If, as a brand, you are going to have a spiritual home that lives in the real world, it makes sense for that real world construct to share the same values, writes Dave Leggett. The BMW brand’s spiritual home is not likely to be a modest affair then, is it?

And it isn’t. BMW Welt (world) certainly makes a statement. It’s not exactly hiding its light under a bushel. This is BMW, after all – the thrusting executive’s calling card. But equally it’s not garish, overly bold or intimidating in the way some very large buildings can be. While that light isn’t exactly under a bushel, it’s not being waved around in your face either.

It works so well visually partly because of where it is. If the Welt is the new BMW spiritual heart (along with the BMW Museum), then the nearby famous ‘four-cylinder’ HQ is perhaps the brain, while the first Munich manufacturing plant next door is more a physical beating heart for the BMW body. Moreover, Welt slots neatly into its immediate built environment – the Munich Olympic Park, constructed for the 1972 Olympics.

The Welt is a building with astonishing curves that will astound people seeing it for the first time. And curves are friendlier than angular slabs. The outlandish curves are a welcome antidote to the conventional parallel lines of the adjacent manufacturing plant. This building, I sense, will quickly become a popular part of Munich’s civic fabric (if it isn’t already).

And it has been tastefully done. Clearly, quite a bit of thought has gone into it. If you do something like BMW Welt, it’s perhaps not something to rush into. It took six years to build and was designed by a top architectural firm led by Wolf Prix. It opened in October of last year.

Yes, it’s vast, but those flowing curves – inside and out – give the construction an almost organic feel that is at odds with the sheer scale. Also, it’s not boxy and it appears not to have been overly constrained by cost accountants. That said, it is the height of modernity and there’s clearly an industrial edge to the finish. This building is about engineering prowess. It’s high-tech even, lots of silver and metal.

But it’s a progressive looking form and there’s quite a bit about it that is really rather clever. Like BMW cars and the philosophy at the heart of ‘EfficientDynamics’, it’s also greener than it looks – for example, it’s heated by the sun and positioned to maximise solar gain through the windows all year round. Hot air released through the roof ensures good ventilation. BMW officials say it’s a case study in energy conservation in large public buildings.

What’s it like to walk around? The overall feeling conveyed is part theme park, part cathedral. Critics will say it’s shameless brand glorification that will appeal mainly to BMW brand whores, but why shouldn’t a global brand develop a brand centre like this?

If you want to know what BMW is all about right now, in terms of how it talks to the world and presents its core values, this is undoubtedly the place to visit. Think of it as a kind of mother ship for the BMW brand. There’s a separate museum nearby if you want the automotive history.

Inside the vast futuristic construction there are events, exhibitions, stuff for kids (I thought I was in the Science Museum at one point), restaurants, coffee bars and, naturally, a store where you can buy a BMW baseball cap.

There’s a bit of everything in there. Some 850,000 visitors a year are drawn to this major attraction.

But BMW is a business that is mainly about selling cars and that has not been forgotten. The Welt’s centrepiece is a raised curved platform with some 20 display turntables and 10 ‘panorama’ platforms. You can order a BMW and opt to collect it on a turntable at the Welt. There’s a ‘personalised delivery experience’ that culminates in photos, the ceremonial handing over of the keys and the proud moment when you exit down a curved ramp.

Some 45,000 people a year – 170 a day – do just that.

There’s even a viewing gallery for those who want the vicarious thrill gained from observing the happy owners shriek with delight and drive off, smiling. Maybe friends and relations sometimes turn up and throw confetti. Or eggs, perhaps.

Contrasting with those 45,000 will be a proportion of visitors who have little or no interest in BMW’s cars. They may be visiting the Welt for a jazz concert or an art exhibition. This place really is much more than just a showroom.

Such events take place in the distinctive ‘double cone’ (egg-timer shaped) area of the building.

The ‘cloud roof’ rising out of the double cone stretches throughout the rest of the building, appearing to be floating. The double cone itself resembles a cyclonic whirlwind reaching from the cloud layer to the ground – and that was the intention. It is static, but the lines embrace the extreme movement that such a cyclone is all about. Movement. Static-dynamic imagery. It’s just a little reminiscent of the spinning propeller imagery that is supposed to be at the heart of the BMW logo (though there is controversy on that one – officially, the distinctive logo has more to do with the Bavarian flag).

The BMW Welt then, is a building that impresses. It’s a building that says a lot about the confidence and optimism of the corporate brand as it faces outwards, to its customers, to the market and to society as a whole.

And, to be fair, BMW is a company that has a bit to be pleased with itself about.

At the turn of this decade it was clear that as a company, it had lost its way. Buying Rover in the mid-1990s had turned into a commercial disaster and was bearing down heavily on the bottom line. BMW was in extrication mode. The company had to focus on what it knows: selling high-quality executive and performance cars. It did just that, and turned losses to profit.

When the cards fell at Rover, BMW was left with the new Mini, a comparatively modern plant in Oxford and also what it had learnt from Land Rover. There were niche possibilities here that the company was determined to explore.

The Mini premium small car was a huge success. And it has been so profitable because sales of the higher specification Cooper and Cooper S versions easily overshot initial targets. It found a new customer – affluent and young – attracted to a modern interpretation of a classic. This was cool, but with BMW technology and know-how under the skin. That’s double cool.

We also got the X5 – BMW’s answer to arch-rival Mercedes’ M-Class. It was a storming success Stateside and an American manufacturing plant was an integral part of the successful commercial formula.

Sales and profits grew steadily through the noughties. In 2001, BMW Group sold 906,000 units. By 2007 annual sales had risen to 1.5m units. Revenues were up 46% from EUR38bn to EUR56bn; profit before tax was up 19% to EUR3.9bn (it declined by 6.1% in 2007, but was still high).

