BMW

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BMW

also known as: bayerische motoren werke ag founded: 1916

Contact Information:

headquarters: petuelring 130 munich 80788 germany phone: 49-89-38-95-53-8 fax: 49-89-3-59-36-22 url: http://www.bmw.com

OVERVIEW

Bayerische Motoren Werke (Bavarian Motor Works, or BMW) is Europe's top auto exporter. Their motorcycle line also competes globally. BMW is one of the world's best-known manufacturers of high-performance automobiles, and the company's sales continue to climb throughout the world. The company truly has a global presence, having 14 subsidiaries in Germany alone and foreign subsidiaries in 20 countries. Expansion has also included the acquisition of U.K. auto manufacturer Rover, as well as an agreement to produce engines with the Rolls-Royce Company. The company's U.S. subsidiary, BMW of North America, has handled the marketing and distribution of BMW products in North America since 1975. In 1994, the company built an assembly plant in Spartansburg, South Carolina. Including the Rover subsidiary, sales exceeded 1 million vehicles in 1995. In 1997, BMW sold almost 1.2 million units, increasing 4.5 percent from 1996 unit sales of 1.1 million.

COMPANY FINANCES

In 1997, BMW sales were up 15 percent from 1996, from 52.265 billion Deutschmarks (DM) to DM 60.137 billion. This was equivalent to an increase from approximately $30.2 billion in 1996 to $34.8 billion in 1997 at late 1997 conversion rates. Net income increased by 52 percent, rising from DM 820 million ($475 million) in 1996 to DM 1.2 billion ($695 million) in 1997. Revenues rose at a faster rate than production and unit sales, however. The company attributed this to a shift in consumer demand for more expensive models and higher revenues due to leasing. It was also due in part to the shift in valuation of currencies against the Deutschmark.

The largest part of BMW sales were generated in Europe, about 67 percent. Germany accounted for about 28 percent, the United Kingdom for about 17 percent, and the rest of Europe for the remaining 22 percent of overall sales. North America generated about 16 percent of BMW sales, and the combined market including the Asia-Pacific region, Latin America, and Africa also accounted for about 16 percent of sales. By product sector, BMW automobiles accounted for more than half of the company's sales, about 55 percent. Rover Group products generated about 28 percent of sales, while BMW Motorcycles contributed about 1 percent. Aero engines, financial services, and other BMW subsidiaries generated remaining 1997 revenues.

ANALYSTS' OPINIONS

BMW continues to be touted as one of the world's best automobiles. Mercedes-Benz took the number one spot as the most highly regarded automaker, followed by fellow German automaker BMW, according to the second annual Global Automotive Image Survey conducted by Market Opinion Research of Irvine in 1996. And a new survey indicates that manufacturers are building better-quality vehicles. As reported by the Mercury News wire service, "For the first time in the three years Strategic Vision has conducted its quality index, a vehicle scored more than 900 points. BMW's 7 series scored 906. A perfect score is 1,000." Analysts believe that BMW's strong product mix is improving, and that profits are on a solid growth track.

HISTORY

In 1916, the Rapp Company was founded as an aircraft engine factory in Munich, Germany; the following year the name was changed to Bayerische Motoren Werke (BMW). At the end of World War I, the Versailles Treaty prohibited German firms from airplane engine production; since the company was already making motorcycle engines, they expanded to motorcycle production in 1923. By 1929, the company began to manufacture the "Dixi," the first BMW automobile. The growing auto and engine company produced vehicles and engines for Germany's war effort in World War II, and in 1943 they developed a jet airplane engine. The following year it went into production as one of the world's first jet engines. The company also tested rockets for use in the war. However, by 1945 and the defeat of Germany by the Allies, the company was in ruins. Plants in four different German cities had been destroyed and the main factory in Munich was dismantled. The Allies imposed a three-year ban on production because of the company's involvement in constructing aircraft engines and rockets.

In 1951, BMW produced its first post-War car—the 501—but it was a financial failure. The following year, their limousine manufacturing operations suffered large losses, and the company was put up for sale. However, BMW's shareholders, workers, and dealers banded together to help the company, and with a new capital structure, it survived and began to grow. In the 1960s, BMW's reputation as a high-performance "prestige" automobile manufacturer was established. BMW of North America, Inc. (BMW NA) was established in 1975 as the U.S. importer of BMW automobiles. The North American subsidiary assumed import and distribution responsibilities for BMW motorcycles in 1980. The next year, BMW became the first European car importer to establish a subsidiary in Japan. In 1994, U.K.-based Rover Group joined BMW.

