BMW Group CEO Norbert Reithofer finally officially revealed that the automaker wants to sell 2 million cars a year in 2016 instead of 2020. Hitting the target four years ahead of schedule would mean that the milestone would coincide with BMW's 100th birthday.
German weekly Manager Magazin reported last summer that BMW would push forward the target. I asked the CEO about the new goal when we met last week at the Geneva auto show, but Reithofer was determined to keep the news a secret until BMW's annual press conference this week.
It's understandable why BMW wanted to control the release of the information: It's really big news. BMW's goal is the most ambitious target of all three German premium brands. By comparison, Audi wants to reach 2 million sales a year by 2020 and Mercedes-Benz aims for 1.6 million by 2015. (Mercedes has not announced its goal for 2020.) All three companies promise that their auto units' operating margins will be 8 percent to 10 percent in the future.
BMW's margin last year was 11.8 percent on total group revenues of 68.8 billion euros. The company set a record for group unit sales -- 1.68 million vehicles – for which the BMW brand accounted for 1.38 million. In a nutshell, BMW is stronger than ever and promises to set new records in 2012.
Reasons to be bullish
What makes the Bavarians so optimistic?
- This year is off to a record start. The company has delivered nearly 240,000 BMW, Mini and Rolls-Royce vehicles to customers worldwide in just two months. That almost matches Jaguar Land Rover's total global sales in 2011 (275,000).
- BMW's product portfolio is young, attractive and growing. Before the summer ends, BMW and Mini will have launched 12 new or updated models.
- Worldwide, the number of wealthy individuals is growing, which means more and more people have the cash for a premium car. Currently, growth in the premium segment exceeds that of the overall car market.
Reason to be nervous
What hurdles could slow Reithofer, 55, from reaching his goal before retirement?
- The latest management board shuffle is risky. Other automakers would not even consider having board members with so much experience swap positions. It seems likely that there will be friction between BMW brand sales boss Ian Robertson and crown prince Harald Krueger, who takes over Robertson's former responsibilities for Mini, Rolls-Royce as well as aftersales for all three brands.
- BMW needs to establish more strategic alliances to ensure access to technologies, pool expertise and generate cost savings. The problem is that these alliances can increase complexity and bureaucracy. Reithofer has declined to predict if the automaker's cooperation with PSA on electrification and hybridization would be enlarged – or maybe even ended – due to French automaker's new tie-up with General Motors. BMW, meanwhile, is in talks with GM to cooperate on fuel cells. Juggling all of these alliances drains management.
- In 2012, BMW wants to further extend its global footprint and raise capacities in China, the United States, South Africa, India and emerging markets such as Brazil. That is a massive workload.
- According to a recent study by Berylls Strategy Advisors, the "premium party will soon be over." The consultancy warns that margins in the premium sector will deteriorate up to 50 percent by 2020 because of the huge investment automakers will need to make in future technologies that lower CO2.
Doing it all
Reithofer knows that the industry faces a period of major technological change. This week he said he wants BMW to be "both a pioneer and a driving force in this transition" by following "complementary paths: evolution and revolution."
The CEO went on to underline his point by saying: "The further development of high-efficiency combustion engines and hybrid drives – this is what we consider evolution. Zero-emission mobility, combined with production and the innovative use of materials and new services – this is what we call revolution."
BMW's strategy sounds reasonable. Let's wait and see if its execution will be as good. So far, Reithofer has never over-promised and under-delivered. He has always done the opposite.