BMW Group on Thursday afternoon set out its new strategy stall following a management board meeting in Munich earlier in the day (27 September). Key points – signalled by media reports earlier this week – included new profit and growth targets, EUR6bn in efficiency improvements by 2012 and a better return for shareholders.


“We will consistently align the BMW Group to achieve profitability and increase value over the long term,” said BMW chairman Norbert Reithofer. “The… strategic direction up to 2020 is clearly defined: The [group] is the world’s leading provider of premium products and premium services for individual mobility.”


The future strategy focuses on ensuring the company’s long-term success and safeguarding its independence, BMW said. The automaker is targeting a return on sales of 8% to 10% in its key automobile segment – if achieved at the top end of this range, it would challenge Toyota. 


The group has set what is describes as “ambitious” interim targets for the first five years: Automobile retail is expected to rise to over 1.8m vehicles by 2012 while motorcycle business is planned to rise a massive 50% to 150,000 units a year.


Profit priority


Profitability takes priority over mere volume growth: “We will focus the entire organisation on the return on capital,” Reithofer added.


In the automobile segment, the company plans to achieve a return on capital employed (RoCE) of 26% and that return on sales of between 8% and 10% by 2012.


Strategic targets for the time period until 2020 “are equally ambitious”. The company intends to increase retail sales by its automobile business to “clearly more” than 2m vehicles.


Parallel to the unit sales boost, the group will launch a comprehensive efficiency programme across all divisions, applying it  to both performance and costs.


“It is designed to tap approximately six billion euros in efficiency potential by 2012,” Reithofer said.


EfficientDynamics


The new program is based on the principle of EfficientDynamics, fuel-saving technologies now being rolled out across the BMW vehicle line as well. BMW summarises it thus: “More output for less input”.


The automaker also plans to tap additional earnings potential by starting new business activities, among other things. In addition to the expected new products and markets, the group said it had “identified potential along the vehicle life cycle and the automotive industry’s value chain”.


Another positive effect on earnings is expected from the “consistent positioning of the vehicles in the premium segment”.


BMW said it had adopted a range of measures that would help achieve “significant progress in terms  of cost”. Besides putting all cost structures to the test, the company will continue to standardise its processes. Further targets include a reduction in cost, capital expenditure and capital employed per vehicle in development, production, sales and administration.


Cooperation – along the lines of the recent JV with PSA that produces Mini engines – is intended to lead to economies of scale for components, modules and drive systems and the group aims for a productivity hike of at least 5% a year.


Thanks to this targeted productivity increase, the group expects to be able to achieve the growth planned for the period until 2012 with roughly the same number of workers as today.


Natural hedging, US dollar purchases


To strengthen independence from currency fluctuations, BMW will step up natural hedging as well as purchasing, primarily in US dollars.


By 2012, capacity at the US plant in Spartanburg will be increased from 140,000 to 240,000 units. Plans for the expansion are already under way.


Capacity at the Oxford Mini plant will rise to 260,000 units, without additional investment. BMW also plans to “take the first step” towards increasing China capacity – the JV with Brilliance that assembles cars – from 30,000 to 44,000 units a year.


Higher 2007 dividend


So that shareholders benefit from the company’s success to a greater extent, BMW will “substantially” increase the dividend payout ratio, as a first step proposing a “significantly higher” dividend for the 2007 financial year at the annual general meeting.


It will also keep the option of conducting a share buyback. However, in the next 12 months, the company will concentrate on increasing the dividend payout ratio.


Employees’ pension obligations in Germany will gradually be funded out in three phases over the next few years.


Four new vehicles by 2012


BMW will continue launching news products, making use of modular systems for all new models in order to increase “synergy effects”.


A new X1 model will complement the current X3 and X5sports activity vehicle (SUV) line, along with a production version of the Concept X6 shown earlier this month at the Frankfurt motor show.


BMW will also build a four-dour Gran Turismo based on the CS concept study shown in Shanghai but will not, however, build a “space-functional” concept.


Instead, the company plans to introduce a fundamentally altered concept called progressive activity sedan (PAS), establish an entirely new segment, introducing a unique interpretation of the sedan and offering a wide range of intelligent features.


Having just launched the Clubman ‘wagon’, BMW said its next new Mini model would be a sports activity vehicle.


A coupe will be launched as the third variant of the Rolls-Royce Phantom and an additional model (often mentioned by senior UK executives) is in the pipeline; this will be positioned below the Phantom in terms of both price and size.


BMW Motorrad and Husqvarna Motorcycles brand model lines will also be expanded.


Acquisitions still on agenda


Reithofer said acquisitions, in principle, would be kept on the agenda.


The group has explored all options for future growth during its strategic review, including potential acquisitions or the creation of a fourth brand, but this would require the new brand to be a perfect fit for the company and its strengths.


“Moreover, rising unit figures would have to result in a decline in unit costs and thus lead to economies of scale. The new brand would have to at least make the same positive contribution to earnings as the existing automobile business. However, an in-depth analysis found that none of the evaluated automotive brands currently meets these requirements,” the company said, apparently ruling out making any current play for Ford’s Volvo, or Jaguar and Land Rover.


BMW did not entirely rule out further acquisitions, though, noting that the successful acquisition of the tradition-rich Husqvarna brand and its sporty profile have enabled the group to attract new and younger target groups in the motorcycles segment.


“In principle, we will keep acquisitions on our agenda. We defined clear criteria for potential acquisitions within the scope of our strategic review. This will allow us to act swiftly whenever necessary,” Reithofer said.


Focusing on its inherent strengths – the market for premium vehicles and services, a segment that it expects will continue to grow much faster than the mass market, BMW expects the premium segment to rise by about 40% between 2005 and 2019, compared to an increase of just under 20% for the mass-market segment.


The group said it would continue to invest heavily in future technologies with a view to developing “entirely new individual mobility solutions, thus guaranteeing the company’s innovation leadership for the next decade as well”.


BMW said its EfficientDynamics has already given it a significant edge over competitors, for example in reducing carbon emissions.


“I am firmly convinced that this strategy will lead us to continued business success,” Reithofer added.


Two new divisions created