Get 1 Year of Cigar Aficionado for Just $24.95 + A Free Gift!

BMW's Next Big Challenge

The builder of high-line performance cars faces a world of value consciousness and is seeing green. But this company that began by making airplane engines is used to dealing with change.
By Paul A. Eisenstein | From Hugh Grant, November/December 2009

The ancient roadster strains at the steep grade, its 75-year-old engine wheezing like the little engine that could. Maybe. It takes serious effort to muscle the two-seater around the tight hairpins that lead to the Alpine summit, the narrow tires sloshing and sliding on the sloppy pavement, the heavy rain replaced by snow as we gain altitude. A well-worn windbreaker and the towel I've spread across my lap are my only protection from the elements, and what passes for a windshield wiper simply tosses slush over the glass and into my face.

It might help to put the top up—but only marginally. Back in 1934, when this BMW 315/1 rolled off a Bavarian assembly line, roadsters were meant to be driven al fresco. Were the canvas top in place, it would offer little protection as there are no side windows, or even curtains to keep the gusting gales out.

Logging time in a pre-War roadster stretches the definition of "fun," as we negotiate tight corners, depending on an ancient steering box and tires not much wider than what you'll find on a modern cross-country bicycle. The car holds on, but still my driving partner and I feel a certain relief when we pull into our lunch stop, knowing that for the return trip we will swap rides with some colleagues for a brand new Z4, which is the scion of three-quarters of a century of BMW roadster development.

The new model is the first complete remake of the German marque's compact roadster since 2002, both roomier and more upscale than the previous-generation two-seater. From nose to tail, you know it's a BMW, with the low-slung kidney grille, the sculpted lines of the fenders and doors, the sensually curvaceous roof and the chopped tail. Happily, it features not only side windows, but the new roadster's most distinctive touch, a folding hardtop that, with just the touch of a button, can be opened or closed in the time you'll spend sitting at a stoplight, less than 20 seconds.

This exercise in sheet-metal origami is, when you get down to it, something you'd expect from BMW, for the 2010 Z4 is more than just another branch of the roadster family tree. It is a symbol of the dynamic evolution of both the breed and Bayerische Motoren Werke itself.

High-flying roots

The original incarnation of the line wasn't even an automobile. The familiar, blue-and-white roundel, the circular BMW logo, gives a hint of the company's heritage. Known as the "spinner," it was meant to signify a propeller slicing through a clear sky (the colors borrowed from the Bavarian flag). Rapp-Motorenwerke, which would soon be styled BMW, was formed in 1913 and soon thereafter worked to produce aircraft engines for the Kaiser's failed effort in the First World War.

When the Versailles Treaty demilitarized Germany the company scrambled to create other outlets: first motorcycles, then automobiles. While it turned out some elegant and well-regarded products, BMW's soul remained in the aircraft industry, which it readily reentered during the rapid rearmament of the 1930s that led to the Second World War. Its factories turned out a procession of increasingly powerful and sophisticated aircraft engines, including a pioneering turbojet, the BMW 003, which was used in one of the first Luftwaffe jets.

But the war left Munich—and BMW—in ruins. For the next decade and a half the company struggled for survival, at one point licensing the design of the Italian microcar Iso Isetta and stuffing it with one of its own motorcycle engines. It wasn't much, but the bubble car helped keep BMW afloat until 1959, when the powerful Quandt family would take a controlling stake. Even then, BMW's fate would not be secured until 1966 when it would launch the legendary 2002 sedan.

To some, it may be one of the purest sporting compacts ever produced. Part of BMW's so-called "New Class," the 2002 was visually striking, taut, nimble and blindingly fast for its day. But the 2002 had room to improve. In 1971, the company added the designation "tii," which was BMW-speak for a then-revolutionary fuel injection technology. It was a transformational product for a transitional era.

By the 1970s, Baby Boomers had grown weary of driving the same cars as their parents. And the first oil shock made Detroit's muscle cars seem like dinosaurs. Asian imports, with their fuel efficient engines and wimpy horns might have been fine for some, and for those who had real money there was that classic Teutonic status symbol, the Mercedes-Benz. But BMWs, with their spinner badge and double-kidney grilles, represented a different type of motoring entirely. The timing couldn't have been better as increasingly affluent Boomers fueled the growth of the new "entry-luxury" segment. By the early 1980s, the 2002's slightly larger successor, the 3-Series, would become the unofficial auto of the Reagan Revolution, the original yuppie mobile.

Lights, cameras, autos

The typical tourist, upon arrival at Munich's vast and modern airport, is likely to grab a cab and head to an ancient Bavarian beer hall for some weizen, sausage and pretzels. We are bound, however, for a different destination, a few miles away. Standing at the edge of an earlier industrial landscape transformed into park space for the star-crossed 1972 Olympics, the circular towers that serve as BMW's iconic headquarters are a symbol, to Münchners, of the city's post-War rebirth.

