Jim O'Donnell took over as CEO of BMW of North America in July 2008, just as the country was plunging into recession.
Three years later, as the market recovers and luxury buyers open their wallets, O'Donnell is feeling optimistic. He expects BMW group sales, including Mini and Rolls-Royce, to increase 10 to 15 percent this year in the United States. Last year group sales rose 10 percent to 266,069, while BMW-brand sales rose 12 percent to 220,113.
O'Donnell, 61, says BMW is benefiting from the success of the new U.S.-built X3 and is getting ready for a several new models in the short term and a series of smaller, more fuel-efficient front-wheel-drive vehicles that are about two years away. Meanwhile, he says BMW's dicey relations with dealers are improving.
O'Donnell was interviewed last month at BMW of North America headquarters in Woodcliff Lake, N.J., by Staff Reporter Diana T. Kurylko.
Q: BMW CEO Norbert Reithofer recently said BMW Group plans to sell 1.5 million cars worldwide this year, up from 1.46 million in 2010. How does the United States fit into that equation?
A: We are a big part of it. We will grow this year between 10 to 15 percent, depending where the market ends up. We are obviously vying with Germany to be the No. 1 country. We're definitely No. 1 if you include Mini.
Are you facing any shortages as a result of the Japan earthquake and tsunami?
No, so far we have been fine. We've had the odd restriction in terms of an option; we didn't have one of the radios, but we have been getting by.
Are your transaction prices increasing because of the Japanese vehicle shortages? Are you spending less on incentives?
Transaction prices, I am not sure. The sales support that we give to the dealers has been reducing. I am not sure that has to do with the Japanese. We have been coming off sales support for the last 24 months because of the strengthening market and new products as well.
If you look at the premium sector, the Japanese do not play such a big role. We are more interested in what our friends at Mercedes are doing.
Reithofer said BMW has major new product coming this year. Which vehicles are headed to the United States in 2011?
We just launched the 6-series convertible. We are getting the 1-series M coupe. The M5 is next year for us; it launched in Europe this year. The new Mini coupe comes this year. The 528xi is our big launch in the fourth quarter.
Why are you so optimistic about sales this year?
The easy one is the X3. Last year we sold about 5,000, and this year we will sell about 25,000 -- no wonder I am optimistic and relaxed about 2011. Secondly, and I am putting this in order of volume, the 528xi will be with us for the final quarter and has huge pent-up demand. It is big for us in the central region and the Northeast.
We have just launched the new and widely acclaimed 6-series convertible, and the coupe comes later this summer. The 6 series is a niche car, and we expect to sell 5,000 this year. In a full year you could go up to 8,000; it depends on how the market is going.
We have the 1-series M coupe, that is small numbers -- less than 1,000 -- but it is exciting. It is a reinvigoration for the brand at that level. It has been very well received.
Mini sales were up 49 percent through April. Why is Mini doing so well?
If you go back to 2008, Mini benefitted from the gas crisis. When you talk to the dealers they are telling me the new Countryman has brought in lots of new people they have never seen. They are not all buying Countryman, but they persuading a lot of them to buy the original Mini. We are running a sales promotion -- Mini Rocks the Rivals -- with the Kiss band special edition cars. It is one of the most successful programs we have ever done.
In the overall luxury market, do you see movement toward more fuel-efficient vehicles? Do you see buyers dropping down in segments: 7 series to 5 series, 5 series to 3 series?
I don't see that. I see us giving the consumer greater choice of electric cars, hybrids, diesels, four-cylinder, six-cylinder, eight-cylinder and ultimately 12-cylinder engines. What we are doing is adding to our choice. We are adding new products at the bottom end, maybe at the top end as well, but volume-wise at the bottom end, where it will enable us to improve our overall average miles per gallon.
You're talking further out with the small cars?
Yes, the 2014 and 2015 period with the front-drive cars. But what I do see happening is that the premium segment will expand. At the New York auto show, Mercedes-Benz was showing the A class. We will be expanding into new niches. The consumer will be spoiled for choice.
Why are light-truck sales increasing?
People are coming back into the market. They are looking to their lifestyles. They are not making the sacrifices they were making in 2008. What we saw is 2008 is what goes up also comes down. A lot of people believe that gas will also come down for a while. It is not up at $5 a gallon in California and staying there. It will fluctuate.
Also, since 2008, big cars have become more efficient. We have introduced diesels and eight-speed transmissions that give up to 15 percent better fuel economy. It is a combination of all those things.
Is demand increasing for the small 1 series -- and can you get more?
We are not bringing in any more 1 series. We do not like to push that car. We like to leave it as a pull. It is built at the same plants as the 3 series, and we'd rather have more 3 series. There is more demand for the 3 series at the moment.
Are engine choices changing because of the cost of fuel?
Not substantially. Diesel has changed it slightly. We have added the six-cylinder 740i sedan, and a four-cylinder engine is coming for the Z4, and I am looking at bringing the four-cylinder into the 3 series.
Are you getting higher transaction prices for certified used cars? Do you need more stock?
I think we are getting higher prices because the market is getting better and because of supply and demand.
BMW is said to be at the bottom of the NADA 2011 Winter Dealer Attitude Survey.
Not true. We did better. We are closer to the bottom than I would like to be. Judge us after the summer because of all the actions we have been taking to get our house, business and dealers in order. There is nothing on the horizon to shock the dealers going forward. What is happening is what we predicted: dealer profitability is coming back.
What is it now?
I've said the average return on sales will be close to 3 percent by the end of the year. It was 2.5 percent at the end of 2010.
So you've moved up a few places in the survey?
By September we will be in the top half of the survey because we will see the dealers reaping the rewards of everything we've done. The dealers will be making more money than most other franchises. They will see their parts sales increase because of the changes we have made. We have made changes across the board. They have one of the best certified pre-owned programs. We've done a lot. It will all come together. They made their point.
Mercedes-Benz is getting aggressive with the C class, which will be redesigned and will get a new coupe this fall. How can BMW keep 3-series demand high?
We are definitely cross-shopped. We are in the final year of the current car. Our problem this year is lack of supply. We oversold in the back end of last year, 2,000 more cars than we anticipated. We have never been able to catch up because the plant in Munich was closed for the month of January. We think we will have another good year with the 3 series. We start the new one in the second quarter of next year -- just the sedan.
All your competitors target the 3 series. How do you keep the momentum going?
Each generation has been slightly bigger and slightly better and better equipped and has more safety features, etc. We keep setting a new benchmark, and the others follow.