BMW AG plans to boost parts purchasing significantly as it aims to increase its global unit sales to more than 2 million by 2020, from about 1.5 million in 2010. Herbert Diess, BMW management board member for purchasing, spoke with Harald Hamprecht, Automotive News Europe editor-in-chief, about growing sales, the electrification of the car, globalization and supplier consolidation.
BMW aims to boost innovation, quality
Q: BMW achieved its goal to reduce purchasing costs by $5.5 billion more quickly than you expected. What are your next goals?
A: We now want to concentrate on innovation and quality. Our strategy is quite simple. Our cars are differentiated from the competition because we have the best and most innovative parts, not the cheapest. We employ more quality engineers than purchasers. And we have quality that is at an historically good level. Our warranty costs decreased further in 2010.
How big is your annual purchasing volume?
About 28 billion euros last year [about $37 billion]. This will grow. We want to increase our sales to more than 2 million cars by 2020, so the purchasing volume will grow proportionally to our sales.
Will the structure of your purchasing volume change?
Yes, engines will need fewer cylinders, and we will reduce some commodities. But we will buy new kinds of materials because the industry is in the midst of a huge revolution -- the electrification of the automobile.
What will be the biggest changes brought about by new trends?
Due to new propulsion systems, there are new suppliers, such as SB LiMotive, which will be the exclusive supplier of lithium ion cells for our BMW i subbrand.
Will the need to improve fuel economy and reduce carbon dioxide emissions mean changes?
Correct. Technologies to reduce CO2 are needed already in transmissions and for downsizing of engines. On top of that, the issue of lightweight materials will be increasingly important for us.
What will be the changes in lightweight technologies?
BMW is already the industry's biggest aluminum purchaser. For example, the 5 series contains 230 kilograms [506 pounds] of aluminum and 720 kilograms of steel. The 7 series has 300 kilograms of aluminum -- for example, in the axles and side panels -- and 800 kilograms of steel. The next lightweight production issue will be carbon fiber. The ratio between weight and stiffness is five times higher here than with steel. This is why carbon fiber is used in modern aircraft construction. The only problem: Costs must decrease, which will happen thanks to automated mass production.
Is cost reduction the biggest driver for your joint venture with PSA Peugeot Citroen to produce hybrid and electric vehicle components?
It makes sense to combine strengths for the topic of electrification. The joint research, development and production, as well as purchasing, of components will bring significant cost advantages and is an important step toward sustainable mobility.
Do you expect further consolidation among suppliers?
Globally, BMW Group has 2,500 suppliers for 75 trade groups. The suppliers in 70 groups are already well-consolidated in a structure of an oligopoly: Six to seven suppliers divide the world market of 70 percent to 90 percent among each other. We are pleased to see that these suppliers successfully use synergies of scale. A further consolidation in this group of suppliers could only happen through mergers and acquisitions.
What about Tier 2 suppliers?
The five trade groups here are an issue for us, as the market is highly fragmented. Consolidation is due here, for example for sheets of iron, castings, aluminum providers, simple plastic interior parts and rubber seals. In these nonconsolidated fields, suppliers don't have synergies of scale. And the risk of an interruption of the supply chain is far higher.
Would you support consolidation among those suppliers?
Absolutely, we support such a development. Thanks to consolidation, the remaining suppliers would be strengthened and brought into a better financial situation. This would be of advantage for the whole industry.
What percent of your purchasing volume derives from Asia?
We have made a fivefold increase in our purchasing in Asia since 2009. About 75 percent of this is from China. The share of purchasing from Asia within our global purchasing volume will increase substantially in the next few years. And local content suppliers for our joint venture in China could become global sourcing suppliers.
Final question for the summer: How many convertible roofs do you purchase each year?
We are the biggest convertible manufacturer globally with six models in the BMW group and annual sales of 120,000 convertibles. We will definitely defend this position.