In recent years, the corporate park has come to rival the draw of the Hofbrauhaus as visitors are lured by the addition of the sprawling BMW museum, housing an inspiring collection of classic cars and motorcycles. We'll save that tour for later. For now, we're on the way to the newest addition to the corporate complex, BMW Welt. The architecture alone is eye-popping. "Its undulating steel forms, suggesting the magical qualities of liquid mercury, may be the closest yet that architecture has come to alchemy," suggests New York Times architectural critic Nicolai Ouroussoff.

Stepping inside the bright and airy main hall, we're whisked past the Welt's numerous restaurants and coffee shops, into a private space set aside for those who have come to pick up a car through an enticing new European delivery program. In our case, the company has set aside the latest incarnation of the top-line 750 sedan. An espresso for my colleague, some sparkling water for me as our guide begins a well-rehearsed process that is part tour and part familiarization guide. Over the next half-hour we get a preview of what it will be like to drive the new 7-er, and how to operate its sometimes vexing, though newly updated, iDrive system. Finally, it's time for the main event.

A private elevator lifts us to a balcony that overlooks the hall, and as lights flash and dim, peaking our expectations, the silver sedan spins into view. There's plenty of time to ooh and aah before car and customer are brought together, a BMW photographer snapping a keepsake picture. Were we the typical American buyer, we'd spend the next week roaming through Europe before handing the keys back to a BMW representative, who'd oversee the tedious process of getting the car shipped back to the States. As it turns out, we'll still have a few days to explore, as we head deep into the heart of the old East Germany, towards the fairytale town of Dresden.

But when you own a premium luxury sedan of the 7-Series class, the vehicle itself becomes a destination. The last generation of the flagship sedan generated plenty of controversy—not only for the debut of iDrive, but also for its radical design direction. Notably it included a huge rear end, derisively known as a "Bangle-butt," in reference to former chief designer Chris Bangle. Despite the endless debate, the 7 actually gained share, and BMW hopes to do even better with the new model.

It's certainly been well received, with a less in-your-face shape and more traditional cockpit-style interior. As always, the cabin is swathed in leather and wood, and filled with the latest infotainment systems. The list of safety and performance technology could fill an entire page—one system even watches for oncoming traffic when you're backing out of a mall parking spot. But, as one would expect, performance and handling remain the car's ultimate hallmarks; yet even with the added power, BMW engineers have recognized market realities by also improving fuel economy.

Nurturing the family tree

The 3-, 7- and Z4 are perhaps the most familiar faces in the BMW lineup, but the family tree has been branching out quite aggressively in recent years. Examples include various "Sport Activity Vehicles," BMW's performance-oriented alternatives to the traditionally stodgy SUV. There's also the pint-sized 1-Series, which reflects the luxury market's shift away from vehicles measured in value by the foot and pound. And for those who take BMW at its word, there are those "ultimate driving machines," the M models, like the new X6 M, which churns out 555 horsepower and 501 pound-feet of torque, and delivers 0-60 times of just 4.6 seconds.

Of course, BMW isn't alone. Its arch-rival, Mercedes, has spawned an alphabet soup of new products in recent years, and by pure product count, the Bavarians lag behind. But expect to see more, hints Jim O'Donnell, the new CEO of BMW of North America (BMWNA). "Our customers want a mix of products that reflect their tastes and needs," says the Scotsman who took over operations in the company's most critical market, earlier this year. The challenge is to come up with products "that are true to our heritage, which is performance and dynamics. The day we lose that is the day we lose our premium."

That's not as easy as it might seem, and it certainly requires more than just bolting the spinner and the double-kidney grille onto an otherwise mundane automobile. Consider that the X6 M weighs in at roughly 5,000 pounds, yet it's got to be not only quick, but as nimble as a more conventional BMW sedan or coupe. And the challenge is about to get tougher.

Nevertheless, on the positive side, BMW is taking advantage of the growth in emerging markets, such as China and India, which have proven particularly hungry for luxury brands. The downside is these new markets are competing for global fuel supplies and contributing to the production of noxious emissions and greenhouse gases. From Berlin to Beijing, lawmakers around the world are tightening both mileage and emissions standards. That's proving difficult for manufacturers of underpowered subcompacts to meet. But how do you cope when you're selling X5 crossovers and 7-Series sedans?

Seeing green

The Vision concept vehicle, which debuted at this year's Frankfurt Motor Show, provides a hint of where the Bavarian maker might be heading. It mates a turbocharged three-cylinder diesel with a pair of electric motors to produce a hefty 356 horsepower and 590 pound-feet of torque—enough to take the show car from 0 to 60 in just 4.8 seconds. Yet it delivers an impressive 63 miles per gallon and at 99 grams per kilometer, it emits far less CO2 than the proposed European Union standards would mandate.

