with you chopper that this would really "cheapen" the BMW name. Maybe i'm biased cause i am so opposed to mini-vans...I could never see myself driving one :sick:

[christyles]

I haven't read the three articles yet...haven't had time. but i'll add a few comments for now....I can't believe they are coming out with a mini-van line?!?!?!?! My gosh...what has this world come to. A few weeks ago, I was actually having a conversation with someone that mini-vans are normally introduced in the lower line of vehicles...i.e. Infiniti does not offer mini-vans, but Nissan has the Quest....there's no vans in the Acura line, whereas Honda has the Oddessey...Lexus doesn't offer vans, but Toyota has the Sienna...Mazda has the MPV...I mean, i thought the high-end alternative to vans was an SUV. I agree with you chopper that this would really "cheapen" the BMW name. Maybe i'm biased cause i am so opposed to mini-vans...I could never see myself driving one :sick:
Minivans... :thumbsdow Suv's except X3 :thumbsup: well for the most part. I don't like any minivan, i like X5 and GM Suburbans. Looks like BMW wants to take over the whole market. Even hatchbacks with the 1 series. :thumbsdow ...for now.

[dieselgrl]

Minivans... :thumbsdow Suv's except X3 :thumbsup: well for the most part. I don't like any minivan, i like X5 and GM Suburbans. Looks like BMW wants to take over the whole market. Even hatchbacks with the 1 series. :thumbsdow ...for now.
Agree...minivans :thumbsdow i'd never be caught driving one. I love the X5...but X3 is a definite :thumbsdow BMW is only decreasing the value of their brand by attacking the whole market. I don't like the new 1-series...diversification is dangerous. If they are appealing to a certain market niche, they have to realize that they may be abandoning their existing customer base by offering a lower line of vehicles. I mean...if BMW's are so attainable and everyone has one...where's the appeal?

[bmwboy88]

This is not in the article but BMW just recently open a assembly plant in China. In the next few years, some of the BMW will be built in China espically China and Canada have an open trade agreement which BMW Canada might be import them into Canada.

IMO, if BMW does make cars for all segement of the population, it wil cheapen their brand. Now every joe blow on the street will own one and the BMW name will losen it's prestige.



I haven't read the three articles yet...haven't had time. but i'll add a few comments for now....I can't believe they are coming out with a mini-van line?!?!?!?! My gosh...what has this world come to. A few weeks ago, I was actually having a conversation with someone that mini-vans are normally introduced in the lower line of vehicles...i.e. Infiniti does not offer mini-vans, but Nissan has the Quest....there's no vans in the Acura line, whereas Honda has the Oddessey...Lexus doesn't offer vans, but Toyota has the Sienna...Mazda has the MPV...I mean, i thought the high-end alternative to vans was an SUV. I agree with you chopper that this would really "cheapen" the BMW name. Maybe i'm biased cause i am so opposed to mini-vans...I could never see myself driving one :sick:

[Chopper]

Agree...minivans :thumbsdow i'd never be caught driving one. I love the X5...but X3 is a definite :thumbsdow BMW is only decreasing the value of their brand by attacking the whole market. I don't like the new 1-series...diversification is dangerous. If they are appealing to a certain market niche, they have to realize that they may be abandoning their existing customer base by offering a lower line of vehicles. I mean...if BMW's are so attainable and everyone has one...where's the appeal?

Yeah, as snobby as it may sound, it's nice to drive a brand that is not only performance/luxury oriented, but carries a certain cache as well. That's why they can charge $100 for oil changes and $800 for inspections. Do you think the mini-van crowd will be paying those prices? I'll bet their service department people and top level sales people will bolt once BMW "Wal-marts" their company line.

[SmoothMoka]

c'mon guys minivans are great! imagine you can fit the whole e46 club for the meets - specially when the weather sucks...everybody can just pile up inside and keep dry and warm :D
i'd say we start pitching in and by the time it comes out we'll have enough for an ultimate group buy! :yak:

[bmwboy88]

If BMW does make mini vans, I hoep they follow the footsteps of Porsche and build a performance mini van.
:)

[vm-323Ci]

It all comes down to profitability in the end. If you're not a big enough fish someone bigger will swallow you...

That's by Porsche build first the boxers and then the Cayenne; if they hadn't they wouldn't have been able to remain independent. The 911's are too low volume to cover the overhead.

Ford owns Jaguar, Aston Martin, Volvo and parts of Mazda. That's why the Jaf Z-type feels like a Ford (it a UK based Ford Mondeo); The next gen Focus, current Mazda3 and Volvo S40 are all the same underneath the cladding.

I don't think a BMW Minivan will be cheap.. at least over 50K (more like $60K+) built for the well healed who have the $$, need a people mover and want a BMW. Right now there's no BMW that can seat over 5 people. Mercedes is coming out with a kinda minivan too.

The new 1 series is supposedly a drivers car (based on reviews) and was modeled on the 2002 and will succeed in Europe where drivers appreciate the way a car drives more than it's image. In NA, the BMW is still primarily sold on image not the way it drives; just look at the ratio of Manual to auto in Europe and NA (one of the greatest pleasures of driving the bimmer, for me at least, is rowing through tthe gears).

The last thing you'd want is GM to own BMW and find Chevy parts sprinkled arounf the car!

[ianS]

VW has minivan for decades and MB has minivan for other market other than NA. Renault has a very fast minivan that build with tons of F-1 techology. And minivan make way way more sense than those damn big monster SUV!

[dieselgrl]

If BMW does make mini vans, I hoep they follow the footsteps of Porsche and build a performance mini van.
:)
i didn't know Porsche had a mini-van in their line-up...I've only seen the 500+hp SUV, the Cayenne.

[alexm520]

Diversification is important and understandable in the business, but NOT at expense of devaluing & cheaping the brand.
X5 and Cayanne are good examples of diversification but at the same time lived up to the premium brand name.

Regardless how 1-series looks, why do we need even more cheaper BMW model? If someone whats a smaller (similar to old 2002 model) and cheaper Bimmer, they can have a wonderful Mini.

Yes, BMW's marketing machine says that 1-Series :thumbsdow should remind us of old "2002". The only problem is that it is still a pig at 1400kg (approx) versus E46 3-Series at 1500kg (approx) or much lighter Mini at 1140kg.

[adrian330]

BMW will not release their mini van for 50-60k, otherwise why not buy the 3 series? Even possibly the 5 series. If a typical minivan is like 20-30k, then there is no way the BMW mini van will be able to compete.

It is true that BMW needs to expand their market in order to turn in more profits.

The 1 series is not a smart approach to me because like the article says, it will deterioate the BMW name unless they hold the same standard features as the 3 series. Ie: If I buy a 1 series, and I get no cup holder, I'll be pissed. Come on, it's a BMW and there are NO cup holders?? BMW sucks then.

I think what they need to do is setup a new organization and focus on producing mass, crap cars, ie 1 series, mini vans. Milk the money from that. It will be more difficult though to do a startup in such a competitive industry as the automobile which is probably why they are trying to sell their low line cars with the BMW name.

Adrian

[two-timer]

everyone here is amking some pretty good points. I skimmed over the article for about 30 sec. and I'm surprised that I'm the first to post the fact that this author actually wrote "beemer" a few times in there...shows how much he knows! :D

sorry but I was just under the impression that if you mentioned that word you shouldnt be allowed to even talk about BMWs heh heh

anyway, back to studying, later