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      11-26-2006, 08:52 AM   #1
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New BMW CEO Interview>1-series / 2-series coupe news

Interview with Norbert Reithofer/ New BMW CEO
1-series, Crossovers, weak dollar challenge BMW CEO


Dr. Norbert Reithofer


Norbert Reithofer, BMW's new CEO, took the reins of one of the world's most successful auto companies Sept. 1 after Helmut Panke retired.

Despite BMW's track record, Reithofer must deal with difficult issues such as the weak dollar, which eats into profits. And he must bring to market two new crossover vehicles for BMW, as well as a compact 1 series for North America.

Reithofer, 50, joined BMW in 1987 as head of maintenance planning. He was president of BMW Manufacturing Corp. in South Carolina, where the Z4 roadster and coupe and X5 SUV are produced. Most recently, Reithofer was the board member responsible for production.

Automotive News Staff Reporter Diana T. Kurylko and other staff members interviewed Reithofer in September at the Paris auto show.



There is a sense that your margins need to improve. What are you doing, considering that your sales are great?

In the car industry, to announce in March of 2006 a pretax profit (for the year) of 4 billion euros ($5.10 billion) is a statement. In 2005, we had higher raw material prices costing us more than 200 million euros ($255.2 million). We had exchange issues costing us 680 million ($867.8 million). Because we were able to improve our efficiency, we were able to compensate for 1 billion euros ($1.28 billion). We are still a very successful company from a profitability and volume point of view.
First we would like to be profitable. (There were) two successful car companies between 2000 and 2005. BMW was able to grow from 900,000 to 1.3 million units. Toyota was able to grow from 5 million to 8 million units. Are both companies profitable? Yes.


One of the problems that you have is the inequity between the dollar and euro. You are hedging a bit with your plant in Spartanburg, S.C. How do you compensate for that? Can you change that?

Currency costs us more than 600 million euros (annually). We are not a car manufacturer with a volume of 8 million cars a year who can say let's put a production facility with 200,0000 units there or there. If you make 1.3 or 1.5 million, you have to think of a strategy. We said production has to follow the market. The U.K. is the most successful Mini market, and our facility is in the U.K. We have good pound-euro heading because of that.

We have a production facility in the U.S. But most important for us is that our largest X5 market is the U.S., so it is right to produce here. In a market of 16 or 17 million units, you need to expand Spartanburg, but you need product cycles to do it. Helmut Panke announced we will introduce a sport activity vehicle in Spartanburg that will push volume up. It means I have to wait.

What is the potential for U.S. growth?

With all the figures on the table, I was really surprised. In Germany, the premium luxury share is about 30 percent. In the United States, in 1990 the luxury car market was 3.5 percent and grew by 2005 to 11.6 percent - it tripled. BMW was able to move from 66,000 unit sales (in the United States) to about 270,000 in 2005. We quadrupled sales. The luxury car market in the United States is about 2 million new cars annually, defined by cars a bit under $40,000 and by brand.

If Germany is 30 percent, are you on the edge? In the U.S. there is room for premium-car manufacturers to move up, from a volume point of view.

In the past in Germany, at the top of the pyramid you had Mercedes-Benz, BMW and Audi. In the middle you had a company like Opel and at the bottom end cars that could drive from A to B without emotion. Meanwhile, premium-car manufacturers have moved into the middle-class segment - the Mercedes-Benz C class, BMW 3 series, the Audi A4. The A-B cars from the bottom moved upward. The range for the medium-class car was getting smaller.

In markets like India, BMW sold 227 cars, so there is room for outside potential.

Where is the movement in America? Into something like the 1 series?


We realize the market in the United States is changing. We will definitely bring the 1 series to the United States, but it will not be a hatchback. We have a 3-series model range, coupe, sedan, station wagon - and you can have something like that for the 1 series.

It appears that you are a world leader in flexibility in order-to-delivery. What's next?

I can only give you the outlook on how we built up the ability to be so flexible. We started to think at the end of 1996-97, "How will the market develop?" We said that volatility will be an issue for the car market. We can't say like we did in the past that 500,000 3 series are possible and (predict) the percentage of sedan, convertible, station wagon.

It can now change 180 degrees in a few months. You have to be able to be flexible to follow the change in the market.

Several years ago, we said big car companies making 6, 7 or 8 million cars a year will always be financially viable. We see that is not true anymore. That means a lot of things, too.

When I look in the future, I see CO2 emissions and in the United States NOx. You see our future challenges.


How about hybrids?


We entered into a cooperation with General Motors and DaimlerChrysler to have a hybrid system. That moved me and the BMW Group out of the corner.

It's not only hybrids. If you have an inefficient gasoline engine from a fuel-economy point of view, and you drive your hybrid vehicle at 10 miles per hour, only the petro engine is working. Say you drive 250 miles; only the gasoline engine has been used. If your engine is 10 to 15 percent better than a competitors', then you can save a lot of gas. That means we don't just have the question of what is better but the issues of hybrid, gasoline engine or diesel. In 2009, we could bring a diesel engine in the United States.

Diesel before hybrid in the United States?

It could be both.

