Q&A: Helmut Panke wants BMW to be premium brand leader

Munich. With new sales records and a solid annual result, BMW is one of the few winners within the automotive industry during 2003. Helmut Panke, chairman of the BMW AG board, spoke to Automobilwoche about his plans and strategies for the next five years.

Q: Mr. Panke, in what areas do you foresee the greatest growth potential for the BMW Group during the next five years?

A: In regard to the total figures, most of it will come from the classic large markets: North America, western Europe, Germany and Japan. At the same time a strong impulse will also come from China, where the 3 series, which is now manufactured in the country, is on the market. Additional impulses will also come from our new subsidiary in Malaysia and from the European subsidiaries - for example in Ireland, Greece or Denmark. Referring again to the large markets, we hope to double our sales in Asia alone in the coming five years. We are also preparing to expand our current product offensive, which at the moment ranges from the restyled BMW 3 series to the 5 series, the X3, the new 6 series and the BMW 1 series.

Q: Are you looking to become the world's premium brand market leader?

A: This is definitely the aim. However, I believe that market leadership is only one of the goals. It is our objective to become the world's most successful and best premium car manufacturer - volume is only one aspect of this. Reputation and our potential customers' high desire for our products are much more important.

Q: Do you have a deadline to reach No. 1?

A: I cannot give you an exact date, as it depends on the future development of the international markets and our competitors.

Q: What risks do you face along the way?

A: They lie within the general economic situation. Also, our competitors will not simply let us reach our goals. That is why we must not sit back and rest on our laurels. It is like running a relay - we have to continue seamlessly.

Q: That trend seems to apply to your sales figures. You announced that 2003 would be a record year. What are the prospects for 2004?

A: The economic indicators in all regions - Europe, North America and Asia - point upwards, which means that business is also looking up for the automotive industry. Next year we will have a better overall economic situation in all the major markets.

Q: How big would the sales volumes for the new models - the BMW X3 and the 6 series luxury coupe - need to be to cause further growth?

A: With the new sports utility vehicle BMW X3, the BMW brand will win over a large number of new clients for a dynamically growing market segment. We currently have a production capacity of 300 cars per day, which means an annual production of approximately 80,000 vehicles. We hope to strengthen our position within the top class segment with the 6 series and to reach a leading position within the luxury coupe segment. During the past years the luxury coupe segment - a typical BMW niche, by the way - has had continuous growth and promises to grow further. With the former 6 series coupe, we had total sales of approximately 86,000 vehicles during its entire product life. We hope that the sales volume of the new BMW 6 will be higher than that.

Q: Your major competitors have been Mercedes-Benz and, in the USA, Lexus. Meanwhile Audi boss Martin Winterkorn has also joined the battle.

A: Mercedes remains our main competitor worldwide and Lexus is No. 2 due to its focus on the USA. We see it as a confirmation that we are following the right path when others try to copy us. However, those who only copy us will find it difficult to take over the lead. Audi announced that it wanted to become like BMW - we will see if they can catch up to us.

Q: Do you have the necessary funds for your planned growth? DaimlerChrysler has many more resources due to its size.

A: Of course, we have to make sure the money is invested in the right places, however, you can't compare the two companies directly. DaimlerChrysler is in the middle of a turnaround - with the exception of Mercedes - that impacts two-thirds of its brand and product programs. Meanwhile we have, after our strategic realignment, reached a clear position and can continue to focus on our offensive. How much we can and will spend is evident in the strength of our balance sheet and our profit and loss. We have all the funding we need for our product and market offensives.

Q: Can you provide some figures?

A: We will spend approximately 16 billion euros on our long-term investment program, which started in 2002 and will run until 2008. At least 10 billion euros will be spent on model development during that period.

Q: What do you hope to achieve?

A: The main goal, which we are working toward with all of our programs regarding product development and growth in the most important markets, is for the BMW Group to produce 40 percent more vehicles by 2008 and to reach total annual sales of 1.4 million units.

Q: What are your aims in regard to the US market?

A: We need substantial growth within the individual markets if we want to increase our sales by 40 percent within the next five years. In 2002, we had a market share of 1.5 percent in North America. We believe that in the midterm a two in front of the comma is definitely feasible. Growth in Europe will be a little slower of course, but there is more potential in Asia.

Q: Is the premium market in the USA becoming increasingly difficult due to new competitors entering the market?

A: No, the premium market in the USA has developed in a much more solid way than the high-volume market. Of course there are new competitors, such as Infiniti and Cadillac, who try to create a more distinctive image for themselves, but that does not make them equal to a successful premium brand.

Q: How can you avoid the incentives battles in the USA? It is said that, for example, leases for the X5 offer hidden incentives worth $4,000.

A: I cannot confirm this number. Of course, US dealers use specific incentives for outgoing models. We also did that with the predecessor of the new 5 series. However, in the USA those figures are always a combination of the information given by both dealers and manufacturers. On average, incentives for such premium models are between $1,500 and $2,000 per car. And if you take into consideration that premium vehicles are on average twice as expensive as high-volume autos, then you will see that the incentives are only a quarter of those you get on the high- volume market.

