The End of Detroit (23 page)

The Mini Cooper is a certifiably hot car. In the spring of 2003, more than a year after it went on sale in the United States, Mini dealers still had waiting lists for the car. It wasn’t so much the Mini’s cost—a decked-out version could be had for $24,000—as the fact that it was rare. Only 25,000 are supposed to be sold each year, but it was clear from the outset that there were far more potential buyers than available supply. The Mini’s success was striking given that it was almost impossible for the U.S. market as a whole to have any fond memories of the car, since only 20,000 had ever been sold in the United States during the decades that the original car was on the market. But by the end of the first year of the revived car, more Minis had been sold in the United States than ever had been in its history. The Mini was a gamble that had clearly paid off for Bayerische Motoren Werke AG, otherwise known as BMW, the German auto company that acquired the British brand when it bought England’s venerable carmaker Rover in the 1990s. BMW had since sold off Rover, which had been a financial disaster, but it held on to Mini and transformed it into a modern car with every electronic comfort and safety feature that a buyer could want, combined with nostalgia for the swinging sixties.

Nobody was more delighted at the Mini’s success than Helmut Panke, BMW’s chief executive, who had been one of its strongest champions. Outwardly, Panke seems gaunt, stern, the epitome of a Teutonic executive. But underneath, he bubbles with enthusiasm for automobiles like a young boy. Over chocolate cake and champagne in a Detroit hotel suite in August 2002, a few months after the car had gone on sale, Panke confided that he often took a Mini Cooper home on weekends to drive around the foothills of the Bavarian Alps near BMW’s Munich headquarters. Given that Panke could have his choice of any vehicle in BMW’s august lineup, it surprised both BMW’s engineers and passersby that the lanky chief executive would be seen in a Mini rather than one of BMW’s performance cars. But, said Panke, the reaction was always the same—smiles, none broader than his own, and for good reason.

Although the Mini is sold separately from BMW, with its own Web site and its own dealers, the car is a key element of BMW’s strategy to expand its sales in the United States during the rest of this decade. BMW’s goal is to sell 300,000 luxury cars a year in the United States—which would vault it past Lexus as the country’s top-selling luxury brand—and for its sales to approach 1.5 million a year worldwide. Both seem well within reach, for with the addition of the Mini, BMW sold about 260,000 cars in the United States in 2002, while its global sales were above 1 million vehicles. On its trek, BMW has already pushed past Mercedes-Benz, which dominated the U.S. luxury car market during the mid- to late 1990s, to grab second place behind Lexus.

But Panke’s target isn’t simply volume. If his strategy of adding vehicles to both the bottom and the top of BMW’s lineup pays off, BMW would evolve beyond its traditional role as a specialty maker of expensive cars appealing only to wealthy customers and those consumed with passion for the road. It has designs on a much broader market, in which consumers of all ages and incomes would find what they wanted in BMW showrooms. Mini was a key element in executing that strategy. And to Panke, Mini’s remarkable debut year was proof that his strategy was sound. Consumers ranging in age from 20 to 90 were coming into showrooms to take them home, and an astounding 80 percent of them were new to BMW, he said. Someone had even traded a huge Hummer H2 sport utility, considered the other car of the moment in the automotive world, for a Mini. There could be no better endorsement of how well it was working, Panke said.

But there is lots of disagreement in the auto industry about whether BMW is headed in the right direction. To purists, BMW’s expansion into unknown territory was at odds with everything it stood for in the automobile industry. BMW may not appeal to everyone, but there is no clearer definition from any car company of what it stands for: the ultimate driving machine, as its slogan maintains. BMWs have their own distinctive ride and handling. The acceleration is like that of a private jet, swift and smooth. The driver feels the road and has control of the car. It is not the quiet comfort of a Lexus, or the dominance of a Mercedes-Benz. A BMW has real driving character backed by almost 90 years of heritage in performance cars, racing, motorcycles and airplane engines. And it appeals to customers who tend to know a lot about cars. Panke calls them “connoisseurs” rather than customers. One of them is Joe Hammell, 41, who works in technology sales in suburban Atlanta. A lifelong car buff whose father owned a succession of Pontiacs, Hammell has never owned an American car, starting with a Volkswagen Golf and working his way up to a BMW 530i, which he purchased in 2002. His belief in the superiority of import nameplates runs so deep that he insists on them during his business travels. “In my profile at Hertz, it says ‘anything but a Taurus,’” Hammell said. He actually resisted buying a BMW because there are so many these days in his upscale neighborhood. “Everyone in Atlanta has a 5-series, either silver, white or black. They’re like Chevrolets down here,” Hammell said. But he chose the BMW simply because “it’s the best car out there for the money. American cars can go fast, but they can’t turn or stop [the way a BMW can],” Hammell said.

