Profitability became important again with new targets put in place to guarantee minimum returns on sales and capital spending over the cycle. Whether Krueger downgrades the target margin corridor of 8 percent to 10 percent for the group's core auto business given a cooling China and rising r&d costs is one of the key unknowns.
"We're building upon Strategy Number One," BMW finance Chief Friedrich Eichiner insisted last September. "We're not talking about a completely new strategy."
Eichiner said BMW will focus on a number of key issues. Despite 12-year lows in crude oil prices, electromobility would be a major plank as CO2 regulations become increasingly stringent. Secondly, BMW would take a more direct and systematic approach to customer relations. And lastly, the CFO said brand management paired with design leadership would be leveraged much more forcefully.
One thing Krueger cannot count on are the same tailwinds from China that his predecessor enjoyed now that the country’s economy has cooled far more quickly than anticipated -- something sales chief Robertson illustrated vividly. "I landed in the middle of [last] year in Shanghai in our company plane. The normal routine is the plane drops us off, and then flies to a far-flung airport to park, because it's always full. But when we landed there wasn't a single corporate jet on the ground – not one," he recounted in January.
Although volumes continue to grow, the juicy profit margins of the past have all but disappeared as pricing has normalized. To avoid becoming too dependent on China, BMW decided to open a new plant in Mexico to better compete in North America.
The problem is demand in China helped finance the heavy investments BMW needed to make to remain an innovation leader. Analysts estimate that China may contribute as much as half of BMW's net profit when including vehicle and part exports as well as royalties paid by its joint venture with Brilliance China Automotive.
“There is no market to replace China,” Robertson admitted. “It’s not going to be India any time soon, it’s definitely not going to be Russia, and it’s definitely not going to be Brazil.”
The latest trend costing BMW is finding a way to give a precious commodity -- time -- back to their customers through connectivity solutions and autonomous driving. Mercedes already is debuting in the new E class a pioneering technology that allows vehicles to talk to other vehicles and their surrounding infrastructure.
Eventually a BMW will be able to crunch traffic data, warm up the interior and drive in autopilot mode from its parking spot three blocks away to pick up a customer at the door a quarter of an hour earlier if congestion is bad.
Owning a car may no longer even be necessary. Fully autonomous capabilities could feature heavily in a new vehicle the carmaker has confirmed is in the works, often referred to as the i5, under development by its so-called "innovation" subbrand or "i" for short.
Yet here BMW has two new competitors in Google and Apple that are attracted by the estimated 25 gigabytes of valuable data a connected car can generate every hour. Both Google and Apple are believed to be developing their own models even as they partner with manufacturers to bring their operating systems Apple CarPlay and Android Auto into a wide range of vehicles.
To usher in driverless cars while protecting customer data from what Daimler CEO Dieter Zetsche calls their mutual "frenemies," the three German brands took an unprecedented move. BMW banded together with Mercedes and Audi to acquire Nokia's high-resolution mapping unit HERE for 2.8 billion euros in December.
Warding off threats from well-funded new competitors costs money, and Exane's Pearson sees a chance that BMW could increase its target corridors for r&d and investment as part of its strategy review, citing Daimler's decision to hike its annual development budget by nearly 10 percent and capex by even 40 percent.
"They've got a lot of spending needs. No one knows what the future of the industry is going to be in 15 to 20 years' time," he said. “Carmakers are facing some pretty big threats and Krueger's got to cope with that. BMW knows how to deal with Mercedes and Audi – what the market really wants to learn is how they will deal with Tesla and Silicon Valley."
What BMW doesn't want to do is become too dependent on others in its core business, preferring to use two major vehicle architectures and a modular engine toolkit for scale.