Don't expect Vision to reach your local BMW showroom anytime soon. "Far too expensive," cautions Tom Baloga, BMWNA's engineering chief, explaining that, "It combines the two most costly power train systems: diesel and hybrid." But individually, both technologies will represent critical pieces of the automaker's future lineup. Indeed, diesels already power a huge share of the BMWs sold in Europe, and U.S. buyers have given a better-than-expected reception to the first two North American models, the 335d and the X5 35d. Expect more to follow, and, "We're trying to convince our colleagues in Germany that if you price diesels right, there's a market for it," despite the traditional reticence about the technology among American motorists, says O'Donnell. "It was an experiment and we think we've been asking too much of a premium."

As for gasoline-electric technology, the 2010 model-year brings the launch of the X6 Hybrid, and a version of 7-Series is set to follow soon. BMW developed its hybrid system as part of an unusual consortium that matched it with General Motors, Chrysler and Mercedes' parent, Daimler AG. That joint venture is winding down, and the Bavarians are working up their own successor systems that "won't be a compromise," promises Baloga.

In the big push to electrify the automotive drivetrain, hybrids are just the first step. Industry observers expect to see a "plug-in" BMW, a vehicle that would travel a moderate distance solely on battery power after being charged by an AC electrical socket overnight. For longer drives, a gasoline or diesel engine would kick in. BMW is also working on pure battery-electric vehicles. Its British subsidiary, Mini, is rolling out a global test of the technology, using a modified minicar dubbed the Mini E. The company's vision of the long-term future also includes hydrogen power. The lightweight gas might be burned in a relatively conventional internal combustion engine—a prototype Hydrogen 7 sedan is undergoing extensive tests in both Germany and California—or fed into a more sophisticated fuel cell "stack."

"People underestimate what you can squeeze out of the internal combustion engine," stresses O'Donnell. Any number of advanced technologies, including direct injection, have been showing up on BMW's EfficientDynamics concept and production vehicles. For example, when the alternator on the European version of the little 1-Series is not needed it spins freely to reduce frictional losses. And turbocharging can give a small, efficient six-cylinder engine the muscle, when needed, of a V-8.

One way or the other, there are big changes to come under the hood of tomorrow's BMWs. But staying ahead on the technology curve is only one of the challenges facing the German marque.

Heritage on a budget?

The economic downturn has taken its toll on virtually every automaker. Even the vaunted Toyota has gone deep into the red. But it's not just mainstream marques feeling the heat. In fact, luxury makers that normally weather a slump with impunity are struggling as the stigma of conspicuous consumption may be one factor in slowing sales. "I think some people can still afford it but when you're a CEO of a company and you're laying people off, do you want to be seen driving a new 7-Series?" suggests O'Donnell.

In tradition-conscious Europe, the three "heritage" brands, BMW, Mercedes and Audi, are locked in a bitter battle for the hearts, minds and pocketbooks of affluent consumers. In the U.S., the world's largest luxury market—which incidentally accounts for 20 percent of BMW's global volume—the fight is only that much fiercer, and complicated by the strength of relatively new entrants to the luxury market. As this story was going to press, Toyota's Lexus division had nudged past BMW to become the nation's best-selling high-line brand, at least through August 2009.

O'Donnell and his colleagues sprinkle their conversations with words like "heritage," and there's no question the Spinner and kidney grille represent more than just design details to many buyers. But the CEO will admit that the value proposition is becoming another critical factor, even for the most affluent of motorists. It opened the door to the then-new Lexus, 20 years ago. And in the current economic environment, it may provide an opportunity for another new player, Hyundai. The Korean carmaker has scored an unexpected success with its first luxury model, the Genesis sedan, which was named North American Car of the Year by a panel of 50 U.S. and Canadian auto writers. Now Hyundai is aiming even higher. In 2010, it will launch the Equus, an even bigger and more lavish sedan aimed at the likes of the Mercedes S-Class and BMW 7-Series.

"I'm not worried—yet," O'Donnell insists. But there's little doubt the luxury market is changing. But he allows that in the current environment, "People are putting reason ahead of emotions." That's not always a good thing for brands that sell somewhat intangible concepts like "heritage," and "tradition." More and more, those words will have to be backed up by more concrete factors, such as performance, fuel economy, quality, and even by a nose-to-nose comparison of standard features.

BMW officials are confident they can win the battle. Corporate CEO Norbert Reithofer has laid out an aggressive plan to boost sales by as much as 500,000, to a global total approaching 1.7 million, by 2012. Skeptics include Deutsche Bank analyst Jochen Gehrke, who suggests that goal is "very aggressive," and uncertain in the current climate.

Perhaps, but the German maker has defied naysayers numerous times over the years. From the little 315/1 roadster to modern products like the Z4 and the 740 sedan, BMW has established a solid, global following and though there are plenty of challenges ahead, the Bavarian maker shows no sign of easing up in its pursuit of performance, both on the track and on the sales charts.

Contributing editor Paul A. Eisenstein writes often on automotive topics.