2007 was another broadly successful year for the group. There was some buffeting from turbulence arising from high raw materials prices and unfavourable exchange rates, but the company turned in record revenues and a healthy profit.

What about the future?

Can we simply extrapolate the past’s trajectory into the future and say that growth will continue? Not quite. The presence of an elephant in the room puts a question-mark on the (understandably) rosy scenario for 2008 outlined by the company. BMW is holding a decent hand and no board member worth his salt is going to fold that hand at this point. There are a lot of uncertainties around, but they are there for the whole industry.

The elephant in the room right now is the financial crisis taking hold in America, and I’ll come back to that.   

At BMW’s annual accounts press conference in Munich, BMW said it was on course to sell yet more cars in 2008. Despite the weak dollar and high raw materials prices, the car maker is hoping to increase earnings in 2008.

It is taking a number of actions that will help. It says it is almost fully hedged against the main currencies for 2008 and that the effects of currency movements on its income will be less this year than last.

There is also the ‘natural hedging’ against the weak dollar from increasing output and sourcing in the US. There, vehicle output will rise from 150,000 to 240,000 units annually. At present, only 9% of purchasing volume for BMW’s global production network stems from the NAFTA area. This, says BMW, is far too little.

And in case you are wondering, BMW says the order book for the new X6 is strong. Things look very optimistic for the new crossover SUV/coupe, maintains Reithofer.

Overheads are another area demanding attention. After a long period in which BMW seemed disinclined to tackle its cost base, it has been forced to cast a critical eye over them. It’s controversial at home, but it has announced plans to reduce its staff numbers by around 3,000.

And BMW suppliers can expect to come under a bit of pressure. Efficiency improvements are planned to produce an accumulated EUR6bn in savings by 2012, on top of former plans. BMW says this is an area in which “we are picking up speed and will soon be going full throttle”. The lion’s share of that saving – EUR4bn – will be achieved in purchasing, CFO Ganal says. He says it’s all about cooperation with suppliers to reduce their costs, without compromising quality, and not about pursuing the ‘one dimensional goal’ of negotiating lower prices. Hmm.

What about Mini? How far would you want to milk that particular cow while the udder is near to bursting? BMW is being careful not to overshoot and go for short-term gain at the expense of the brand image further out. BMW executives insist that they are happy for capacity at Oxford to top out at 260,000 units (it will soon be getting tight, Mini sales were 237,000 units in 2007) – with Magna doing the ‘SAV’ in Austria on top of that.

But with sales growing in emerging markets, why not add capacity elsewhere? If you can sell 450,000 Minis globally, wouldn’t it make sense to do that? No, they say. They want to nurture the premium Mini brand and ensure a good long-term foundation. To chase sales would not be right and would undermine the long-term strategy. If customers have to wait, then that will apparently not cause too much consternation inside BMW. I just wonder if that line will hold if the Mini orders come flying in from China and BMW is facing market difficulties elsewhere.

What about the environmental challenge? It’s a multi-pronged strategy in terms of product and branding. ‘EfficientDynamics’ adds a green hue across the BMW brand and is not to be dismissed lightly. The Mini Cooper diesel emits the same amount of CO2 – 104g/km – as the Toyota Prius. More BMW Group cars are coming equipped with technologies that improve energy efficiency. In the US, ‘clean’ BMW Bluetec diesels will go on sale in 50 states this year.

In 2009, BMW will launch its first hybrid. It says it will require 20% less fuel than a comparable car with a combustion engine.

Perhaps even more intriguingly, we are now hearing more about BMW’s ‘Project i’. Work under that umbrella is exploring forward-looking options to meet new car and mobility options for megacities. It could result in a fourth brand for the group. And BMW – working with Daimler and GM – is developing electric battery technology for the future. BMW is evaluating the option of launching a battery-powered car and says that a decision will be taken this year.

But, let’s get back to that elephant in the room I mentioned earlier.

How far will the emerging financial crisis in the US impact BMW? This could turn out to be the single biggest variable factor that will adversely affect BMW’s 2008 bottom line. But a wily Reithofer knew how to respond to the questions about that. It’s an unknown and it will affect consumption generally. So it’s not exactly a BMW-specific issue. He could sidestep it and say that there is uncertainty and that the whole of the automotive industry could be hurt.

However, he did stick to his forecast that BMW Group will sell more cars in the US this year than it did last year. Brave words. But the US is BMW’s single biggest market. If he casts too much doubt on sales prospects for the US this year that rather undermines all the targets he had just been talking about. He was upbeat on how March sales in the US are unfolding.

I recall hearing Ganal remark at the end of last year that as far as US sales are concerned, he more or less expected the Federal Bank to take care of business. If the US economy looks bad, the ‘Fed’ will inject some liquidity and everything will be fine was his implication. Well, the Fed has duly slashed interest rates. But consumers face rates that are still high because at that end of the credit chain, lenders aren’t ready to turn the taps on again. Banks have a lot of bad debt on their books and don’t want more.

The credit crunch has much further to play out in terms of its full impact on the real world of spending by consumers on goods and services. There’s also the matter of how far this will turn out to be a global economic slowdown.

Consumer sentiment will not be good this year in many of BMW’s markets. How bad it will be and how far it will dent BMW’s revenues this year is a slightly scary unknown. The financial cyclone may do lasting damage, it may not. But it’s more or less the same for everyone in this business. Reithofer’s elephant in the room is not his alone.

Dave Leggett

See also: US forecast lowered

BMW plans China boost

BMW ready for another record year