Honk If You Are Global
A U.S. production foothold, a prestigious British 4WD marque with access to Japanese process techniques, and German engineering. How does BMW’s new CEO Bernd Pischetsrieder plan to pull these elements together?
October 1 1994 by Chief Executive
Hobbled by overcapacity and a prolonged recession,
The move came eight months after Eberhard von Kuenheim passed the CEO baton to Bernd Pischetsrieder, 46, a trim, goateed former operations engineer and chief technical planner who joined BMW in 1973. A consensus-builder, Pischetsrieder-or BP, as he sometimes is called ,faced two diplomatic challenges that might have unraveled the acquisition. The fact that Rover,
BP’s business challenges are clear. BMW cannot afford to be stuck solely at the luxury end of a maturing world car market. Nor does it believe it can risk building less expensive cars, even under a different nameplate, without jeopardizing the integrity of the BMW brand. One possible response, designing and marketing a sport-utility vehicle, might take years, given BMW’s lack of experience with four-wheel drive technology. Ditto for front-wheel drive cars.
BMW, as do all German manufacturers, faces another strategic worry. German autoworkers earn 23 deutsche marks per hour in wages, but employers must pay another 21 D-marks in social benefits. That’s equivalent to more than $27 in total hourly compensation. With workers queuing up to apply for $12-per-hour jobs at BMW’s recently opened Spartanburg, SC, plant, it will not be difficult to undercut German labor costs. But thinning margins demand that the company address head-on the productivity dilemma at home. Work-rule changes such as the new 5.5-day, 99-hour production week at the company’s newest plant in
Also at the top of BP’s agenda is BMW’s distribution. In general,
One worry BP won’t have is a takeover. Johanna Quandt owns almost two-thirds of BMW’s shares; she is the widow of Herbert Quandt, who rescued BMW from near collapse in 1959. CE ‘s J.P. Donlon talked with Pischetsrieder at BMW’s
IN THE FAST LANE
BMW’s recent construction of a plant in the
The policy is a logical extension of the internationalization of the organization we began 15 years ago. The decision to locate a plant in the
In regard to Land Rover, some time ago, we concluded that the value of the brand and the need to extend the business base made it appropriate to acquire different brand names. It was a coincidence that this decision was made at roughly the same time we chose to open a
The key to success is continuously changing your focus over the long term. For example, in the 1970s, we concentrated on establishing an international wholesale network and building the brand identity. In the ’80s, we focused on enhancing the engineering process. The key emphasis for the ’90s is globalization of the entire business, including financing, product engineering, styling, designing, manufacturing, sourcing.
When do you expect the new
We’re starting off with a derivative of the existing entry-level 300 series and will then launch a roadster car. We will produce approximately 50,000 to 60,000 units the first quarter of 1996. That is because we first must train people and avoid rushing into high-volume production.
What synergies exist between BMW and Rover?
We have more purchasing power because of the increased volume of components we buy-resulting in lower supplier costs. In addition, BMW has a strong wholesale and retail network in many countries where Rover isn’t present, and vice versa. We will utilize that, not by selling Rover cars and BMW cars in the same showroom, but by using the distribution organization.
Will they have separate production facilities?
Yes. They might use common drive-trains and access platforms, but in order to maintain their separate identities, the cars shouldn’t be manufactured in the same plant. In addition, any transfer of plant capacity would cost a lot of money.
Will you use the same sales strategy for Rover in
North America and Europe?
The global approach dictates that a car being sold in
You were quoted as saying that North American dealers can sell up to twice as many BMWs per dealer as your European or German dealers. Why is that?
My remark didn’t relate to the BMW dealer network but rather to the entire European dealer network. In
BMW dealers in the
How about offering package deals-buy one, lease the other?
I must admit I hadn’t considered that. It’s a good idea.
Entering into a smaller market with Rover means you have to deal with lower margins and higher volumes-something BMW is not used to. What adjustments will you have to make?
Even with Rover, we don’t aim for the mass market. Rover products won’t compete with mass-manufacturers’ cars such as Opal Astors. They are aimed at car specialists and won’t be produced in large volumes. Thus, lower margins might not be a problem. Nevertheless, both BMW and Rover will focus on continuous productivity improvement to cut costs and improve margins. Please note that I am not talking about the superficial productivity comparisons you see in the media. The number of people producing one car does not reflect the company’s production, because at the end of the day, the direct-labor costs-including body shop, paint shop, and trim shop costs-comprise only about 10 percent of a car’s cost. Productivity should be measured on 100 percent, not on 10 percent.
So how do you measure it?
Only one figure counts: value-added per employed person, or the company’s profit. It doesn’t help to have only two employees assemble a car if that approach produces losses.
We aim for an annual productivity increase of 4 percent. It derives from three elements: higher value-added per car for customers, higher volume, and continuous process improvement.
German industry has prided itself on technical excellence and manufacturing prowess, but lately many German companies question whether this system stifles innovation and whether its costly labor structure hasn’t priced its industry out of world competition. How are you addressing this challenge?
There’s a worldwide auto production overcapacity, so when two globally midsize companies combine, something has to be rationalized. Might that be the executive-level Rover cars, since they compete with BMW products?
You’re right to say something will be rationalized, but it won’t necessarily be the model ranges in areas that superficially appear to overlap. For example, Rover 800 sells in the
If you combine Rover sales and BMW sales within the price bracket I mentioned, the total is approximately 10 percent or 12 percent of the market. We plan to fight for the remaining 88 percent of the market by offering better products and sharpening the BMW identity and a completely different Rover identity.
Many of Rover’s cars use Honda components and technology, while Rover supplies body panels and other parts for Honda models made in the
Although the 20 percent cross shareholding links between Rover and Honda’s
Were you surprised by the nationalist furor in the
We knew this was a sensitive area, but I think we thoroughly investigated whether a corporate policy for the new company would comply with the national interests in the
What specific competencies are you trying to build within BMW?
We aim to improve our product-engineering process-meaning the online communication among suppliers, manufacturing engineers, and product engineers through computer software that enables them to work together on designing and manufacturing products and processing orders.
Communication is key. You must know what people think. You see what they’re doing, but you don’t know why they are doing it if you don’t have proper communication. This applies to our suppliers as well as employees. We hold joint quality council meetings with our suppliers and advocate quality training programs. When all is said and done, all our people, even the blue-collar worker in the
How much demand will there be if BMW carries out its plan to revive some of the brand-marks in smaller sports cars such as MG or Austin Healey?
We won’t know until our market investigation is finished. Reviving a traditional brand name is only worthwhile when there is a demand for a car that complies with that image. It doesn’t make sense to resurrect MG as the brand name of a minivan. First, we investigate in the major world markets the value of an old brand name, such as MG or Riley. We also examine potential consumers’ memory of the brand name. Obviously, we wouldn’t bring back the brand simply because I’m personally fond of Riley, but nobody else outside my office knows what it is.
So far, we have made a lot of progress on the MG name, mainly because Rover already launched RV8 in the MG name in
MAY THE MOST APPROPRIATE MAN WIN
On your appointment as chairman, board member Eberhard von Kuenheim made the curious remark, “We did not choose the best man but the most appropriate.” What does that mean?
I believe there is no such thing as a good man or a bad man when you’re in business. There is a man who is best for a particular position, but this doesn’t necessarily mean that in global terms he is best or worst. Many times, I have seen someone fired for not performing well in one position, and then do an excellent job in another. The art of management is not to say Mr. X is bad and get rid of him but to find the most suitable position for him.
What milestone do you look forward to achieving before you step down?
The international automobile world is constantly changing. Today,