Mini is a smashing success, but Rolls-Royce isn't. With the kind of volume you're getting, would you consider it a success?

For us, it was important to get it into the market and re-establish the brand. Then, we wanted to widen the model range with an extended-wheelbase car and a convertible.

A 7 series with everything in it and extended wheelbase costs about 180,000 euros ($229,714) in Europe. The Rolls-Royce Phantom will cost you about 380,000 euros ($484,952). That means there is space for a car priced at about 250,000 euros ($319,047), and it can't be a BMW.

When do you expect to show the smaller Rolls-Royce?

Toward the end of the decade.

When will you make engines in North America?

In Spartanburg, we produce the Z4 roadster, coupe, X5 and, from the year 2008 onward, another vehicle. At the moment, there is no real volume behind any one engine because the variants are too wide. You need about 200,000 engines of one family for an assembly plant.

Have you gotten rid of the Brazilian plant you operate jointly with Chrysler?

No, they are still producing engines because the Mini convertible uses it. We are in a partnership with DaimlerChrysler. Before we talk publicly, we have to talk among ourselves.

Are you reconsidering what kind of crossover you will build in the United States in 2008 because of the poor market reaction to the Mercedes-Benz R class?

We have two vehicles in mind. The first is a so-called SAV coupe. We saw the car already. It's the first product. We know clearly in our minds what we want in 2008.

The second product is between a sedan and an SAV. We said we will not call it a crossover but a BMW interpretation of a roomy car concept, with a lot of functionality and a lot of luxury. We did not look at the Mercedes R class. We said it is wrong to follow others.

There is one car company in Germany that we know what they will do because they do exactly what we are doing. I will not mention the name.
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      12-26-2006, 08:21 AM   #2
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The Future of BMW

This was posted (12/25/006) on GCZ by EniLab....GCZ's BMW "insider".
In it he talks about new product already in the pipeline and future product (eg., the 4-series) in the planning stages. Take what he has to say with a grain of salt.
But his reasoning on why ex-BMW CEO Helmut Panke was booted sounds spot-on.There should be a golden rule that says no one from Finance should be the CEO. (see Ford, GM) One item of cheer is that Dr. Norbert Reithofer, the new CEO, comes out of engineering and administration. Crucially, I think, is his experience at the Spartanburg plant overseeing start-up new models and negotiating his way through two vastly different cultures.




EniLab: The Future of BMW

There have been many speculations why Dr. Panke really had to leave CEO position. I've spoken with one of my sources that told me the "Rule 60" was not the reason Panke had to leave.

Dr. Panke was too much concentrated on financial aspects of the business. He was indeed responsible for taking BMW out of the Rover debacle (excellent crisis manager), yet when BMW had to respond to the future Dr. Panke proved to be a very rigid decision maker. He was absolutely not keen on further expansion, which could hurt profitability in short terms, yet it is essential for future profits in long terms. Dr. Panke strongly disagreed with such outlook.

He insisted on very high profit margin at any price – even sacrifing further expansion. The company became too much financially oriented, and less product & marketing focused (eg. cost cutting and lower development budgets). Product planning strategists warned Dr. Panke & the Management Board many times BMW had to develop & launch new model lines more quickly in order not to lag behind the competition growth in the future. But Herr Panke was still not keen on the too radical expansion idea. He & his team rather worked on financial aspects of the business. He even blocked some projects. Of course investors were pleased with the financial results, but especially the Quandts have long-term interest in the BMW AG, and therefore are interested in stable & healthy company.

1er & 2er line, 6er & X3 were confirmed before Panke becoming a CEO. He even voted against 1er line when he was still a CFO (he thought 1er profit margins would be too low). The only two new projects that get green lights under Panke were X6 & F5. The lack of new products in years 2011 & 2012 (last years of E90 lifecycle) could hurt BMW very much – in the years when E90 sales are expected to decline to the insufficient level, and when income will be much lower. Product planning strategists declared red alert.

Herr Reithoffer & Herr Krause were more keen on expansion. And the Supervisory Board decided one of them would be more appropriate for CEO position (Rule 60 came as a very convenient excuse for Panke’s dismissing) . In the end Herr Reithoffer was chosen – because Herr Krause & his financial expertise would be still very needed, and Herr Reithoffer being an engineer and a ex production chief would be able to rationalize production even more extensively.

So, not everythink is as rosy in BMW AG HQ as they try to paint it in the public.

So, in the last 2 months some projects were already approved (Z8 successor, F3), and some that were put on ice will be taken in the consideration again. Till May 2007 the product gap for 2010 – 2012 will be filled – some decisions will be taken urgently, and new models decided – some also for the post year 2012. New models include eg. X4 SAC, X7 SAV, X8 SAC, 1er sedan, 1er touring, 2er shooting brake, 2er targa, Z2 roadster, X1 SAV, X2 SAC, Z6 roadster / coupe, 4er 4dr coupe, 3er shooting brake, 8er / 9er coupe or 4dr coupe, MINI coupe, MINI sedan, MINI AWD, RR baby coupe & cabrio, etc).

