As BMW board member responsible for development and purchasing, Dr Burkhard Göschel is bringing no fewer than six new model programmes to production this year, with almost as many set for 2004. At the launch of the ambitious new 5-series in May, Tony Lewin asked him about BMW’s bold expansion strategy.

BMW’s first-quarter results were much better than expected, and your share price has risen strongly. Does this mean you’re doing all the right things?
Yes, we’re on the right course – in my opinion and that of the board. We have a lot of new products coming on this year. We started with the facelift of the 3-Series, and now we’re launching the new 5-Series. We’re bringing the X3 and the 6-Series cars shortly, and in January we re-launched Rolls Royce. So it’s a big year – but we are continuing next year, we’re changing quite a lot. We have a lot of positive perspective, even with the [current] economic situation.

You listed the number of models launched this year and an equal number next year. How do you actually cope with developing so many vehicles at once? Have you improved your speed of development and time to market, or do you resort to outside engineering?
There are different ways to improve speed of development. We use the highest technology in development – systems we call virtual car. Starting with the X5, we had 100 per cent of the car digitized: we were able to show the total assembly [process] of the car in our computer rooms.

So not only in the assembly but in the design of the vehicle too?
Yes. Design is now a totally virtual operation and we are starting the second step, which means Catia v5. We are the first in the market [with this] with Dassault: in the design operation, if you change something, the computer itself changes the whole of the rest of the vehicle accordingly. We are ahead on this technology – far ahead.

Are you co-developing this with Dassault or is it an off the shelf product?
It is a co-operation with Dassault and IBM and we are the leader in all sorts of developments – but we have to integrate our supply base because our suppliers need to follow all [our] systems and technologies.

What is your time to market now for a product like the 5-Series?
That’s not only one number because we have a very different method of making car families. We design all variants first and then define what are common parts and not common parts, which are common processes and which processes are not common. If this can be defined beforehand you can be very fast afterwards: for one vehicle line it is then no more than 30 months.

How much do you get involved with other outside suppliers? Do you codevelop things like you did with ZF on the active steering system?
We have quite a wide group of suppliers: one is ZF. By turnover it’s our biggest because we also take automatic and manual gearboxes, as well as steering systems. In some areas like the US ZF also does the assembly of chassis systems – so it is a very strong co-operation with them, but we can say that most of the ideas come from BMW Group. They are developed in collaboration because those ideas have to be manufactured. Every year or twice a year we have big development programme sessions with the largest suppliers: my colleagues at Bosch or ZF and I meet to determine what the programmes are for the future and to realise the technology that will put BMW Group in the position that will allow it to be the first in the market.

Do you then have an exclusivity period?
With the steering I think you have two years when it is only BMW and then you licence out the hardware,

but not the software?
Not the software – ever.

Are we seeing an increasing importance of software?
Totally. There will be a big increase in software. It will change technology not only in development but also in production and in the service areas because nearly every component has a microchip [in it] and has an increased intelligence and capability. Those capabilities or the microcontrollers can be interconnected, so you can connect [for instance] an Active Steering with a Dynamic Drive system. There are new options for thinking about how to improve the whole system – what is the optimum for the whole system – not just adding one system to another one but to create new functions. This reaches into all areas of the car. Ultimately you need a real software structure for cars and we at BMW Group are strongly promoting structurised software in cars and new norms or basics for car software structure.

There is one programme that is running in the car industry and is being pushed by BMW Group in particular: we have strong links with DaimlerChrysler and olkswagen-Audi and our biggest suppliers to bring FlexRay as the basic software structure into cars.

But there are various competing standards aren’t there?
Yes, but we are pushing FlexRay and the German car industry is stepping into FlexRay. I believe the American car industry will go there too, and I also think we can convince one of our partners in Japan to go this way.

Does this mean we will get software updates for vehicles like you do with computers?
They already exist for the 7-Series; the first step was when we sold navigation system software updates at our dealers for the outgoing 5-Series.

Could you envisage different software versions where you could actually have a vehicle with different characteristics, because you could actually change a lot of powertrain functions, handling, or the way the vehicle feels to the driver?
I don’t know if that is the right way. We as BMW Group should know how our BMWs should work. You cannot go to a customer and ask ‘what kind of BMW do you want to have?’ – that’s not possible because the functionality of a car is so complex and so difficult. A BMW has a special character and needs to have it. You can already choose sports suspension, manual or automatic transmission when you buy the car.

But could you change that just with software later on – is that technically possible?
Yes, that is technically possible, and for the 7- and 5-Series you can flash all your controllers and change the software that way. But what we as BMW do is to change the software during the development or the life cycle of the car to improve its capabilities as a BMW.

So you have to be aware of the brand values then.
Yes, because how a car will behave in the future will very much depend on software. But we know how a BMW has to work. Every feature will match the characteristics of the respective brand.