STRATEGY

BMW's business strategy was capitalizing on its reputation of fine German engineering and its history as a producer of prestigious racing cars and luxury automobiles. BMW is not one of the world's largest vehicle makers, yet it is large enough for efficient, high-quality production even as it maintains its position as a premium, exclusive make. BMW's product philosophy has never been directed at the masses, and the company has weathered poor economic environments in many of the countries to which it exports. In the 1960s, the company began producing small family-style sedans, but included the company's well-designed engines. BMW's reputation for a practical but high performance auto withstood the test of time. In the economic doldrums of the 1990s in the United States, sales continued to climb. This was testament to BMW's philosophy: to manufacture cars that appeal to the luxury-conscious, but never lose sight of the mundane details of auto ownership.

In the words of Chairman of the Board Bernd Pischetreider, "Adding the BMW and Rover sales together, the BMW Group has retailed substantially more than 1.1 million vehicles in 1996. As these sales figures indicate, BMW has evolved into a true global player in just a few short years. While sales volume is gratifying, it is not our primary goal, and we do not chase short-term sales results. We do expand carefully and strategically, and have made changes that make sense for us in the long term."

"To elaborate just a bit on how much we have changed, consider these facts: (1) 80 percent of our sales are now outside of Germany; (2) only 50 percent of our work force is German; and (3) we are the only European car company with an operational U.S. plant. Of course, BMW must—and will—be in the right place, at the right time, with the right products. And integral to this strategy is our belief that the various brands within the BMW family must always maintain their clear and distinct identities. A BMW will always perform and handle like a BMW. That is why we will not serve certain market segments with BMW products but with other products. We think this is a very smart strategy."

FAST FACTS: About BMW

Ownership: BMW stock can be purchased over-the-counter (OTC); it is also publicly traded on stock exchanges in Frankfurt, Dusseldorf, Vienna, and Geneva.

Ticker symbol: BYMTF

Officers: Bernd Pischetscrieder, Pres., CEO, & Chmn. of the Board of Management; Eberhard von Kuenheim, Chmn. of the Supervisory Board; Volker Doppelfeld, CFO; Hagen Luderitz, Exec. Director

Employees: 117,600

Principal Subsidiary Companies: At least 48 percent of BMW is owned by the Quandts, a German family with many holdings in various industrial operations. BMW's U.S. subsidiary is BMW of North America, Inc. BMW also owns the British-based Rover automotive manufacturing company; nonautomotive subsidiaries include Softlab (information systems) and Kontron Elektronik (computers).

Chief Competitors: An international manufacturer of luxury, high-performance automobiles and motorcycles, BMW's competitors include: Daimler Benz; Acura; Ford (Jaguar); Harley-Davidson Motorcycles; Honda; Rolls-Royce; and Toyota.

INFLUENCES

BMW's car sales in the last few decades have continued to increase, along with the demand for higher-priced models. In 1996, there was a 9-percent increase in sales over 1995 (for products with the BMW name brand). Sales in the United States continue to rise. Motorcycle sales, however, have been falling, owing to the decreased purchasing power of younger Europeans, who make up the largest part of BMW's motorcycle market. Unemployment among this group, coupled with increased competition from Japanese motorcycle manufacturers, has influenced this drop in sales. BMW's takeover of Rover in 1994 was promising, even though that subsidiary did not show a profit in 1995 and 1996. As BMW acquires various subsidiary automobile companies that cater to different markets, its overall sales figures should continue to increase. The company was introducing several new product models, such as a 5-Series station wagon to appeal to those growing yuppie families.

