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Panke Pushing BMW for More Growth


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Helmut Panke had good reason to boast during a recent visit to Detroit. As the chief executive of BMW AG, he’s felt the fury of critics angered by the radical design shift at the German automaker’s flagship brand. Yet despite the dire predictions, BMW is expecting record revenues and earnings this year.

And there are still more good times to come, predicted the tall and slender CEO, as BMW expands its grip on the luxury market — particularly promising is the emerging market for high-end products in China. Yet the one-time nuclear physicist didn’t hide his concerns that BMW needs to get a grip on quality, which is lagging well behind some of its Asian rivals — as well as the rebounding U.S. luxury marque, Cadillac.

A renewed focus on quality, along with new products, such as the 1-Series, are critical to keeping BMW at the forefront of the luxury market, Panke stressed.

X marks the sweet spot

Quick with a laugh, and with a well-thought, thorough response, Helmut Panke is the man responsible for much of what makes up the modern BMW. He was a close confidante of former CEO Bernd Pischetsrieder, and played an essential role in planning such moves as the launch of the popular Mini brand. One of that team’s few failures was the ill-fated acquisition of Britain’s Rover Group. During his tenure as head of BMW’s North American automotive operations, Panke began crafting plans for the automaker’s assembly operations in Spartanburg, South Carolina.

That facility has become a crucial link in the automaker’s global operations, producing the X-series of so-called sport-activity vehicles. Through August, U.S. sales of the X3 and X5 models were up 71 percent, more than offsetting a 7.5 percent decline in passenger car volumes. Overall, U.S. sales of BMW-branded vehicles rose 4.7 percent for the first eight months of 2004, to 169,480. Roll in the pint-sized Mini, and the overall BMW Group saw sales surge 3.7 percent, to 192,233 cars and light trucks.

Yet despite this success, Panke admitted there’s reason for concern. In this year’s Initial Quality Survey, from J.D. Power and Associates, BMW tied Audi in ninth place, well behind such rivals as Lexus and Cadillac.

“There is no excuse,” Panke said glumly, adding that “We clearly want to be in the top three.” On the positive side, the German automaker has fared better in another Power study designed to measure so-called “customer delight” factors. In the APEAL survey, BMW products tied with Porsche for second.

Growth in America

A one-time consultant, Panke is certainly not risk averse, but he also prefers to know he’s got a winning hand before placing a bet. For now, he has no major plans to boost U.S. production capacity. There’s certainly no interest in adding a second assembly plant, and any expansion of the Spartanburg facility will come a few more units at a time.

The company’s investment dollars continue to be focused on product, a seemingly sound approach for a company that claims to build “the ultimate driving machine.”

Despite higher-than-average investments, BMW continues to generate margins averaging 7.9 percent to 8.1 percent of its sales, “a sign of strength,” stressed Panke, and a clear indication that BMW will be able to maintain its independence for the foreseeable future.

As the world’s largest and most profitable luxury market, the U.S. has provided the foundation of BMW’s success, and should continue to fuel its growth. “The premium segment is continuing to grow….about twice the rate of the overall market,” Panke pointed out. But the automaker realizes it also needs to tap into new and emerging markets. India is one possibility, though Panke noted that prior efforts to tap into the vast subcontinent market have so far yielded few results.

Will 1 do?

There’s a far greater opportunity in China, where BMW opened a new plant in May. The centerpiece of its partnership with Brilliance China Automotive Holdings, Ltd., the Shenyang assembly line has an initial capacity of 30,000 passenger vehicles annually. But in car-crazy China, BMW is “already feeling pressure” to expand the fledgling operation.

In typical fashion, Panke is waiting for the right moment before he commits to boosting capacity. But he hints it is only a matter of time. In a fast-growing market where everything is up for grabs and there is “no established hierarchy,” BMW wants to position itself one of the top nameplates.

Not long ago, industry analysts expected the big boom in China would come at the low end of the market. In fact, the biggest demand for BMWs, so far, has been at the other extreme. In 2003, the People’s Republic was the single-largest market for BMW’s 12-cylinder vehicles, Panke reported with undisguised amazement.

Ironically, demand for such top-line models has been on the decline in the home European market, he added. That’s probably no surprise, considering the high cost of gasoline, as well as the simple, logistical challenge of maneuvering a 7-Series sedan through the streets of a crowded continent. So European buyers are shifting downward – not necessarily spending less, though, but loading up every possible option on smaller 5-series models.

There was a time, not all that long ago, when European luxury makers limited their offerings to a handful of sizes and shapes. BMW’s archrival, Mercedes-Benz, has targeted virtually every possible niche in the luxury segment. BMW doesn’t intend to go to such extremes, insisted Panke, but it will continue looking for new opportunities.

The newest addition to the BMW line-up attempts to capitalize on the downsized trend. The 1-Series is the smallest vehicle the automaker has offered in decades, roughly the same basic dimensions as the classic BMW 2002. The new 1-Series hatchback likely wouldn’t connect with U.S. buyers, cautioned Panke. An additional version — sources suggest it will be a more traditional, sedan-like design — is now scheduled for a Stateside debut in 2007.

What else might be in store? “I honestly can say I don’t know,” said BMW’s CEO. But a number of possibilities are under study, and one only has to look at the success of the X-series, said Panke, to get a clue. The traditional lines between product segments will continue “to blur,” and BMW needs to stay on top of the shifting market if it hopes to maintain its current momentum.

 
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