In the wake of BMW's controversial sale of its Rover subsidiary, one might have expected fireworks at the company's annual meeting. After all, the Rover adventure had cost BMW about $4 billion, and rumors abounded that the company might be sold.
But onlookers searched in vain for signs that Chairman Joachim Milberg might have a shaky grip on his job. True, the security guards at the entrance to the Gasteig Congress Center in Munich, Germany, gave the event a mood of foreboding. The reclusive Quandt family - BMW's major shareholders - avoid being photographed in public, so the guards searched visitors for hidden cameras.
But Milberg looked calm as he detailed the mistakes the company had made following its ill-fated acquisition. Milberg described the disaster in a dry, professorial manner, as if he were only distantly involved. Meanwhile, Joanna Quandt and former chairman Eberhard von Kuenheim sat in the front row in a show of support for Milberg. Despite sharp questions during the meeting from two shareholder groups, it was clear that BMW's owners and top managers had closed ranks.
THE RIGHT MAN?
At the shareholders meeting, Milberg and Quandt made two fundamental points: BMW is not for sale, and it will expand its product lineup on its own. Still, Milberg's mishandling of the Rover affair has led some observers to question whether he is the right man for the job. To be sure, Milberg was not in charge when BMW purchased the English automaker. He emerged as the company's chief executive on 'Black Friday,' February 5, 1999, when Chairman Bernd Pischetsrieder and President Wolfgang Reitzle resigned.
But it was Milberg's decision to announce negotiations with Alchemy Partners - a British equity capital group with a dubious reputation - as if the deal were already done. 'He exposed BMW's position to an unnecessary risk,' said a board member of another German automaker. 'You just cannot act like this. It's too dangerous. It was an invitation for blackmailing the company with higher and higher demands.'
Even before Milberg botched the sale of Rover, some industry insiders questioned his qualifications for the top job. 'Some people are extraordinary specialists in their field but turn out to be unsuitable as chief executive,' said a board member of a rival company. 'Professor Milberg is a top production expert and a very pleasant person, too. But he never seemed to possess the personality necessary for mastering the huge task of steering a global company through rough international terrain.'
Such doubts were intensified March 16, when BMW announced another shakeup of senior management. That same day, Milberg unloaded the Rover car subsidiary and sold Land Rover to Ford. Then, in a move to secure his leadership, he removed his critics on the management board. Carl-Peter Forster, chief of production, Henrich Heitmann, of sales and marketing, and Wolfgang Ziebart, of research and development, all had to leave. The trio had been appointed just one year earlier.
'None of these three fired managers were in any respect responsible for the Rover disaster,' said a board member for a competing company. 'But all of them were questioning the company's course. ... When a weak leader seems unable to cope with different opinions within the management team, he tends to eliminate his critics.'
Media reports say Forster had opposed the sale of the world-famous Land Rover brand. He also worried about the damage to BMW's image caused by negotiations with Alchemy Partners. Forster had links to the charismatic Wolfgang Reitzle, who had hired him. Reitzle had supported Forster and Ziebart as they rose in BMW's ranks. They also had joined BMW's management board a few minutes before Milberg was appointed chief executive. That made a big difference: It prevented Milberg from selecting his own team. Milberg was the 'surprise' boss and had no chance to build allies inside the company.
Milberg declined to comment on the reasons behind the management changes, but supervisory board chairman Volker Doppelfeld explained the shakeup during the shareholders meeting. 'Professor Milberg convinced the supervisory board that the company could adopt a new course only if the management board would be re-shuffled again,' he said. 'The supervisory board followed Professor Milberg's arguments.'
So the company continued to lose talented managers. Within 13 months, the automaker lost five board members and a number of top executives. The company's sales and marketing position remains vacant. The two newcomers, Burkhard Goschel, 55, responsible for research and development; and Norbert Reithofer, 44, chief of production, were recruited from the company's secondary management. Their unexpected rise prompted speculation about a 'Spartanburg connection,' because both had worked in BMW's U.S. plant. But Reithofer had longstanding ties to Milberg. The company's youngest board member, he was Milberg's assistant when he had been a professor at the Technische Universitat in Munich. He joined the company six years before his teacher did; since then, Reithofer has enjoyed Milberg's full support.
So what does the future hold for BMW's management team? Financially, the company remains in good shape. In the first five months of this year, European sales totalled 226,170 units, up 5.5 percent. For the first time in its history, the company is expected to sell more than 800,000 vehicles worldwide.