CURRENT TRENDS

As of first quarter 1998, BMW sales continued to progress nicely, as in years before. Delivery of new cars was expected to decline, however, compared to the first quarter of 1997. The company anticipated the slip as a result of model changeover in its 3 Series. Deliveries in the Rover Group were expected to remain at about the same level as in 1997. Internationally, demand was expected to temporarily decline during 1998. This reflected volatile markets in east Asia and a slight downward trend in the North American automobile purchasing market. BMW was also anticipating weakened demand in southeast Asia, due to the region's financial difficulties, which would hopefully be offset by sales in western Europe and North America. At Rover Group, demand was already found for Rover's new Freelander, which was hoped to increase business volume in 1998. In addition to restructuring the model range, BMW investments during 1998 were focused predominantly on its Birmingham and Oxford plants and international sales.

In what would become another unique addition to its product offerings, BMW announced a $572-million deal, subject to shareholder approval, that it would acquire Rolls-Royce from its parent company, Vickers PLC. The announcement was made on March 30, 1998. In April, however, the New York Times reported that Rolls-Royce had instead decided to consider a higher purchase offer from Volkswagon. As of May 9, 1998, BMW had announced they would not be making any additional offers to top Volkswagon's bid for the company, but had already claimed that if Vickers PLC sold Rolls-Royce to anyone but BMW, they would stop delivery of BMW engines to Rolls-Royce. Finally, in July 1998, BMW gained the rights to the name and the marque for Rolls-Royce. BMW granted Rolls-Royce a license to manufacture and distribute Rolls-Royce vehicles until December 31, 2002.

CHRONOLOGY: Key Dates for BMW

1916:: The Rapp Company, an aircraft engine factory, is founded in Munich, Germany
1917:: Rapp becomes Bayerische Motoren Werke (BMW)
1923:: The first BMW motorcycle is introduced
1928:: BMW buys a car factory and the rights to build a small car called the Dixi
1932:: The 3/20 is the first car to be developed at the Munich factory
1934:: Aircraft engine manufacturing becomes an independent business unit
1943:: The world's first jet engine successfully flies
1945:: After World War II, the Allies impose a three-year ban on BMW production because of its involvement in the war effort
1951:: BMW introduces its first post-war car
1959:: BMW goes up for sale; shareholders, dealers, and workers band together to keep the company alive
1965:: The company ceases building aircraft engines for the next 25 years
1970:: BMW's second car factory is constructed
1979:: The world's first digital engine electronics are developed by BMW
1984:: BMW makes the first European cars with catalytic converters
1993:: The 5-millionth car rolls off the BMW production line
1994:: The U.S. car plant starts up; the U.K.-based Rover Group joins BMW
1995:: The Z3 roadster is the first BMW car not produced in Germany
1998:: BMW gains the rights to the name and marques of Rolls-Royce

PRODUCTS

James Bond drove the new M3 Roadster in the film "Goldeneye" and introduced the world to the latest BMW model. This model is produced exclusively in South Carolina (the company's sole U.S. assembly plant), and owners can "build their own" by ordering custom components to make their roadster unlike any other. The new 318ti three-door coupe has been called an "entry luxury car"—a lower-priced high performance sedan for younger, more savvy buyers. The 7 Series luxury sedan

BOND'S BMW'S

James Bond, also referred to as Agent 007, first drove a BMW in the movie GoldenEye in 1996; Bond's choice: a BMW Z3 Roadster in Atlanta Blue. Of course, this "Beemer" didn't just come with the standard equipment. The Roadster featured a cell phone that allowed 007 to drive the car remotely. Intruders were deterred by an electrifying shock if they touched the car even slightly. The car was also modified with a rear parachute, an inboard satellite tracking system, and two stinger missiles. These options are only available to secret agents, though.

For his promotion of BMW in the movie Golden-Eye, the company gave Pierce Brosnan, who played James Bond, a BMW 850 CSI. A short time after, police caught him doing 120 mph. However, the suave Irish-born actor was not given a speeding ticket but was instead interrogated about specifics of the bungee jump stunt in the movie.