The company that became BMW was founded in Munich in 1913 by an entrepreneur named Karl Rapp, who turned his bicycle factory into a plant producing aircraft engines. He couldn’t get them to stop vibrating, so he dropped his own design and acquired a license to build Austro-Daimler aircraft engines. Just down the road from Rapp was a fellow entrepreneur, Gustav Otto, who had a small aircraft factory. The two combined their operations in 1916, just in time for World War I, the first time that airplanes were used in combat. They kept separate names for the engine and aircraft companies, but in 1922, the pair officially formed BMW. The legacy of the aircraft engine company lives on in BMW’s famous blue and white logo, which is meant to represent an airplane propeller. Throughout the 1920s, BMW focused on aircraft engines and its motorcycles, capitalizing on a growing craze in Europe for motorcycle racing, and in the process pushing well past 100 miles an hour—a stunning accomplishment given that the average automobile at the time could barely climb above 35 mph. But in 1928, the company bought a car factory in Eisenach, in eastern Germany. Along with it came a license to build a small car named the Dixi, which BMW displayed at the Berlin Motor Show. BMW moved further into cars, and in 1936 it introduced the first of the automobiles that would prove to be the building blocks of its performance heritage: the 328 roadster.

It snapped up racing titles before World War II, including the famed Mille Miglia race through Italy, and is considered to be one of the most influential sports cars in industry history, both for its speed and its aerodynamic shape. Almost every two-seater built since owes something to the styling of the 328, which had a long hood, sported low-slung seats set close to the road, and simply looked fast. The war intervened, and with automobile production stopped, BMW focused again on aviation, producing some of the world’s first jet engines. Prohibited by Allied occupying forces from resuming production immediately after the war, and with its Munich factory destroyed in bombing raids, BMW did not reintroduce motorcycles until 1949 and did not return to the car market until 1951.

The 1950s brought some memorable vehicles, like the little Isetta, a car that had a front door that swung open where the hood normally would be, as well as larger sedans. But the 1950s almost spelled BMW’s doom. Out of cash, the company was considering a merger with Daimler-Benz in 1959 when its largest shareholder, Herbert Quandt, intervened to purchase control, beginning a new era for the company.

The Quandt family is often likened to the Ford family for the active role that it continues to play in BMW’s operations. But there are a number of significant differences. The Quandts can buy and sell the Fords many times over. The family, which now consists of Herbert Quandt’s widow, Johanna, her daughter, Suzanne, and her son, Stefan, is estimated to be worth at least $35 billion, as against roughly $8 billion or so for the third, fourth and fifth generations of Fords combined. The Quandts, moreover, are extremely secretive. Johanna Quandt, who was Herbert’s secretary before their marriage, secludes herself in a villa outside Frankfurt. Though Suzanne and her brother, Stefan, have board seats and a deep interest in the company, they almost never discuss BMW affairs. Neither one would dream of taking management control of their auto company, as Bill Ford did, or uttering pronouncements about the way it is run. The Quandts’ views generally are communicated through a family spokesman, who in recent years has stuck to a single line: BMW is not for sale. That is important, because BMW is one of the few auto companies in the world that is not involved in joint-ownership agreements—the other being Honda. And it is not lost on anybody in the industry that both BMW and Honda earned their reputations first as motorcycle companies, or that there was a personal involvement in both companies, from Honda at Honda and the Quandts at BMW. The Quandts’ confidence in BMW is a key reason why the company was able to grow and prosper throughout the last 30 years of the twentieth century.

