BMWs independence in ownership structure has now morphed into operational independence

BMW's independence in ownership structure has now morphed into operational independence

Cross-shareholdings and corporate alliances may be all the rage in the auto industry, but BMW is preferring to chart an independent course.

BMW's management have said no, not only to an equity link-up with another OEM but also to strategic alliances and even platform sharing.

CEO Reithofer is stressing yet again the importance of BMW’s independence as a car manufacturer.

BMW has turned down an operational tie-up with Daimler, as well as platform sharing with volume manufacturers. At first sight, it might look strange that BMW the smallest fully-fledged OEM operating globally has decided to go-it-alone.

Creative Global Investments analyst Sabine Blümel told just-auto today that she believes it is not despite, but rather because of its small size, shareholder structure and legacy of escaping a hostile takeover by Daimler in 1959, that BMW has now opted to stay largely independent.

“Cooperation with OEMs will remain limited to specific projects,” she says.

Blümel notes that BMW faces daunting challenges ahead and that there are risks associated with maintaining a high degree of independence.

“The problem is that BMW is at a cost disadvantage versus its peers Mercedes-Benz Cars and Audi that are part of larger groups. The recent forging of alliance agreements by its German competitors has reduced BMW’s relative size even further,” Blümel adds.

Size-related disadvantages include R&D costs, procurement costs and also a greater exposure to currency fluctuation due to a more limited opportunity for natural hedging. 

And she maintains that BMW is now also having to face the challenges of having to develop cars with alternative drivetrains such as EVs and becoming more active in the smaller car segments, where it is notoriously difficult to generate premium margins.
 
Medium-term strategy includes a small vehicle architecture and an EV. BMW plans to go-it-alone with a new small car architecture, in addition to an EV for the Megacity project.
 
The new small vehicle architecture that will underpin the next generation Mini and a new range of entry-level BMW models will be FWD and AWD. BMW sees an annual volume target of 700K to 1m units for the new architecture that could underpin 20 different models, their body length ranging from 3.8m to 4.3m covering the range of cars in the A-segment to C-segment.

By 2013, BMW intends to launch the Megacity, a fully electric urban car under a yet-to-be-named sub-brand of BMW.

BMW is developing the Megacity in-house as part of its project i, the group’s initiative to develop new vehicle concepts.

Blümel notes that BMW intends to use carbon fibre-reinforced polymer (CFRP) in the Megacity bodywork and hopes that together with the carbon fibre specialist SLG it will find a cost-effective way of using CFRP in mass-production.

If BMW is to continue to succeed in the long-term, if it is to stay competitive - and also maintain its independence - it will surely need more such innovations as it looks to increase its presence in small car segments. It won't be as straightforward as focussing on core product and brand strengths, which was what BMW did at the beginning of the noughties. BMW founded its last decade of success on a return to traditional values after deciding that straying into volume car territory with its ill-fated acquisition of Rover was, actually, a rather big mistake. 

Bigger is not necessarily better, BMW said. We'll just get on with making class-leading premium executive saloons and sports cars, thanks very much. You can keep your volume alliances; we'll stay above that fray but do the odd deal on an engine here and there to save cost (eg with Peugeot, another champion of selective collaborations). And, to be fair, BMW's strategy was vindicated in its botttom line through much of the last decade. 

But this coming decade is shaping up to be a little different to the last one. If BMW's bottom line comes under pressure, the policy of maintaining independence may be increasingly questioned.   

Dave Leggett

 

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