BMW CEO Joachim Milberg: No Mergers Needed

After some tough times, BMW had a bang-up year in 2000. It shucked off Rover, maker of Land Rovers, which BMW lost billions on after it acquired the British carmaker in 1994. The German company finally sold Rover to an investor group last March for a ceremonial 10 British pounds (about $18). Ford is now making Land Rovers.

In the meantime, BMW has gained control of luxury carmaker Rolls Royce and is revamping the Mini, a tiny city car it acquired with Rover and has kept. By 2004, the company also has plans to add a new BMW model that will be smaller and less expensive than the 3 Series, the current entry-level BMW. The company's strategy now is to stay focused on using these brands to build a full range of premium products. Despite the consolidation of the world auto industry into a few giant players, BMW execs are adamant that the company can remain independent and still thrive.

At the Detroit International Auto Show, BMW CEO Joachim Milberg discussed the company's strategy with Business Week Acting Detroit Bureau Chief Joann Muller, Frankfurt Correspondent Christine Tierney, and Business Week Online Contributing Editor Thane Peterson. Here are edited excerpts of their conversation:

Q: There are always rumors about whether BMW will merge with or be taken over by another auto company. Any truth to them?

A: There are always rumors, and there's always the same answer: No.

Normally, I would just answer your questions. But if there are always these rumors, I would like to ask you a question. Why? And why should we merge with another company?

Q: Well, the argument is that to compete these days, an auto company needs great critical mass in R&D, product development, distribution.

A: In the car-manufacturing industry, I think you can have three strategies. You can focus on premium products, focus on mass products, or your can do both -- have premium and mass products under one roof. BMW's strategy is clearly to focus on premium brands: The Mini, Rolls Royce, and BMW. They are all premium brands and premium products.

Q: The Mini is a premium product?

A: Yeah. The Mini will be a premium product. It will be the safest product in that [very small car] class in the marketplace. It will be the fastest cornering model of that size in the marketplace. So it will be different from all other products of its kind in the marketplace. You only know the old car. We are talking about the new Mini.

But to get back to our strategy, BMW will follow a premium-brand strategy. We have had experience with having a mass brand and premium brand under one roof [when we owned] Rover. Our conclusion was that it was difficult to achieve syngeries with mass and premium brands under one roof. In the morning, an engineer has to design a cost-oriented component for the mass product and in the afternoon, a luxury-oriented component. The risk is that at the end of the day, you deteriorate the brand values of the premium brand. This was our experience coming from Rover.

Our competitors are premium-brand manufacturers such as Mercedes. There, you are talking about very different [sales] volumes. You're not talking about [an annual market of] 15 million units per year. [The premium end] is 800,000 to 1 million units. The core of the strategy is to expand the BMW brand with a new smaller model, have a Rolls Royce on the upper end, and have the Mini as a premium small product.

So, why should we merge? From my point of view, there could be three reasons. The first reason would be to add a product line we don't have -- a smaller car, bigger car, or whatever. The second reason would be to gain a technology we don't have but that we need. And the third point would be if we were not present in some geographic area of the world.

With BMW, Rolls Royce, and the Mini, we have the right products. BMW is a technology leader, so we have no need to merge to obtain any technology. And BMW is very international. We have car plants in South Africa, the U.S., and Austria [as well as in Germany]. In addition to that, we have [assembly]

plants in emerging markets. The last one was opened in Thailand. It's part of our strategy of being in Thailand with our own subsidiary. If the market opens more, we will be able to deliver cars from Thailand to other markets. We also have established a plant in Russia. From a regional point of view, I think we are in good shape.

So, there's no need for a merger. At the end of the day, what counts is success. The only question is, can we generate enough money to be able to invest for the future? If you look at our R&D figures, we're equal to the top level in the automotive industry. Why should we merge? We would just be part of a mass manufacturer, and our corporate value would decrease dramatically.

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