Norbert Reithofer, BMW

Wednesday 15th July 2009

BMW boss Dr Norbert Reithofer has to make the ultimate driving machine greener, more profitable while staying well ahead in the fast lane. Profitability though is his number one priority. Can he pull it off?

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Dr Norbert Reithofer, 53, is an echt Bavarian Motor Works (BMW) man. He’s travelled the distance from factory hand road planner to chief exec. He has never strayed to rival makes such as Audi or Mercedes. He’s a Munich boy through and through. But does such unswerving loyalty to perhaps Germany’s most iconic car brand suggest a dull though powerful plodder? Or does his track record reveal massive talent with the vision to steer Germany’s most successful luxury and performance car group not just out of a global recession but also to help consolidate its environmental credentials in an era where green credentials are as equally important as raw speed and superlative driving dynamics? Oh, and his job description also includes keeping BMW hip and cool as well as well as technologically ahead of the fast-improving Asian competition (check out Hyundai’s latest Genesis model as an example of how the Asian car industry is fast catching up). A formidable brief. Reithofer’s track record however suggests he’s got the moxy to pull it off.

Ruthless when necessary
Reithofer joined BMW in 1987 and has worked from maintenance planning to R&D to production. In September 2006 he took over from Helmut Panke as chairman and CEO. Over his career he has managed to slash production time of new models significantly without compromising build quality. He is a ruthless rationaliser and willing to axe jobs – last year he slashed more than 8,000 at a stroke while depriving existing workers of paid breaks and overtime bonuses. He recently cut boardroom pay by 40 percent and many exec salaries by 30 percent. Reithofer’s salary is €600,000 but the overall package is – or was – worth €3.75 million; that sum has been knocked back substantially as earnings and sales have come under pressure. Meanwhile, BMW’s financial performance, in truly terrible trading conditions, continues to surprise analysts. “In view of the difficult conditions still prevailing on the financial markets, we remain focused in our efforts to improve our liquidity position,” said Reithofer in a terse statement recently. The company generated free cashflow of €220 million in the first quarter of 2009, a better result than many had been expecting – and Reithofer even expects conditions to improve later this year.

Co-operation across the board
What has been truly extraordinary under Reithofer’s stewardship though has been the amount of union support for the tough decisions he’s had to force through. German unions are notoriously tough forces to keep onside, especially when jobs are under threat. Much of this success is partly down to Reithofer’s vision that any car maker wanting a future in the 21st century needs success that self-sustains – and being able to communicate that hard message to multiple audiences. It’s difficult, in the face of it, to argue with the numbers: total sales of BMW, Mini and Rolls-Royce brand slumped 21 percent in 2009’s first quarter year at 277,264 cars compared to 351,787 vehicles in the first quarter last year. So most at BMW appear willing to pay the price necessary – for the moment. Reithofer is also prepared to shed some pride to pragmatism. Both BMW and its arch adversary Daimler AG (and its subsidiary Mercedes) could, it appears, co-develop some future models together in an effort to slash costs. It looks increasingly likely that the underpinning of the next generation Mini could be shared with Mercedes’ next-gen A and B-Class cars. Questioned about the proposed BMW/Daimler technical tie-up recently at the Geneva show, BMW technical director Klaus Draeger told Autocar that BMW was “always looking for savings and efficiencies”. It’s not the most conclusive statement of intent, but the fact Draeger could utter such an acknowledgement speaks volumes for the cost predicament these age-old rivals are locked in. The German newspaper Der Spiegel has already suggested that the two rivals could take a seven percent holding in each other. Whether Reithofer will want to go that far remains to be seen. Some suggest such a deal could be the thin edge of the wedge, at least as far as Daimler is concerned. How convenient it would be for Daimler to swallow BMW whole so it can get on with fighting Porsche/Audi/VW and Lexus undistracted. But this is a mega-merger too far, counter industry insiders, carrying massive risk of brand dilution.

Hybrid hassle
Another pressure is powertrains: how far will Reithofer go down the hybrid avenue – a route synonymous with eco-friendliness despite often supplying disappointing real-world fuel economy – especially as diesel and petrol engine technology continues to improve, radically in some cases. Electric vehicle technology is developing – particularly for lighter sports cars and City cars – but BMW’s Five and Seven Series range are also a long way from being lightweights. “We will be launching,” Reithofer said recently, “the first megacity vehicle with a fully electric drive or an ultra-efficient combustion engine by the first half of the next decade.” This vehicle will be part of a new family of extremely low-emission vehicles. Of course, the idea of an electric Rolls-Royce remains hugely attractive – and not to be discounted in the medium-term.

So, Reithofer has wide-ranging distractions ahead of him. Getting a handle on what the economy needs remains tough. A lack of visibility about earnings in the current climate makes it difficult to anticipate future production pressures. Balancing the costs of research and development costs in an effort to cut CO2 emissions is a finely judged decision, especially when profits are concerned. Analysts still say BMW – which at one point was more profitable than Ford, VW and Renault combined – now struggles to earn profits proportionate to development costs.

Reithofer though, is well aware that returning BMW to real shareholder profitability is his biggest challenge. Growing the successful Mini brand into ever more variants is not the answer. Nor are the Chinese or Indian markets on their own. Profits for its premium priced cars is everything. Even in hair-shirt times like 2009.

Three new important models en route

» The long awaited ‘Baby Roller’ – the Rolls Royce Ghost with a BMW-developed 6.6-litre turbocharged V12 engine. Likely to be on sale by the end of the year. Prices are expected at about the £180,000 mark.

» New Mini Colorado SUV with engine power ranging from 120bhp to 175bhp. Arriving 2010.

» New BMW 1-series Cabrio plus next-generation 7-Series, possibly hauling a hybrid powertrain.

Norbert Reithofer CV

Born: 29 May 1956 in Penzberg, Germany.

Education: University of Munich, Mechanical Engineering / Marketing and Management plus a doctorate from the dame university with Joachim Milberg.

Career: 1987 – BMW: Head of Maintenance Planning, 1991 Director of the Body in White Production Division, 1994 Technical Director, BMW South Africa, 1997 – President BMW Manufacturing Corporation, 2006 – Chairman of the Board and CEO.

Notable Quote: “Managers have to be role models and work together.”