BMW shake-up may lead to another deal

The news came after a seven-hour supervisory board meeting at BMW8217;s Munich, Germany, headquarters, where the top item was a review of the situation at the company8217;s money-losing Rover unit in the United Kingdom. At a time when many industry officials believe car makers need to bulk up to achieve economies of scale, BMW8217;s position as the world8217;s 13th-largest car maker makes it appear vulnerable.

quot;I figure by Monday, there will be at least three or four companies bidding for BMW,quot; said DaimlerChrysler AG Co-Chairman RobertEaton, who was at an automotive seminar in San Francisco. Eaton insisted that his company won8217;t be one of them, but he speculated that General Motors Corp would be. In recent months, GM has studied how BMW would fit with its global operations, according to people familiar with the situation. GM Chairman John Smith Jr. declined to comment.

Volkswaken AG Chairman Ferdinand Piech, who has already signaled his desire to buy a stake in BMW, was staying quiet over the weekend. Some analysts believe that the best fit for BMW may be Honda Motor Co of Japan. Marrying Honda8217;s highly successful mass-market cars to BMW8217;s equally successful luxury cars would create the world8217;s sixth-largest car company. But analysts warn that relations between BMW and Honda were soured when the German company bought Rover, which at the time had a partnership with the Japanese company.

One route BMW could take short of a full merger or sale is to forge alliances with a larger partner for purchasing or technology development, oneindustry executive said. That way, BMW could remain independent, but spread some of its costs over a larger base. BMW would be able to bring to such a deal access to some of its engineering expertise in areas such as engines, this executive said.

If BMW8217;s new leader tries to steer the company in a new direction, he will do so only with the approval of Germany8217;s wealthy Quandt family, which owns a 47 stake in the company. The family is headed by Johanna Quandt, 70, who stepped down from the BMW supervisory board in 1997. A spokesman for the Quandts gives the clear impression that the family isn8217;t interested in selling out. quot;The family firmly underscores its commitment to the firm,quot; he said.

Pischetsrieder8217;s departure had been rumored for days prior to Friday8217;s board meeting, largely because he was responsible for BMW8217;s decision to buy Rover for two billion marks 1.15 billion in 1994 and then for being unable to solve Rover8217;s problems. As the speculation swirled, said BMW spokesman Richard Gaul,Pischetsrieder came to the conclusion that his continued presence would only harm the company. Pischetsrieder and Reitzle couldn8217;t be reached for comment.

Just six months ago, Pischetsrieder was hailed as a strategic genius. His decision to buy Rover made BMW the first car company to pursue the strategy of offering cars in every niche 8212; a strategy that other auto makers followed. And last summer, Pischetsrieder swooped in to acquire the Rolls-Royce brand for 40 million 65.3 million when rival VW thought it had a deal to buy the company. Instead, VW walked away with Rolls-Royce8217;s aging factory and the Bentley brand name.

As Pischetsrieder8217;s departure seemed imminent last week, many people expected Reitzle, 49, to take his place. A 13-year veteran of BMW8217;s management board, Reitzle was responsible for sales, marketing, design and product development 8212; duties that made him known as the quot;shadow chairman.quot; He also was credited with much of BMW8217;s success with its current models. But Reitzle apparentlyfailed to win the backing of the company8217;s union representatives, who have half of the seats on the 20-member supervisory board.

For a compromise candidate, Supervisory Board Chairman Eberhard von Kuenheim turned to Milberg, a quiet and low-key executive. Milberg, 55, joined BMW in 1993 after spending 12 years as a professor of engineering at Munich8217;s Technical University, where he specialized in car production. quot;He knows literally every car factory in the world,quot; BMW8217;s Gaul said. At BMW, he is credited with improving the quality control at the company8217;s factories. In a recent J.D. Power survey of quot;quality in processingquot; at the world8217;s auto factories, BMW plants took the top three spots.

Many analysts believe that BMW needs to take action to assure its long-term survival 8212; both for BMW itself and for the Rover brand. BMW makes just 1.2 million cars a year, or about 2.3 of the global production in 1998. As competitors such as DaimlerChrysler and Ford Motor Co, which last month agreed to buy Volvo Cars,grow bigger, they are able to cut costs by squeezing suppliers for better deals and by spreading their research budgets further. Analysts say BMW could be in for a rough ride if it fails to make similar savings.

The management change at BMW also raises questions about the future of Rover, the once proud British brand that now trails even Peugeot and Renault in the UK market. While BMW hasn8217;t revealed its 1998 results, the car maker says losses at Rover were responsible for the first decline in net profit since 1993, despite a record performance by BMW8217;s own-brand cars and a good year for the industry in general. By some estimates, Rover8217;s losses exceeded 1.5 billion marks in 1998, leading some people to refer to the unit as quot;The English Patient.quot;

While BMW is a luxury brand for which consumers are willing to pay extra, Rover is a struggling mass-market brand plagued with quality control and image problems. Even if BMW can survive the merger wars as a niche brand, many analysts think that Rover can8217;t. Itcontinues to lose market share at home, and while its exports are rising, the high value of the British pound means that the higher sales aren8217;t translating into higher profits.