So, next 5 months will be very interesting. I hope I’ll find some extra time to report the development.
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      12-27-2006, 08:12 AM   #3
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EniLab with a follow-up on GCZ.


"Like I said: the future will be more product & marketing (consumer) oriented, not so much financially oriented. Expect some lower profits for BMW in short terms, yet better products - and healthy & profitable company in the long run.


One example of Panke's philosophy: if he was in charge when a decision for MINI revival was made, he would had opposed to it strongly because of low profit margin. And now imagine what an opportunity would have been wasted. So much of too much financially focused managers."






To me this is huge news...that basically maps out BMW's business strategy
in terms of their product line-up.
More models...more variants within those model designations (and I assume more options available to the customer within those models) as BMW operates on lower profit margins in a wider spectrum of product.

Part of this is driven by the Quandt Family (the majority stock-holders of BMW) who, according to sources, Eni among them, are absolutely consumed by their dislike of and competetiveness with Mercedes-Benz.

The story goes that Benz recently took BMW by surprise with the introduction of the CLS Coupe- a model they neither anticipated nor welcomed as a total rethinking of the super-luxury tourer.
Helmut Panke was held responsible for not encouraging his designers and product planners to broaden their outlook, forecast future trends, and place BMW at the forefront of the automobile world by being the first to release models that are ground-breaking/genre-busting.

What I don't see is a sense of urgency on behalf of BMW- this has plagued them in the past.
They talk about expanding product but look how long it has taken them just to release the 1-series 3 door...let alone introduce the 2-series line-up.
Brookside (forgive me for posting an image of an MB)
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      01-04-2007, 09:21 PM   #4
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More BMW Inner Workings and Skullduggery

EniLab:posting on GCZ 1/3/007

"Having read the interview with BMW CEO Herr Reithofer it is now more than obvious what was the main reason of Panke's dismissal (just like I said earlier): different views on BMW future. Panke was more keen on slower expansion (slower growth) but retaining high profit margins, using financial engineering methods. While Reithofer (and his team) was more keen on faster expansion, and retaining profit margins with higher (production, development & purchasing) efficiency / productivity. So there was a clash between financial & productional aspect. And Supervisory Board meant productional aspect is better for the company in the long run. Also because competition is very aggressive, so BMW have to be quick & active to retain Nr. 1 position.


Susanne Klatten (nee Quandt)

Having set Retithofer as CEO (production management specialist), Draeger as R&D&Purchasing chief (purchasing specialist), and Arndt as Production chief (cost & investment planning specialist) the new Board members have a lot of knowledge to increase the productivity / efficiency (+5% increase annually). Mind that till 1997 Frau Johanna Quandt (Herbert Quandt's widow) represented the Quandt family in the Supervisory board. She was not trained for such important role - so she relied on her consultants very much. When Susanne & Stefan got all rights to their father's share in BMW AG, they replaced Herr Johanna in SB in year 1997. And a new wind started to blow. Especially Frau Klatten (born Quandt; btw, the richest German woman) is very active in BMW AG decision making. There is emphasis on production, R&D & purchasing - to produce a car of a high quality at lower costs. Reithofer thinks there is still much reserve in production, R&D & purchasing to lower the costs & increasing the profit. And he & his team have already the plan have to realize the plan. And Supervisory Board believes him.

So, the plan is a super-efficient BMW AG - also in the future world's biggest premium car maker (in sales, revenues, & profit).

IMO this new decision is right for BMW, and the future is very bright."
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      01-04-2007, 09:53 PM   #5
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60th Richest Person in the World:
Susanne Hanna Ursula Klatten ranked in 2006 by Forbes Magazine.
Her worth est. @ 9 Billion $'s by Germany's Stern magazine.




Klatten, 44, inherited 50.1% of Altana AG, one of Europe's most profitable pharmaceutical and chemical companies, from her father, Herbert Quandt. A trained economist with an M.B.A. from the IMD business school in Lausanne, Switzerland where she was registered under the name Susan Kant.
Klatten is credited with helping transform the company into a world-class corporation, with $4 billion in revenue in 2004. Her father, who was famous for rescuing BMW, one of the last independent luxury-car makers from bankruptcy, also left her a 12.5% share in that car company, where Klatten now exerts her influence through a seat on the supervisory board. Married with three children, Klatten shares her Quandt family penchant for privacy and is seldom in the public eye
.


note: The 12.5% share of BMW stock that Susanne Klatten owns is somewhat misleading. She along with her brother own the controlling shares in BMW...
not to mention the shareholders who, I'm told, are "friendly" with the Quandts and are aligned in their support of Quandt family decisions.
Make no mistake- the Quandts control BMW. Brookside
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      01-05-2007, 02:49 PM   #6
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Brookside: great posts about the Quandts' control and new philosophy at BMW!
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      01-05-2007, 08:53 PM   #7
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Thanks Harold-
She looks pretty formidable in the first photo, huh?
The Quandt/Reithofer combo should be good for the 2-series...maybe a speedier introduction?
:thumbup:
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      02-04-2007, 03:59 PM   #8
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Looks like the CEO Reithofer wasn't lying about bringing out a coupe version of the car!
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