But there are worries. For example, BMW and Rover must separate their dealerships. That is no easy task. Last September, the company had formed the BMW Group dealers to sell all five brands: Mini, MG, Rover, Land Rover and BMW. Without an experienced sales chief in charge at BMW, this separation could easily lead to lawsuits by dealers seeking compensation. Although customers apparently do not care about the management crisis, the atmosphere among dealers is extremely tense. Motivation is at an all-time low, and the dealers' faith in the company has been shattered.
Another worry is the 'lost car generation.' BMW devoted precious engineering resources to future compact cars for Rover and off-road vehicles for Land Rover. That left its own product development underfunded. Now, the company urgently needs new products. During the annual meeting, Milberg assured investors that new products would be coming.
'We are now concentrating in full ... on the BMW brand,' Milberg said during the annual meeting. 'We will extend (the product range) in the future from the lower mid-range segment all the way to the luxury performance segment.' Milberg told of plans for a family of sport-utilities, which insiders say will include vehicles dubbed the X3 and X7. Next year, the automaker will launch a new Mini, and in 2003, Rolls-Royce will introduce a new model.
Milberg denies that BMW's product development was slowed by Rover's projects. But rivals Mercedes-Benz and Audi have beaten BMW to the prize. Both companies sell cars in the segments that BMW wants to enter. Sales of the Mercedes A class already exceed 200,000 units per year, and Audi expects to sell 60,000 A2 cars next year. By contrast, BMW is not expected to introduce its new small car - dubbed the 2 Series by the media - until 2004. By then, Mercedes-Benz will enter the U.S. market with the second-generation A class, which will be available with an optional fuel-cell powerplant.
Meanwhile, BMW engineers must decide which elements of the canceled R30 project, which was to replace the Rover 25 and 45, could be used for a new compact car. So far, the engineers have not decided if the car will be rear- or front-wheel drive. Given the fame of BMW's powertrains, that is not a trivial issue.
The company has other problems to sort out with its upcoming sport-utilities. To complement its X5 sport-utility, BMW wants to introduce a compact X3 and the X7, a full-sized luxury vehicle. But BMW had counted on Land Rover's design expertise to develop these vehicles. It seems likely that Ford will insist that BMW hand over future Land Rover projects, too.
And then there is Rolls-Royce. Milberg told investors that 'development of an all-new, absolutely unique saloon is already proceeding at full swing.' But the brand is suffering from a split personality because of the uncomfortable joint stewardship of BMW and Volkswagen. Meanwhile, the new Mini will be a late arrival in the market. BMW projects annual sales of 100,000 Minis, an optimistic projection compared with the current Mini's sales of 12,000 units a year. If the Mini does not meet its sales targets, the automaker will be stuck with an underused engine plant in Curitiba, Brazil. This joint-venture between DaimlerChrysler and BMW was supposed to produce 400,000 four-cylinder engines. Chrysler was to use half of those engines in the Neon, while BMW was to use half for the Mini and Rover 30. Now, the Rover 30 has been canceled, and the Mini only will need 100,000 engines.
Still, Milberg says he does not plan to make BMW a mass-market automaker. 'The decisive criteria for success is profitable growth,' he told shareholders. 'In the future, the BMW Group no longer will cater to mass segments, but rather exclusively to the premium segments of importance to us.' Indeed, BMW ranks second in the world in average profit per vehicle. Only Porsche makes more money on each vehicle sold.
Thus, Milberg discourages talk of possible mergers, arguing that he does not need a larger partner to save money on parts purchases or vehicle design. 'Absolute volume is not as significant to BMW as it is to the mass producers,' he said. Joint ventures might make sense for projects such as the Tritek engine plant in Brazil. But it seems unlikely that BMW would agree to share vehicle development with another automaker. The company must protect the uniqueness of its core products, the 3-, 5- and 7-series models. Consumers would be alienated if it shared platforms with a rival.
To underline that point, the Quandt family issued a public statement at the shareholder meeting: 'There are no considerations within the Quandt family to sell their BMW stock,' supervisory board chairman Volker Doppelfeld said. 'Any speculation about that is totally out of place. The Quandt family firmly holds on to their engagement and investment in BMW. Anybody saying something else is telling lies with the intention to rattle both, employees and shareholders.'
In the wake of the Quandt family's statement, speculation about BMW's future has waned. But the company will not dispel doubts about its future until its promised wave of new products enters showrooms. Only then will car buyers - who seem to care little about BMW's management troubles - cast the deciding vote on the company's future.
You can e-mail Automotive News Europe Staff Reporter Dorothee Ostlee at [email protected]