MUNICH, Germany - Wolfgang Ziebart had a pretty good idea what to expect as he began tearing down pre-production prototypes of the Rover 75 at Rover's Gaydon Technical Center in England last October.
While serving as project leader on the new 3 series, he had watched Rover from afar, like a lot of other BMW executives. But they had kept quiet, observing BMW boss Bernd Pischetsrieder's rules about protecting Rover's independence.
Now things had changed. Surrounded by members of his emergency 'Rover turnaround team,' Ziebart, a 21-year BMW veteran, quickly halted the new sedan that was due to go on sale in January 1999.
'I immediately saw that we could not launch that car as planned,' said Ziebart.
He delayed the 75's debut for six months even though it meant that Rover's Oxford plant would sit idle during that time, hemorrhaging cash.
Nearly five years after BMW bought Rover Group, BMW managers were finally getting serious about reviving 'The English Patient,' as they called it here. But by that time BMW had already become a ghost of the great company that bought Rover for $1.3 billion in January 1994.
And at the center of that deterioration is Eberhard von Kuenheim, the legendary BMW chief executive who had raised BMW from a minor player into a powerhouse from the 1970s to the 1990s. Officially, von Kuenheim had retired before the Rover acquisition. But his choice of a successor and his own strategy have brought BMW back to earth.
In 1992, BMW had surpassed Mercedes-Benz in sales for the first time and had defined the market for sporty luxury sedans. It had a lean, flexible management team, great products, excellent margins and a crystal-clear brand identity.
Today, the company's two top executives, Chairman Bernd Pischetsrieder and production development czar Wolfgang Reitzle, are gone because of Rover. So is a long list of Rover executives. And BMW has lost its mantle as the world's leading luxury-car maker.
Led today by a machine tool professor, BMW executives now spend much of their time shuttling to England to put out fires rather than creating 'the ultimate driving machine.'
'Nobody has any time because of Rover, nobody has any money because of Rover,' says a midlevel BMW executive.
Several Automotive News Europe interviews with current and former executives, and internal documents, show a humbled BMW that is trying to reinvent itself. The new executive team led by former professor Joachim Milberg is doing away with BMW's unique management style, with its emphasis on direct involvement by senior managers.
The style was personified by the flamboyant Reitzle, who was largely responsible for BMW's highly successful, hands-on management culture. Reitzle served as Rover's chairman from September 1995 until July 1996. Last February, he departed along with Pischetsrieder. Ford Motor Co. hired Reitzle in March.
BMW now says it is being forced to seek senior managers from other companies to rebuild an executive team depleted by Reitzle's hiring raids and departures from Rover.
The new leaders say they know what went wrong. After Pischetsrieder acquired Rover he set a doomed arms-length policy instead of attacking the English company's chaotic passenger-car operations. Rover had not developed a new car on its own for 20 years. It had based its new models instead on cars from minority owner Honda.
Without BMW management help, Rover was dying. Its weaknesses were heightened when the British pound began to strengthen in 1997. Pischetsrieder's strategy of being a sensitive German owner of an old British company turned into a catastrophe.
But there is another side of the story. Current and former BMW managers describe Pischetsrieder as a chief executive who was dominated by his predecessor, Von Kuenheim.
Von Kuenheim, who ran BMW for 23 years, couldn't bring himself to cede power when he retired as chairman in 1993, they say. He didn't have to really step down as long as the Quandt family that controlled BMW put its complete trust in him.
Von Kuenheim moved from being the chief executive to head of the nonexecutive supervisory board. A German supervisory board is somewhat like an American board of directors, and does not get involved in day-to-day operations.
In 1970, the Prussian-born former machine-tool executive was installed by the late BMW chief shareholder Herbert Quandt himself. Von Kuenheim built the modern BMW during his tenure as management board chairman. After leaving the management board in May 1993, von Kuenheim effectively stayed in control from behind the scenes, company sources say.
Some say von Kuenheim used Pischetsrieder as a tool and ultimately a scapegoat.
'A lot of people thought that Pischetsrieder was the guy who bought Rover and had the wrong policy,' said a source who worked with both men. 'But that is not true. It was von Kuenheim's deal, never Pischetsrieder's.'