Most Americans, except perhaps avid car enthusiasts, weren’t aware of BMW until it brought out its 3-series cars in 1975. It was a breakthrough for BMW, which saw an opportunity to expand its sales around the world with a smaller version of its performance cars. Thanks to the shock of the 1973 Arab oil embargo, people who wouldn’t have considered owning a small luxury car up until then now were open to the idea. Many were willing to sacrifice size as long as they got some performance in return. The 3-series came to the United States in 1977, and by 1978 it was a recognized hit, raising BMW’s global profile. In 1974, BMW sold only 184,000 cars worldwide. In 1978, thanks to Americans’ embrace of the 3-series, BMW’s sales around the world topped 320,000. It owed its success to a new category of American consumers that were emerging in the post-Vietnam era—the young urban professional, or yuppie.

With the explosion in the high-tech sector, the go-go stock market and a general sense of wealth that swept the country during the early years of the Reagan administration, yuppies seemed to be everywhere, spending their money in a deluge of conspicuous consumption. BMW fit right into their needs for status and excitement. There were no Cadillacs or Lincolns that could compete. Both companies still had lineups laden with either large cars that simply had no chic, or downsized cars that lacked the integrity, handling and character of the German models. Though Mercedes had been selling its cars in the United States for decades, it was perceived as dull by the most fashionable young consumers. BMW, by contrast, was fast, small and cool. “The 1980s yuppies didn’t want to be seen as the stodgy executive who drives a Mercedes, they wanted to be seen as the rapidly rising, dynamic go-getter who drives a much hipper Bimmer,” said Karl Brauer of
Edmunds.com
. BMW set a U.S. sales record in 1986, and with the addition of the mid-sized 5-series and the intimidating 7-series to its lineup, it looked as if its success would be unstoppable. But it didn’t last.

By the late 1980s, BMW faced serious competition for the first time, not only from Mercedes but from the Japanese luxury brands. It argued that it had heritage, something that Lexus, Infiniti and Acura lacked. But the Japanese cars’ quality was far better than the German cars’, and their prices were lower. “When you had a 3-series that cost nearly $30,000 in 1989 and a new, rear-drive, V-8-powered Lexus sedan available for the same amount, it was hard to deny the fact that BMWs were basically overpriced,” Brauer said. BMW struggled to keep pace, with a management that was divided over which direction to take: stay German and pure and risk seeing the U.S. market slip away from their grasp, or take some of the same actions the Japanese did—namely, improve quality, keep prices reasonable and explore more-efficient ways of production. BMW decided to take the latter course. And one of the key people who pushed it in that direction was Panke.

In a company dominated by the industry’s most talented automotive engineers, who spend their entire careers at the Munich company, Panke is an anomaly. He is, in fact, a nuclear engineer who came to the auto company in 1982 from the German branch of McKinsey & Co., the global consulting firm. As head of corporate planning in the late 1980s and early 1990s, Panke could see that BMW’s fate would be tied up with the United States. And to really compete, he felt it needed to join other import auto companies in building a plant there. Panke himself set off across the American South, talking to people at churches and truck stops, asking about the quality of the schools and whether there was a good work ethic. He became enamored of South Carolina, particularly the Spartanburg-Greenville area, where Michelin had built its headquarters and where Carlos Ghosn lived. There was friendliness about the place, and a willingness on the part of the South Carolina government to play ball with incentives and other training money that the company was seeking. Panke convinced BMW’s aristocratic chief executive, Eberhard von Kuhnheim, to select a site near Greer, South Carolina, for the factory. He got more than a plant out of the deal—Von Kuhnheim placed Panke in charge of BMW’s American sales operations at the same time.

Working from BMW’s headquarters in Montvale, New Jersey, Panke became convinced that the auto company needed to get into the market for SUVs. But if building a plant in the United States was a risk, an SUV was almost heresy to many company loyalists. Unlike Mercedes, which had produced the hulking Gelandeswagen sport utility, as well as commercial vans and even taxicabs, BMW had never strayed from its mission to produce performance cars. Moreover, there was little demand in Europe for SUVs, for they were too big, too difficult to park and too inefficient. But Panke believed that the auto company was losing customers in the United States because it did not have one. Just as Nissan found that its owners were purchasing Detroit’s pickup trucks, and Honda discovered that its owners were buying Chrysler minivans, Panke’s research showed that one in four BMW owners had an SUV in their garage, most often a Jeep Grand Cherokee or a Ford Explorer. He knew there would be an opportunity and pushed BMW management to go there. The result was the X5, perhaps the most controversial vehicle that BMW had ever introduced. These days, people wonder whether Porsche hasn’t made a mistake with its Cayenne SUV.