Q: In August and September you had a drop in Mini sales in America. Was this due to delivery problems or is the demand for the car decreasing?

A: No, demand for the Mini continues to be high. We will sell 165,000 cars this year - which is 21,000 more than in 2002. We really underestimated the demand for the car in the USA. By the end of this year, we will have a strong sales increase for the Mini there.

Q: Do you have any more free capacities for the Mini at the Oxford plant?

A: The BMW Group, so far, has always been able to keep up with demand through increasing our productivity. This is true for all of our plants, including Oxford.

Q: Could you produce the Mini somewhere else?

A: That is definitely not planned. The Mini is produced at the Oxford location and that will not change.

Q: You are now selling and manufacturing the 3 series in China. Soon the 5 series will follow. Will other models also be built there?

A: No, only the 3 and 5 series.

Q: What are your possible sales increase rates in China?

A: They could lie in the three-figure region. In 2003, we have increased our sales by 108 percent during the first three quarters. Our capacity target at the Shenyang plant is 30,000 units, plus, will continue to import a large number of vehicles. China is already our third largest market for the 7 series.

Q: How many cars do you hope to sell in China by 2008?

A: It will be a good number, but we don't want to talk about that yet.

Q: Some industry experts warn of the imminent danger of overcapacity in China.

A: We don't believe that this applies to the premium segment, which is only starting to develop in China. Its volume has nearly quadrupled since the year 2000. There is no noticeable sign of weakening at all.

Q: What role does Japan play in your Asia strategy?

A: It is the largest automobile market in Asia with approximately 5 million vehicles sold per year. We will continue to work hard on that market, which is why we will open 10 percent more dealer outlets during the next five years and we will introduce new products. The 3 and 5 series are the major products. The Japanese market is also included in our 40 percent sales increase by 2008.

Q: How important are the ever-growing eastern European markets for BMW?

A: The sales volume is substantially lower there, however, there will also be a gradual increase, which we will be part of. We are already active in Russia and Poland.

Q: India is one of the last empty spaces on the BMW world map. It is said that you are looking for a manufacturing partner there?

A: It is true that we have little representation in India. It is difficult to find appropriate sales and manufacturing solutions. We are currently in negotiations. However, I don't expect a quick result.

Q: Will your existing plants - including Leipzig and Shenyang - be sufficient for your big sales targets?

A: Yes, there is no need to consider opening additional plants. Our structure is balanced and our capacities at the existing plants are still being expanded through an increase in productivity. However, this is a gradual process. We don't want to be left with superfluous capacities, which we would have to use somehow. We will always have a few vehicles less than needed to maintain the premium positioning.

Q: Will produce any additional models at your Spartanburg plant?

A: Currently there are no such plans. We have already had a significant production increase in 2003 with the X5 and Z4. We are expecting to build approximately 150,000 vehicles.

Q: Magna Steyr is building the X3. Are there any plans to have it build more BMW models?

A: This is neither planned, nor intended nor being negotiated. First we have to focus on getting the production running properly and on bringing the cars to the market. By the way, we are very happy with the quality. The decision to produce within a network has so far been very worthwhile.

Q: Have you reached an agreement with DaimlerChrysler to end the Brazilian engine joint venture?

A: No. And it is not a question of agreeing it is deciding which direction to take. There are a number of possibilities, for example, that each partner could take over the plant. We don't have to make a quick decision. The quality of the engines that we receive for the Mini is exceptional.

Q: Lets stick to the quality subject. Many manufacturers seem to be reaching their limits in regard to electronic engineering. The number of defects is increasing. Mercedes-Benz plans to examine much closer whether a new development has an actual value for the customers. Does BMW have a similar strategy?

A: That sounds a bit tough to me. Electronic engineering in automobiles has been playing an important role for a long time. Think of electronic motor controls, ABS or catalytic converters. Electronic engineering has enabled the industry to make significant progress in regard to environment, safety and comfort. Therefore electronic solutions are not to be seen as an end in themselves but they always represent additional value for the customer. Some recent examples are active steering or xDrive. All automobile manufacturers aim to reach the same quality for electronic components as the do for mechanical components. We are all in the same boat. It is logical that there are many unexplored factors during a development process. That is why we founded the subsidiary BMW Car IT, so that we can invest in building basic structures to avoid searching for suitable links between individual systems. In the future, we have to move from isolated, island-like systems to a sensible general structure. We could probably learn from both the computer and aeronautics industries how to install safe development and testing procedures.

Q: It is said that your strategic cooperation with PSA is going exceptionally well. Apart from the engine joint venture are there any plans for whole vehicle concepts?

A: The project for small gasoline engines has a lot of advantages for both partners. We supply modern engine technology and PSA has a lot of experience with large production volumes and with purchasing. The synergy between the corporations is positive on all levels - within the joint engineering team and also between Mr. Folz and myself. However, there are currently no plans for additional projects.

Q: Your relationship with your dealers is currently not harmonious. Will any changes be made to the new contracts?

A: If the EU Commission in Brussels had any specific requests, we would of course react. However, so far we have not had any feedback from the EU, which means the contracts, which have been in effect since October 1, are valid.

Tags: Automakers BMW

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