TALK FROM THE TOP: NORBERT REITHOFER
Crossovers, weak dollar challenge BMW CEO
Automotive News / November 20, 2006 - 1:00 am
Norbert Reithofer, BMW's new CEO, took the reins of one of the world's most successful auto companies Sept. 1 after Helmut Panke retired.
Despite BMW's track record, Reithofer must deal with difficult issues such as the weak dollar, which eats into profits. And he must bring to market two new crossover vehicles for BMW, as well as a compact 1 series for North America.
Reithofer, 50, joined BMW in 1987 as head of maintenance planning. He was president of BMW Manufacturing Corp. in South Carolina, where the X5 SUV is produced. Most recently, Reithofer was the board member responsible for production.
Staff Reporter Diana T. Kurylko and other staff members interviewed Reithofer in September at the Paris auto show.
There is a sense that your margins need to improve. What are you doing, considering that your sales are great?
In the car industry, to announce in March of 2006 a pretax profit (for the year) of 4 billion euros ($5.10 billion) is a statement. In 2005, we had higher raw material prices costing us more than 200 million euros ($255.2 million). We had exchange issues costing us 680 million ($867.8 million). Because we were able to improve our efficiency, we were able to compensate for 1 billion euros ($1.28 billion). We are still a very successful company from a profitability and volume point of view.
First we would like to be profitable. (There were) two successful car companies between 2000 and 2005. BMW was able to grow from 900,000 to 1.3 million units. Toyota was able to grow from 5 million to 8 million units. Are both companies profitable? Yes.
One of the problems that you have is the inequity between the dollar and euro. You are hedging a bit with your plant in Spartanburg, S.C. How do you compensate for that? Can you change that?
Currency costs us more than 600 million euros (annually). We are not a car manufacturer with a volume of 8 million cars a year who can say let's put a production facility with 200,000 units there or there. If you make 1.3 or 1.5 million, you have to think of a strategy. We said production has to follow the market. The U.K. is the most successful Mini market, and our facility is in the U.K. We have good pound-euro hedging because of that.
We have a production facility in the U.S. But most important for us is that our largest X5 market is the U.S., so it is right to produce here. In a market of 16 or 17 million units, you need to expand Spartanburg, but you need product cycles to do it. Helmut Panke announced we will introduce a sport activity vehicle in Spartanburg that will push volume up. It means I have to wait.
What is the potential for U.S. growth?
With all the figures on the table, I was really surprised. In Germany, the premium luxury share is about 30 percent. In the United States, in 1990 the luxury car market was 3.5 percent and grew by 2005 to 11.6 percent - it tripled. BMW was able to move from 66,000 unit sales (in the United States) to about 270,000 in 2005. We quadrupled sales. The luxury car market in the United States is about 2 million new cars annually, defined by cars a bit under $40,000 and by brand.
If Germany is 30 percent, are you on the edge? In the U.S. there is room for premium-car manufacturers to move up, from a volume point of view.
In the past in Germany, at the top of the pyramid you had Mercedes-Benz, BMW and Audi. In the middle you had a company like Opel and at the bottom end cars that could drive from A to B without emotion. Meanwhile, premium-car manufacturers have moved into the middle-class segment - the Mercedes-Benz C class, BMW 3 series, the Audi A4. The A-B cars from the bottom moved upward. The range for the medium-class car was getting smaller.
In markets like India, BMW sold 227 cars, so there is room for outside potential.
Where is the movement in America? Into something like the 1 series?
We realize the market in the United States is changing. We will definitely bring the 1 series to the United States, but it will not be a hatchback. We have a 3-series model range, coupe, sedan, station wagon - and you can have something like that for the 1 series.
It appears that you are a world leader in flexibility in order-to-delivery. What's next?
I can only give you the outlook on how we built up the ability to be so flexible. We started to think at the end of 1996-97, "How will the market develop?" We said that volatility will be an issue for the car market. We can't say like we did in the past that 500,000 3 series are possible and (predict) the percentage of sedan, convertible, station wagon.
It can now change 180 degrees in a few months. You have to be able to be flexible to follow the change in the market.
Several years ago, we said big car companies making 6, 7 or 8 million cars a year will always be financially viable. We see that is not true anymore. That means a lot of things, too.
When I look in the future, I see CO2 emissions and in the United States NOx. You see our future challenges.
How about hybrids?
We entered into a cooperation with General Motors and DaimlerChrysler to have a hybrid system. That moved me and the BMW Group out of the corner.
It's not only hybrids. If you have an inefficient gasoline engine from a fuel-economy point of view, and you drive your hybrid vehicle at 10 miles per hour, only the petro engine is working. Say you drive 250 miles; only the gasoline engine has been used. If your engine is 10 to 15 percent better than a competitors', then you can save a lot of gas. That means we don't just have the question of what is better but the issues of hybrid, gasoline engine or diesel. In 2009, we could bring a diesel engine in the United States.
Diesel before hybrid in the United States?
It could be both.
Mini is a smashing success, but Rolls-Royce isn't. With the kind of volume you're getting, would you consider it a success?
For us, it was important to get it into the market and re-establish the brand. Then, we wanted to widen the model range with an extended-wheelbase car and a convertible.
A 7 series with everything in it and extended wheelbase costs about 180,000 euros ($229,714) in Europe. The Rolls-Royce Phantom will cost you about 380,000 euros ($484,952). That means there is space for a car priced at about 250,000 euros ($319,047), and it can't be a BMW.
When do you expect to show the smaller Rolls-Royce?
Toward the end of the decade.
When will you make engines in North America?
In Spartanburg, we produce the Z4 roadster, coupe, X5 and, from the year 2008 onward, another vehicle. At the moment, there is no real volume behind any one engine because the variants are too wide. You need about 200,000 engines of one family for an assembly plant.
Have you gotten rid of the Brazilian plant you operate jointly with Chrysler?
No, they are still producing engines because the Mini convertible uses it. We are in a partnership with DaimlerChrysler. Before we talk publicly, we have to talk among ourselves.
Are you reconsidering what kind of crossover you will build in the United States in 2008 because of the poor market reaction to the Mercedes-Benz R class?
We have two vehicles in mind. The first is a so-called SAV coupe. We saw the car already. It's the first product. We know clearly in our minds what we want in 2008.
The second product is between a sedan and an SAV. We said we will not call it a crossover but a BMW interpretation of a roomy car concept, with a lot of functionality and a lot of luxury. We did not look at the Mercedes R class. We said it is wrong to follow others.
There is one car company in Germany that we know what they will do because they do exactly what we are doing. I will not mention the name.