BMW has poured more than $3 billion into Rover, which has failed to turn a profit under its current owner. Rover lost about $1 billion last year, up from about $150 million in 1997. Meanwhile, Rover's share of the United Kingdom market has fallen from 13.4 percent in 1993 to 8.9 percent last year.
Under the weight of Rover's problems, BMW group profits fell by 27 percent to $203 million in the first half of 1999, compared with the same period last year.
'Rover was completely out of control in the first half,' said John Lawson, an analyst at Salomon Smith Barney in London. 'The Oxford factory was pure overhead for almost six months. They stopped building the 800 and 600 at the end of last year and didn't sell anything until June 21. They probably racked up record losses. In retrospect it is easy to see why there was such boardroom turmoil.'
The arrival of Ziebart and his team last autumn was the beginning of the end for Pischetsrieder. Ziebart was given complete freedom to fix what was broken. He used the management consulting firm McKinsey and Co.
The Rover 75, due for a January launch, was far below the quality standard Ziebart had demanded when he led the 3-series project.
He postponed the launch from January to June and ordered a long list of improvements. He also refocused Pischetsrieder's pet project, the Mini replacement, and set a firm launch date of early 2001.
Ziebart said new synergies were found at once. So why didn't BMW seek them five years ago?
'We owned the company, but we didn't manage the company,' he said. 'I think we feared that by bringing in too much of the BMW philosophy we would end up with a second BMW instead of a company that builds distinctive cars.'
A Ziebart colleague is more blunt.
'Pischetsrieder and some of his people were too British-minded,' he said.
Pischetsrieder believed that Rover needed BMW financial support, but little direct management support.
'This wasn't the case,' said Ziebart. 'Rover didn't have the strength to really recover from inside.'
The explosive end to the Pischetsrieder era came at a marathon supervisory board meeting Feb. 5 at the BMW tower in Munich. Pischetsrieder was fired. Then Reitzle resigned when the supervisory board refused to give him Pischetsrieder's job.
Five years earlier in the same room, the young Pischetsrieder -barely eight months into the job of chairman - had enthusiastically outlined the Rover strategy to the board, including Hans Graf von der Goltz and Joanna Quandt. The pair represented the Quandt family that owned more than 45.6 percent of BMW.
Quandt and Graf von der Goltz supported Pischetsrieder because they supported von Kuenheim, who had anointed the bearded young man as his successor.
But almost from the beginning Pischetsrieder made the wrong choices. The BMW machine that he inherited from von Kuenheim kept humming, but Rover continued losing money. Yet Pischetsrieder refused to get tough.
BMW executives began calling Pischetsrieder 'Zauderer,' or 'indecisive one.'
Some BMW executives also blame Pischetsrieder for delaying the change at the top of Rover. After Rover holdover CEO John Towers resigned in April 1996, Pischetsrieder waited until July to name a successor. The man he finally decided on was his old friend Walter Hasselkus, head of BMW's motorcycle division.
As Rover lost ground in the brutally competitive United Kingdom market, Hasselkus resigned last December. He was replaced by Werner Saemann, the no-nonsense head of BMW's engine and suspension division.
Pischetsrieder was a surprise choice for the job in 1993. He had benefited from the strange relationship between Reitzle and Reitzle's mentor, von Kuenheim. In 1992, Reitzle wanted to accept an offer to become chief executive at Porsche. But in a very public dispute, von Kuenheim refused to let Reitzle out of his contract. A year later, von Kuenheim shocked the automotive world when he chose the then little-known, 45-year-old manufacturing boss, rather than Reitzle, to succeed himself.
Some BMW insiders say it was a question of style.
'Pischetsrieder was very down to earth,' said one source. 'He enjoyed a good cigar. He was easy to talk to.'
The more energetic Reitzle, who resembles Errol Flynn, cut a dashing figure. He wore tailored suits and was a regular item in German gossip columns.
'Reitzle was BMW personified - young, fresh, dynamic, a great engineer,' said a colleague. 'But he wasn't the kind of traditional German executive von Kuenheim preferred. Pischetsrieder was nothing but a compromise.'
At the June 1993 shareholders' meeting, where Pischetsrieder was installed, von Kuenheim told a colleague: 'I'm not stepping down, I'm just moving into the background.'
