BMW: 0 percent financing hasn't hurt us

TALK FROM THE TOP
Rick Wagoner

Joachim Milberg seemed an unlikely choice to head BMW AG's management board in February 1999 when Bernd Pischetsrieder was fired and Wolfgang Reitzle resigned. But things have turned out well for the former machine tool professor at Munich Technical University. BMW's sales, earnings and share price soared once Milberg decided - a year into his new job - that Rover Group should be sold. Automotive News Europe Staff Reporter Dorothee Ostle and Editor Richard Johnson spoke with Milberg on Nov. 8 in Berlin.

Things are going well for BMW. But are you worried about the economy in Europe and the United States?

The third quarter and October figures show that the consequences of the events of September are, from BMW's point of view, containable.

What about the industry as a whole?

We don't know the real figures for October, but as far as I know, October was very positive in Germany. And October figures for BMW will also be very positive. We see a trend in which the development of the premium brands is somewhat independent from the development in the whole market - in particular the mass market. The volume market follows the economic trend very tightly. The premium brands are very independent from this.

How is BMW doing in the United States?

September sales figures were around 4 percent above last year, and October is also above last year - around 1 to 2 percent. We are on track so we are convinced that we will achieve our targets this year: more than 900,000 cars this year (worldwide) and a profit margin of more than 6 percent. Last year we had a profit margin of 4.7 percent.

Did the Sept. 11 attacks cause a slowdown in the volume market, or had that slowdown already started?

The expectation before Sept. 11 was that the recovery of the American economy - and the European economy a bit later - would start at the beginning of next year. Now the expectation of the experts and also our expectations at BMW are that this recovery will start in the middle of next year. So there is a delay of two quarters.

This year you will sell more than 900,000 cars. What growth do you expect for next year?

It is too early to talk about next year. We are very happy with 900,000 this year because it is 80,000 cars more than in 2000. This is a very big achievement. We are confident also for next year. The Mini is a new product in the market; we have the new 7 series and other attractive products.

You have said you will add a third shift for the Mini in the Oxford, England, plant.

Yes, following the positive reaction from the marketplace.

So you expect more sales than the anticipated 100,000 units?

Technically speaking, we have capacity for around 100,000 units in Oxford, and we are confident we will achieve that volume next year. We are making an additional effort to speed up the ramp-up phase to reach those 100,000 units next year.

Will the Mini be profitable in its first generation? Or do you have to wait for the second generation to make money on it?

The Mini is positioned as a premium product, so there is premium positioning regarding margins also. But we have to improve the brand awareness of the Mini with this new product, and this needs some effort. But it is clear that every single Mini will have a very positive contribution to the BMW results. At the end of the day, the Mini will be profitable, no doubt about that.

You are talking about contribution to operating profit, but what about the life cycle profitability of the Mini?

At the end of its life cycle the Mini will be profitable.

Are you on schedule in terms of appointing Rolls-Royce dealers and distributors?

We have contracts in the most important countries. This will be a totally different sales organization, separate from BMW. Maybe there are some companies that are also BMW dealers. But from the brand point of view the sales organization will be very different.

It's less than 18 months before you will own Rolls-Royce. It seems you should be talking a lot more about the new Rolls-Royce product you are working on and the brand. Does the agreement with Volkswagen prohibit you from doing that?

There are clear contracts between Volkswagen and BMW, but it is the culture of BMW to talk about products when they are available.

Won't the brand suffer in this interim period?

No, the brand is very strong, and we will have a very good product.

When will we see the new car?

In 2003.

Not until you actually have ownership of the company?

Correct.

Will there be just one new Rolls-Royce, or are you thinking of a lower priced model as well?

There is no lower priced Rolls-Royce. The product will have certain brand values, certain substance, a very unique Rolls-Royce. There will not be a cheaper one. You must see this from a strategic point of view and our product portfolio. The core brand is BMW, at the top the 7 series and its derivatives. Should there then be a kind of 7 series from Rolls-Royce? No, there is no room for a cheap Rolls-Royce.

Were you bothered by criticism of the 7-series design at the Frankfurt auto show?

The reaction from our dealers and potential customers has been very positive. The new 7 series is a major step forward in terms of technology. It has a new eight-cylinder and a new 12-cylinder engine, both with Valve-tronic, new gearboxes and a new suspension. It's a tremendous step forward.

We have been told that you plan for around 100,000 units annually of the 1 series, which will debut in 2004. How can you produce that car profitably in such small numbers?

There are no final plans regarding the volume of the 1 series. We said we need additional capacity for the 1 series of at least one new plant. So we decided to add a new plant in Halle-Leipzig. And if you see the capacity of BMW plants, they are all around 150,000, 160,000 up to 200,000 units. I think those are the figures we are thinking about with the 1 series.

In the long term for the 1 series we will follow the idea of the 3 series. We will have additional derivatives - not in the first year but in the medium and long term. We are confident that we will have a good margin for this product and the necessary profitability.

Will the car be sold in the United States?

Yes. We will have it in all countries where we have BMW.

Do you plan an X7, a sport-utility above the X5?

This is not on the table right now. The question is what could be done in the years after this current product offensive. If there are new segments we should anticipate with certain car concepts we will do this, but there are no real decisions.

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