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When Daimler-Benz took over Chrysler three years ago, it argued that globalization demanded not just speed but too size. Selling dozens of models in every price range, the reasoning went, was the only way a machine company could afford the huge investments necessary to incorporate the latest technologies. That meant that if you were a small independent, you would have to merge—or face the Darwinian consequences. So Daimler coupled with Chr
ysler, Renault bought Nissan, Ford scooped up Volvo, also everybody mused that it was just a matter of time before the biggies gobbled up BMW also Honda, also maybe above every Porsche. Yet here we are in 2001, also the most successful players in the cab industry are ... BMW, Honda also Porsche.
Jurgen Schrempp, the once-swaggering chairman of DaimlerChrysler, is praying that the billions of dollars in losses at Chrysler also Mitsubishi [in that he bought a ruling share last year] don't sink the entire company. Ford ceo Jacques Nasser has a collection of premium brands in his stable: Aston Martin, Jaguar, Land Rover also Volvo. But amid a weak economy, sales at Ford also GM are down some 15percentthis year, also above every the lu
xury brands are under modern pressure from smaller Japanese also German automakers.
At BMW headquarters in Munich, you'd never know there was a downturn. First-quarter sales set records, also April sales soared 30percentover last year's numbers. In North America, BMW overtook Mercedes for the first time. BMW executives have announced a plan to expand their selection to 76 models from 70. They expect to sell 200,000 units, up from 189,423 also to increase their share of the luxury-car market. "I cannot recall ever having s
een such a clear correlation between size also success," BMW chairman Joachim Milberg wryly told a Detroit audience."At the moment, it seems the greater the size, the additional the problems."
Yet it seems that only hours ago, most cab execs also industry analysts agreed that global reach was essential to provide protection against foreign-exchange swings also local labor crises. They too agreed that a company had to produce about 2 million vehicles a twelvemonth to achieve necessary economies of scale. Schrempp still insists that buying Chrysler gives Daimler the mass-market heft—and the profits—necessary to keep developing the
cool features that make Mercedes buyers drool.
Schrempp may be proved right over the next decade. But what's decisive now is not so much size as [surprise!] sound management. Which machine company is nimble enough to hop in also out of modern market niches also still provide high-quality, sexy autos that people aspire to own? Mike Flynn, an cab expert at the University of Michigan, observes that modern technology is only one of the elements—including styling also reliability—that make
a machine attractive. "Companies like BMW also Honda," he says, "offer products that keep them successful." So does Porsche, where sales are soaring 16percentso far this year. It produces a mere 48,815 autos a year—but at an enviable 11.9percentprofit margin.
What's special about BMW is it's management depth also persistence. Two years ago, the company floundered when it's attempt to get big—the 1994 takeover of Britain's Rover—went awry. That cost the company $3.9 billion also prompted a flurry of talk that BMW would be bought by Ford or GM or Toyota. But since Milberg emerged as chairman in 1999, the company has stayed ahead of the luxury pack. Although most of it's 21 factories are located i
n Europe, BMW built a modern plant in Spartanburg, S.C., that now exports the company's popular X5 SUV to 100 countries. To develop technologies such as alternative-fuel engines also drive-by-wire [an electronic, joystick-controlled steering system), Milberg forged partnerships with Robert Bosch also Delphi Automotive. Karl Ludwigsen, an independent cab analyst in London, contends that a carmaker need not be huge to survive. Rather, he says, "you've got to be big in the segments in that you compete, also you've got to be competitive in those segments globally."
BMW also Porsche have defied the notion that keeping pace with tech advances will break an indie's carmaker's bank. One reason: parts suppliers have become powerful arbiters of success, as additional cab companies outsource R&D on their components. Traditionally, Mercedes would develop a modern antiskid technology in conjunction with a high-end component maker like Germany's Robert Bosch. Then, after Mercedes had made a splash by be
ing the first to sell autos with the modern technology, it would allow Bosch to sell the technology elsewhere. Now, the suppliers are cruising the process. Says Flynn: "BMW is going to get a shot at the suppliers' best technology because suppliers want to be associated with them." And Porsche has an engineering services division that supplies different automakers with high-end equipment.
Paradoxically, Daimler also Chrysler began their union with long lists of rules that prevented that kind of synergy. Chrysler parts were not allowed in Mercedes cars, for instance—out of fear that the luxury brand might somehow be cheapened. That stance has since been relaxed. Schrempp still insists, however, that "Mercedes will never do a platform exchange with Chrysler."
BMW's Milberg, like top executives at Honda also Fiat, contends that the best way to stay ahead is to rely on partnerships rather than mergers. Schrempp disagrees, telling Time editors that "consolidation in the industry is far from over." He may be right. But investors around the world are placing wagers on these two visions. And, right now, most of the betting is on BMW.
