JOACHIM MILBERG seemed an unlikely choice to head BMW's management board in February 1999 when Bernd Pischetsrieder was fired and Wolfgang Reitzle resigned. But things have turned out well for the former machine tool professor at Munich Technical University. BMW's sales, earnings and share price soared once Milberg decided - a year into his new job - that Rover should be sold. Milberg was interviewed by Dorothee Ostle and Richard Johnson of Automotive News Europe on November 8 in Berlin.
Are you worried about the economy in Europe and the USA?
The third quarter and October figures show that the consequences of the events of September are, from BMW's point of view, containable.
What about the industry as a whole?
We don't know the real figures for October, but as far as I know October was very positive in Germany. And October figures for BMW will also be very positive. We see a trend in which the development of the premium brands is somewhat independent from the development in the whole market - in particular the mass market. The volume market follows the economic trend very tightly. The premium brands are very independent from this.
This year you will sell over 900,000 cars. What growth do you expect for next year?
It is too early to say. We are very happy with 900,000 this year because it is 80,000 cars more than in 2000. This is a very big achievement. We are confident also for next year. The Mini is a new product in the market, we have the new 7 series and other attractive products.
You've said that you will add a third shift for the Mini in the Oxford, England, plant. So you expect more sales than the anticipated 100,000 units?
Technically speaking we have capacity for around 100,000 units in Oxford and we are confident that we will achieve that volume next year. We are making an additional effort to accelerate the ramp-up phase to reach those 100,000 units next year.
But in the long run this effort will provide you with 150,000 or 180,000 units capacity?
We are fully flexible. We will follow market demand. The response is very positive, so I think we will be able to reach the capacity of 100,000 units. It is too early to talk about 2003. But to achieve more than 100,000 units we would have to take some extra measures - a change in shift pattern, for example.
Whether it is 100,000 or 150,000 units, will the Mini be profitable in its first generation? Or do you have to wait for the second generation to make money on the Mini?
The Mini is a premium product, so there is premium positioning regarding margins also. But we have to improve the brand awareness of the Mini with this new product and this needs some effort. But it is clear that every single Mini will have a very positive contribution to the BMW results. At the end of the day, the Mini will be profitable, no doubt about that.
You are talking about contribution to operating profit, but what about the life cycle profitability of the Mini?
At the end of its life cycle the Mini will be profitable.
Have you reached an agreement with Toyota for a diesel engine for the Mini?
There is an ongoing discussion. We have an agreement regarding the development activities. There are some open points, but I think we are on a good track.
BMW will take ownership of Rolls-Royce on January 1, 2003. But after your predecessor, Bernd Pischetsrieder, left BMW did you ever consider not going ahead with the acquisition - a deal that Pischetsrieder had done? Was the question asked, 'Why do we need Rolls-Royce?'
When we reoriented the BMW group after selling Rover it was very clear that the focus would be on the premium segment. The core brand is BMW, but we need additional brands. Rolls-Royce is the alternative, theoretically, to say, an 11-series BMW. Rolls-Royce has different brand values. I think this is the same for Mini, which we have for small cars. So around the core brand to have Rolls-Royce and Mini is very important from a strategic point of view.
Are you on schedule in terms of appointing Rolls-Royce dealers and distributors?
We have contracts in the most important countries. This will be a totally different sales organization, separate from BMW. Maybe there are some companies that are also BMW dealers, but from the brand point of view the sales organization will be very different.
It's less than a year-and-a-half before you own Rolls-Royce. It seems like you should be talking a lot more about the brand and the new Rolls-Royce product you are working on. Does the agreement with Volkswagen prohibit you from doing that?
There are clear contracts between Volkswagen and BMW, but it is the culture of BMW to talk about products when they are available.
Won't the brand suffer in this interim period?
No, the brand is very strong and we will have a very good product when it arrives in 2003.
Will there be just one new Rolls-Royce or are you thinking of a lower-price model as well?
No, there is no lower-price Rolls-Royce. The product will have certain brand values, certain substance, a very unique Rolls-Royce. There will not be a cheaper one. You must see this from a strategic point of view and our product portfolio: the core brand is BMW, at the top the 7 series and its derivatives. Should there then be a kind of 7 series from Rolls-Royce? No, there is no room for a cheap Rolls-Royce.
Does Chris Bangle (BMW's chief designer) have responsibility for Rolls-Royce styling?
The design of all BMW group products is part of our research and development area, overseen by Burkhard Goeschel. Chris Bangle is part of this area. It is a team job. But the design team for the Rolls-Royce is a very different one from BMW and from Mini.
Were you bothered by criticism of the 7-series design at the Frankfurt auto show?
The reaction from our dealers and potential customers has been very positive. The new 7 series is a major step forward in terms of technology. It has a new eight-cylinder and a new 12-cylinder engine, both with Valvetronic; new gearboxes; and a very new suspension. It's a tremendous step forward. So I think the discussion [about 7-series styling] shows that this is a real benchmark in the segment, and we are very confident that we did the right thing.
German dealers complain that the car was specifically made for Asia with all the gimmicks - the 700 functions integrated in one button.
No, no. The real step is that normally we have buttons for 700 functions, so it is a war of the buttons. With the new 7 series we terminated the war of the buttons and we have a very simple, integrated design, a very simple dashboard.
We've been told that you plan for around 100,000 units annually of the 1 series, which will debut in 2004. How can you produce that car profitably in such small numbers?
There are no final plans regarding the volume of the 1 series. We said we need additional capacity for the 1 series of at least one new plant. So we decided to add a new plant in Halle-Leipzig. And if you see the capacity of BMW plants, they are all around 150,000, 160,000 up to 200,000 units. I think those are the figures we are thinking about with the 1 series.
In the long term for the 1 series we will follow the idea of the 3 series. We will have additional derivatives - not in the first year but in a medium and long-term. We are very confident that we will have a good margin for this product and the necessary profitability.
Do you plan an X7, a sport-utility above the X5?
This is not at the table right now. The question is what could be done after this current product offensive. If there are new segments we should anticipate with certain car concepts we will do this, but there are no real decisions.
During Rover times you developed a range of V-6 engines, which you have offered for sale to other carmakers for more than a year now. Nobody has signed up yet. Your technicians say that to attract customers the engines must either be sold now or must be upgraded to stay attractive. Would you invest more money, put in Valvetronic to find a customer and recoup at least a little bit of the overall investment?
The BMW engine is traditionally an inline engine - four-cylinder, six-cylinder. But we have eight-cylinder and 12-cylinder V engines. The V-8 is in the new 7 series and next year the V-12 will follow. When we were talking about the new V-engine family, we decided that with an additional effort in terms of research and development, and later with additional investment area for the engine plant, we are able to also have a V-6. So from a technological point of view the V-6 is part of the V-family ...
... So the V6 is a spinoff ...
Technically it was a spinoff, it was built as one family. If there are potential buyers for the V-6 it's okay.
So will you upgrade it?
No, we won't. There is no additional effort to become a worldwide supplier for V-6 engines.