The next Bond movie, Tomorrow Never Dies, featured a BMW K 1200 RS Custom Cruiser motorcycle and a BMW 750il. The Aspen Silver BMW 750il reaches speeds of 0 to 60 mph in 6.7 seconds, which actually made it faster than the Roadster Bond drove in Golden-Eye. Both of these movies helped to increase BMW's sales. The year GoldenEye was released, the BMW Z3 was in high demand even before it went on sale. Automobile aficionados may feel that if it's up to James Bond's standards then it must be a high-class product, or just maybe there's a secret agent hiding deep down in all of us.

with an 8-cylinder engine includes an on-board navigation system, which determines your actual position using signals from up to six navigation satellites, a magnetic compass built into the rear shelf, and data transmitted from the front ABS wheel sensors. The new R1100RS motorcycle, which costs over $15,000, is a luxury-loaded touring bike. BMW plans to broaden its appeal to other markets by introducing a station wagon model, as well as producing the engine for the "Mini," a British economy car that will offer BMW engineering, but under a different brand name to protect the exclusivity of the BMW name.

GLOBAL PRESENCE

The company has a global presence, having 14 subsidiaries in Germany alone and foreign subsidiaries in 20 countries. Sales outside Germany comprise 80 percent of total sales, and only 50 percent of BMW's work force resides in Germany. BMW has entered into several joint ventures with other companies, one of which was Chrysler, with whom they were building an engine plant in South America to produce small engines for nonBMW brands.

BMW's global engine strategy entails building several new manufacturing plants in different areas of the world. After the company acquired part of Rolls Royce, a plan for producing a small four-cylinder engine in England was announced. This engine will be incorporated into the new generation of the Mini, a small car almost ubiquitous in the United Kingdom, which attracts a very different market than luxury BMW models. This was BMW's entrance to a completely new market and, more importantly to a new marketing strategy. The Mini already has an established reputation in Europe. The offering of a low-priced economy model was not expected to compromise the "high end" status of BMW, since it would be sold under a different name brand. The Mini engine would also be produced in a joint venture with Chrysler in a South American plant. A BMW news release reports: "This enables us to reach two strategic targets: First, we are creating a very favorable cost structure for the new generation of the Mini, which will certainly be an advantage in such a fiercely contested segment of the market. Second, by producing engines in South America, we are opening up the local markets for the sale of BMW and Rover cars. This strategy is creating an interesting partnership for the concerned parties." Latin America, with its expanding economy, is an appealing market for high-end BMW cars also; Latin America is the world's fastest growing car market.

The Asian market proved more difficult to break into, however. They began marketing Land Rovers in Korea, and sales in Singapore, Indonesia, and Malaysia showed double-digit growth. Assembly plants were started up in Vietnam and the Philippines, and in the market in which BMW has the greatest penetration, Hong Kong, the company's market share was 12 percent.

EMPLOYMENT

BMW believes in starting employees with its "value orientation" program, which has been in place since 1983. Additional human resources efforts were directed toward the continued training, development, and promotion of those same employees, a policy that benefits both employees and the company. In 1998, a more comprehensive training program was launched, focusing on the recruitment and development of highly qualified young employees. By the year 2000, up to 3,000 apprenticeships will be underway at BMW. All who successfully complete the internships are subsequently offered full-time employment with the company.

Continuing education and qualification was another approach taken by BMW, developing the potential and capabilities of employees already employed by the company. Individual responsibility taken by each employee played a large part in this effort, but such efforts were well supported by BMW "in the form of comprehensive advice and an individual range of courses." BMW Learning Management and Training added new courses to its offerings to allow for BMW's technical and economic requirements. In 1997 additional focus was placed on information technology.

In 1997 BMW created more new jobs. During the year, the total number of employees increased by 1,500 to 117,600—a new high for the company. Between 1995 and 1997, more than 8,000 new employees were hired worldwide.

SOURCES OF INFORMATION

Bibliography

"bayerische motoren werke ag." hoover's online, june 1998. available at http://www.hoovers.com.

bmw 1997 annual report. munich, germany: bayerische motoren werke ag, june 1998 available at http://www.bmw.com/bmwe/enterprise/gb97/index.shtml.

bmw home page, june 1998. available at http://www.bmw.com.

"international business; vw is set to win rolls-royce as bmw drops out of bidding." new york times, 9 may 1998.

macleod, alexander. "a german rolls-royce? or a british bmw?" the christian science monitor, 1 april 1998.

mercury news wire services—auto news in brief: owners report fewer problems in new vehicles, 25 april 1997. available at http://www.sjmercury.com/business/drive/docs/009652.htm.

miller, scott. "new models boost bmw to record 1996 sales." reuter business report, 30 january 1997.