Meanwhile, an anecdote circulated in BMW after the acquisition: When Pischetsrieder learned he would become chairman, the first thing he told von Kuenheim was 'we have to buy Rover.'
In fact, von Kuenheim had been working to buy Rover's Land Rover unit for two years. Some say that Pischetsrieder positioned himself for the top job by supporting von Kuenheim's plan.
After months of negotiation, BMW acquired Rover Group from British Aerospace in January 1994. It appeared to be a Pischetsrieder coup. But BMW insiders say von Kuenheim was the real force behind it.
Carl-Peter Forster, who was elevated to board member for production on Feb. 5 of this year, argues that von Kuenheim did not dominate the company or Pischetsrieder.
'Von Kuenheim is very disciplined and took the role he had very seriously,' Forster said. But von Kuenheim was bound by Aktienrecht (German corporate law) from interfering too much.
Late last December, Pischetsrieder made up his mind to resign, say sources close to him.
'He felt he was a symbol of the problems with Rover,' said one colleague.
But he would have gone anyway. Rover was suffering under the strong pound, which made Rover exports more expensive in continental Europe and allowed Europeans like Renault and Peugeot to raise market share in the United Kingdom.
But sterling had been strong for nearly two years and von Kuenheim and the supervisory board were running out of patience. Forward hedging of currency had sheltered BMW for a while, but now the parent company's financial results were being damaged. Pischetsrieder had not reacted quickly enough to correct the situation. Critics say, for example, that he should have moved faster to shift Rover's sourcing to more non-United Kingdom suppliers.
Meanwhile, Reitzle made clear to the board that if he did not get Pischetsrieder's job, he would also quit.
Instead, Milberg, a former professor who was head of manufacturing, got the CEO job and quickly set about changing BMW.
Forster calls the recent changes at Rover management 'extremely radical. Rover no longer exists as an independent company.
'Out of the old management there is nobody left. A massive personnel change also took place in the organization below the management board, so there are now new leaders and a new direction.'
But BMW plans to begin hiring from outside to replenish its management team.
Said Forster: 'Up until now BMW has only very rarely recruited from outside. This will change now.'
TOO MUCH POWER
Last winter, Von Kuenheim decided that the management board had to be expanded to deal with Rover. Pischetsrieder and Reitzle were replaced by Forster, Ziebart and Henrich Heitmann, board member for sales and marketing. Manufacturing boss Milberg was named chairman. Forster got manufacturing and Ziebart got product development.
'There was too much power in a few hands,' Forster said. 'The decision-making had become too slow. Now the whole management culture has changed dramatically. Before, all decisions were made at the very top. Now much more is delegated.
He disagreed with rumors that overworked engineers complain about having too little time for BMW projects.
Ziebart now spends up to two days per week at Rover in the United Kingdom. 'This is an opportunity, not a problem,' he said. 'If you only have success you allow inefficiencies to creep in.'
Indeed, arrogance bred by success seems to have been the main cause of BMW's Rover catastrophe.
In an interview with Automotive News Europe soon after joining Ford, Reitzle said that in the Rover calamity, 'every detail turned out the way I wrote it some years ago and tried to convince my colleagues.
'If you don't have your basics in place - product quality, attractiveness, loyalty rate, dealer network image, you can't grow quicker than others. They invested for growth (at Rover) which was higher than the growth of all car companies in history, and on the basis of such a weak foundation like Rover cars. I always said it can't work. Why should the miracle happen? Only because they are owned by BMW? It's not enough.'
The new management team believes that succeeding as a global, multibrand player will require a different kind of BMW. And that may be easier now that a new era has begun. Von Kuenheim retired from the supervisory board in June at age 71 - handing the job over to his old ally Volker Doppelfeld, the longtime BMW finance chief.
The Rover ordeal was a sad final act to one of the most distinguished automotive careers of the century.
The Rover 75 is selling well in its early months. A facelifted Rover 200/400 is about to be shown at the London auto show in October, and the Mini is now on Ziebart's schedule. So BMW executives argue that the combined company is on track. But the strong, confident BMW of the pre-Rover days has been replaced by a humbled manufacturer, just trying to keep up with the market.