Jim O'Donnell became CEO of BMW (U.S.) Holding Corp. last July, just before U.S. auto sales began to plunge. So it has been a tough start in America for the native of Scotland.
But there are positive signs. O'Donnell, 59, expects BMW brand sales to pick up slightly in the U.S. in the fourth quarter, and he says dealer profitability remains much higher than the industry average.
O'Donnell has emphasized increasing certified used-vehicle sales at BMW stores and improving customer satisfaction.
He began his career at Ford Motor Co. in the United Kingdom in 1979 and stayed until 1990, when he jumped to BMW. Before taking his current post, O'Donnell was managing director of BMW (U.K.) Ltd., a job he held since 2000.
O'Donnell was interviewed by Staff Reporter Diana T. Kurylko last month at BMW's North American headquarters in Woodcliff Lake, New Jersey.
How were first-quarter sales, and what do you expect for the rest of 2009?
The first quarter has been fine for BMW in that we met our expectations, which were substantially lower than last year. We thought we would be down about 30 percent, and we did better than that. We were down 25.2 percent as a group.
From now through the end of August, we will continue with a 25 percent to 30 percent decline in new-vehicle sales. We will continue with an increase in used cars. In the fourth quarter of this year we will show growth for BMW as a group [including Mini], and the brand will be up more.
Starting in September, BMW [brand] will show at least 10 percent growth over the prior year. We will probably continue that through the final quarter. I see Mini being flat in the last four months.
Last year, the 7 series averaged about 1,000 units a month. How will the new one do?
The 7 series was just launched in March, and it will be a great opportunity for us this year. It has overcome the objections in terms of styling and the iDrive. If you look around the world now, a lot of people have now copied the original design of the 7 series -- the "Bangle butt," as they called it.
By the end of year, it will lead the segment. We are not shooting for gold, but to put this car into the market without a lot of sales allowances. If that means we do 1,000 a month, so be it.
You positioned the 1 series as a rather expensive car here and limited your volume. Did you miss some potential sales? Wasn't it supposed to be a volume entry-level car?
One of the reasons we positioned it as we did was the dollar was particularly weak. Having pitched it at that level, we think it would be inappropriate to try and adjust that. We are happy enough with the 1 series being a niche model, concentrating mainly on people who want a small car with a degree of fun in it.
Are you going to keep the volume well under 15,000?
We'll keep the volume at whatever we can make money without squeezing it.
Is there another product you could bring in under that car?
We could but we decided not to. With the sole exception of the Mini, Americans do not seem to like hatchbacks.
BMW has some of the best-performing diesels, and you've just introduced two diesel models in the United States. What are your expectations?
We introduced the X5 diesel in December and the 3 series in January. So far they are off to a slow start. We need to put a little bit more oomph behind them with corporate communications and marketing.
We do see diesel as having a good potential in the U.S., and they are part of our strategy for meeting the California Air Resources Board requirements.
BMW CEO Norbert Reithofer recently said the company may miss its 2012 sales target of 1.8 million vehicles by 200,000 units. Is that because of the United States?
We are fairly confident that from about 2012 we'll get back on track with our previous aspirations [in the United States]. But there will be a dip: 2008 and 2009 will be a lot lower than we anticipated.
You have had some aggressive incentive programs in the market, so won't your profitability suffer?
The most aggressive programs we had in place were on the previous-generation 7 series and the previous-generation Z4. We have backed away substantially from them. We are spending less than some of our competitors.
What is happening to the luxury market?
The luxury end seems to be holding up slightly better than the mass market.
But you're feeling pain?
We are feeling the pain as much as anyone else. That is why our volumes are down substantially. In 2008, we originally thought we would sell 300,000 cars and wound up selling 250,000 -- that's a substantial drop.
You've seen an increase in used-car sales. Is this because the mind-set of the luxury buyer is changing? Is it no longer socially acceptable to be seen in a 7 series?
What we are doing with the used-car buyer is attracting some of the people who can't quite make it to a new car. They see this as a very good option. We are also attracting people who don't want to be seen in a new car at this time for whatever reason. And evidence is beginning to show that we're attracting buyers of some of the makes that are suffering.
How are you doing on the used-car side?
We were particularly happy with the overall used-car performance. We are on track to do 120,000 certified cars this year and another 40,000 used cars, compared to 104,000 certified and 25,000 used cars last year.
How are your dealers holding up?
Our dealers this year will probably be the most profitable dealer network in the country based on return on sales.
What is the average?
It will come in above 2 percent. The industry average this year will be 0.2. Most of our stores are exclusives.
What makes them so profitable?
They reacted quickly to the current recession, looking at their marketing, staffing and processes. They also are very fortunate that we have 97 percent retention of customers in the first four years, so our fixed-operations business is first-class.
Have dealers benefited from your four-year/50,000-mile free maintenance?
Will you lose any dealers this year?
We have one dealer who is in trouble this year. He has threatened to take us to court, so I am not in a position to comment. Every year there is going to be one or two people struggling for whatever reason.
You took over just as the industry entered major turmoil. What are your priorities?
My priority is sustainable profitability for BMW North America and the BMW dealer network. We can achieve that with lower volumes. The thing that has irked me is that we spend so much on the maintenance program and that we're not number one in J.D. Power [customer satisfaction survey]. We didn't have the eye on the ball.
What's the problem?
We didn't make it a target. We had our own internal measurement which told everyone that customer satisfaction was 90 percent-plus. When I heard 90 percent-plus, I thought it was freaky. I said this isn't good enough. Last year we crept up to third in the J.D. Power CSI, and hopefully this year we will be No. 1. We have changed our program completely -- rewritten and revamped it. We are concentrating on customer dissatisfaction rather than customer satisfaction.