Honk if you are global - interview with BMW CEO Bernd Pischetsrieder - Cover Story

Chief Executive, The, Oct, 1994 by J.P. Donlon

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?

Hobbled by overcapacity and a prolonged recession, Europe's carmakers are reconciled to consolidation. In contrast to the defensive Volvo-Renault deal that ultimately was aborted by Volvo's shareholders, Munich-based BMW, with $18 billion in sales last year, doubled its capacity and flanked luxury-car rivals earlier this year with the $1.2 billion purchase of Rover from British Aerospace. The $24.7 billion combination, producing 1 million vehicles a year and employing over 100,000 worldwide, promises to be one of many evolving forces reshaping the world auto market.

Over 10 years ago, BMW tried unsuccessfully to buy just the Land Rover division from the British Government. More recently, it seriously considered spending about as much to develop a sport-utility vehicle of its own. In one deft maneuver, the engineers from Bavaria pocketed the lot: Land Rover, Rover cars, and several prestigious sports car names such as Austin, Triumph, MG, and Riley that were retired by Rover's predecessor, British Leyland. (BMW tentatively plans to revive a few of those brand names.)

The move came eight months after Eberhard yon 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, Britain's last full-line car manufacturer, was passing into the hands of a German owner did not go over well in the U.K., particularly given that 1994 was the 50th anniversary year of D-Day. In addition, Honda Motor of Japan, which had a 20 percent stake in Rover, felt betrayed by what it regarded as British perfidy--and was stunned by BMW's bold stroke. Would Honda President Nobuhiko Kawamoto, in a face-saving gesture, cancel the cross-licensing agreements that enabled Rover to upgrade its production process? National feelings could not be disregarded. BP flew to Birmingham and Tokyo, where be performed his best nationality-doesn't-matter, transnational gavotte, preserving the delicate Honda/Rover relationship. A modest fellow, BP downplays the coup but a glint in the eye reminds one of the cat that ate the canary. Other BMWers privately admit to being astonished at their good fortune.

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 Regensburg are a start. But the Bavarians win have to push harder. When the first 318i comes off the Spartanburg assembly line this month, the moment of truth will be at hand. When the operation reaches full throttle, 2,000 employees are expected to produce 80,000 to 90, 000 cars per year.

Also at the top of BP's agenda is BMW's distribution. In general, U.S. dealers sell twice as many cars as their European counterparts. BP brought Karl Gerlinger--who ran BMW North America--back to Munich to work with its German dealers.

Elsewhere in North America, the company established its own subsidiary in Mexico, taking over functions previously carried out by its Mexican importer. New dealerships are expected for Mexico City, Monterrey, and Guadalajara.

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 resorted BMW from near collapse in 1959. CE's J.P. Donlon talked with Pischetsrieder at BMW's Munich headquarters about the company's global initiatives.

IN THE FAST LANE

BMW's recent construction of a plant in the U.S. and its acquisition of the U.K.'s Rover propels the company in a new direction. Do those moves indicate an emerging trend in global automobile competition?

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 U.S. was related to market policy and the improved quality of U.S. suppliers.