Does that fundamentally depend on hardware rather than software?
You need hardware to realise the functionality because you need a steering column or you need a steering system or a wishbone or whatever. But in future we may see more and more electrical functionality integrated – and we may even have X-by-wire systems.

How do X-by-wire systems fit in with BMW brand values?
Totally – really. A brake-by-wire system is the right way to go because you can realise much more functionality. Active Steering is a step to steer-by-wire because you have greater capability in a steering system done electrically and by software. Ultimately, you would no longer have a mechanical connection and you could benefit from much more functionality.

The electronic content in vehicles has risen to a quarter or more of the value of the vehicle – what is it in this car?
In this new 5-Series it is especially high – up to 30 per cent, something like that, and [as a trend] it is strongly increasing.

How do you put a value on the software, because it is very much intellectual property?
The value of software is an interesting question. The capabilities of the staff at BMW have to change in future. You need more than just engineers who know how a steering system or suspension system operates: you need also some guys who know how to transfer it into a software solution and how to integrate – and that’s the most important point – how to integrate it to the total functionality of a car.

How is the rise in the euro relative to the dollar affecting your business?
There isn’t a big effect because we have hedged against fluctuations in the main currencies for up to three years. And most importantly, we’re producing cars in the dollar area, of which a large portion is being exported to the euro zone.

But you build many more in Germany?
Yes, but the production of cars in the US this year will exceed last year’s. You should not forget that we are producing more than 100,000 X5s there, and we have started production of the Z4. We have significant volumes there.

What about Britain and the euro and Pound Sterling – how does that affect MINI business?
Again, natural hedging takes away the bigger part of risk from exchange rate exposure. Not only is the UK the most important market for MINI, but also we export MINI vehicles to the other markets whilst bringing BMW vehicles to the UK. Also we were able to modify our supply base for MINI.

So that is reasonably stable now – you don’t have to check the [exchange] rate too much?
No we don’t change anything: we now have our supply based fixed. We are increasing volumes to supply the market and MINIs are a very big surprise for us. We never expected this vehicle would get such volumes – it was an especially big surprise in the US.

Is the second pass through the paint shop for the white roof still one of the bottlenecks?
Yes it is. We improved quite a lot with the white roof because the white roof is necessary for MINI! Maybe for future generations we will have a technical solution which doesn’t rely only on paint.

You are using a Toyota diesel engine on the MINI. What diesel engine is going in the 1-Series?
We are using the Toyota engine only for packaging reasons: the MINI has very special packaging [requirements] in the engine compartment. The Toyota engine is a good engine, and with some modifications it fits not only the engine compartment but also the characteristics of the MINI. We won’t use it in a BMW: you will only get BMW engines in a BMW. That is very clear.

What is your position on hybrids and alternative fuels? Is it still BMW’s belief that hydrogen will power piston engines and not fuel cell vehicles?
It is still company policy. We are using combustion engines to run on hydrogen, and we made a big step forward – which I will show at the symposium in Vienna . We have made particular progress in burning hydrogen in combustion engines at Lambda=1, which has not been possible in the past. We’re getting very, very high power output, we are using direct injection and all those things, including supercharging.

Like the Ford Model U?
There’s a lot of potential. The question is not the engine, for you are getting very high power density in the combustion engine – much more than in the fuel cell. The limiting factor is the storage of hydrogen in the car – that is much more difficult.

Do you have a partner you are working with in hydrogen storage?
Yes, we have partners: one is Linde. And we have now signed a cooperation with GM.

Are hybrid vehicles an area that would interest BMW?
Combustion engines have a lot of potential for improvement – and if you look at the improvement which we reached, for example, with diesel engines, [this is] in our opinion a much better concept. You will also see quite a lot of improvement in future with gasoline engines: gasoline engines are on track to reach fuel consumption targets which are currently set for or reached by diesel engines.

So are you saying that you are not going to bother with hybrids?
No, it’s just that hybrids are very complex and very expensive and we have a lot of technology, especially on combustion engines, which will help.

So you can achieve equivalent fuel economy improvements without using hybrid technology?
Yes, I would say so.

What about diesel engines – will they ever appear in the US?
That is an interesting question. It depends on emissions, especially on NOX emissions. US regulations are changing, and SUVs will have to reach the lower passenger car emissions levels after 2006. The most serious problem for the diesel engine is NOx. We could provide diesel cars to meet existing US regulations, but we have to look to the future. But if there is no interaction [with the regulators] and no trade-off between CO2 and NOx, then it will become difficult.

So you haven’t got fixes in the pipeline that might make it OK?
We could do it now but it doesn’t make sense if there is not a long-term aspect possible.

The Ricardo Quarterly Review, RQ, is a publication prepared by Ricardo in association with TwoToneMedia.