But there is lots of disagreement in the auto industry about whether BMW is headed in the right direction. To purists, BMW’s expansion into unknown territory was at odds with everything it stood for in the automobile industry. BMW may not appeal to everyone, but there is no clearer definition from any car company of what it stands for: the ultimate driving machine, as its slogan maintains. BMWs have their own distinctive ride and handling. The acceleration is like that of a private jet, swift and smooth. The driver feels the road and has control of the car. It is not the quiet comfort of a Lexus, or the dominance of a Mercedes-Benz. A BMW has real driving character backed by almost 90 years of heritage in performance cars, racing, motorcycles and airplane engines. And it appeals to customers who tend to know a lot about cars. Panke calls them “connoisseurs” rather than customers. One of them is Joe Hammell, 41, who works in technology sales in suburban Atlanta. A lifelong car buff whose father owned a succession of Pontiacs, Hammell has never owned an American car, starting with a Volkswagen Golf and working his way up to a BMW 530i, which he purchased in 2002. His belief in the superiority of import nameplates runs so deep that he insists on them during his business travels. “In my profile at Hertz, it says ‘anything but a Taurus,’” Hammell said. He actually resisted buying a BMW because there are so many these days in his upscale neighborhood. “Everyone in Atlanta has a 5-series, either silver, white or black. They’re like Chevrolets down here,” Hammell said. But he chose the BMW simply because “it’s the best car out there for the money. American cars can go fast, but they can’t turn or stop [the way a BMW can],” Hammell said.
The company that became BMW was founded in Munich in 1913 by an entrepreneur named Karl Rapp, who turned his bicycle factory into a plant producing aircraft engines. He couldn’t get them to stop vibrating, so he dropped his own design and acquired a license to build Austro-Daimler aircraft engines. Just down the road from Rapp was a fellow entrepreneur, Gustav Otto, who had a small aircraft factory. The two combined their operations in 1916, just in time for World War I, the first time that airplanes were used in combat. They kept separate names for the engine and aircraft companies, but in 1922, the pair officially formed BMW. The legacy of the aircraft engine company lives on in BMW’s famous blue and white logo, which is meant to represent an airplane propeller. Throughout the 1920s, BMW focused on aircraft engines and its motorcycles, capitalizing on a growing craze in Europe for motorcycle racing, and in the process pushing well past 100 miles an hour—a stunning accomplishment given that the average automobile at the time could barely climb above 35 mph. But in 1928, the company bought a car factory in Eisenach, in eastern Germany. Along with it came a license to build a small car named the Dixi, which BMW displayed at the Berlin Motor Show. BMW moved further into cars, and in 1936 it introduced the first of the automobiles that would prove to be the building blocks of its performance heritage: the 328 roadster.
It snapped up racing titles before World War II, including the famed Mille Miglia race through Italy, and is considered to be one of the most influential sports cars in industry history, both for its speed and its aerodynamic shape. Almost every two-seater built since owes something to the styling of the 328, which had a long hood, sported low-slung seats set close to the road, and simply looked fast. The war intervened, and with automobile production stopped, BMW focused again on aviation, producing some of the world’s first jet engines. Prohibited by Allied occupying forces from resuming production immediately after the war, and with its Munich factory destroyed in bombing raids, BMW did not reintroduce motorcycles until 1949 and did not return to the car market until 1951.
The 1950s brought some memorable vehicles, like the little Isetta, a car that had a front door that swung open where the hood normally would be, as well as larger sedans. But the 1950s almost spelled BMW’s doom. Out of cash, the company was considering a merger with Daimler-Benz in 1959 when its largest shareholder, Herbert Quandt, intervened to purchase control, beginning a new era for the company.
The Quandt family is often likened to the Ford family for the active role that it continues to play in BMW’s operations. But there are a number of significant differences. The Quandts can buy and sell the Fords many times over. The family, which now consists of Herbert Quandt’s widow, Johanna, her daughter, Suzanne, and her son, Stefan, is estimated to be worth at least $35 billion, as against roughly $8 billion or so for the third, fourth and fifth generations of Fords combined. The Quandts, moreover, are extremely secretive. Johanna Quandt, who was Herbert’s secretary before their marriage, secludes herself in a villa outside Frankfurt. Though Suzanne and her brother, Stefan, have board seats and a deep interest in the company, they almost never discuss BMW affairs. Neither one would dream of taking management control of their auto company, as Bill Ford did, or uttering pronouncements about the way it is run. The Quandts’ views generally are communicated through a family spokesman, who in recent years has stuck to a single line: BMW is not for sale. That is important, because BMW is one of the few auto companies in the world that is not involved in joint-ownership agreements—the other being Honda. And it is not lost on anybody in the industry that both BMW and Honda earned their reputations first as motorcycle companies, or that there was a personal involvement in both companies, from Honda at Honda and the Quandts at BMW. The Quandts’ confidence in BMW is a key reason why the company was able to grow and prosper throughout the last 30 years of the twentieth century.
Most Americans, except perhaps avid car enthusiasts, weren’t aware of BMW until it brought out its 3-series cars in 1975. It was a breakthrough for BMW, which saw an opportunity to expand its sales around the world with a smaller version of its performance cars. Thanks to the shock of the 1973 Arab oil embargo, people who wouldn’t have considered owning a small luxury car up until then now were open to the idea. Many were willing to sacrifice size as long as they got some performance in return. The 3-series came to the United States in 1977, and by 1978 it was a recognized hit, raising BMW’s global profile. In 1974, BMW sold only 184,000 cars worldwide. In 1978, thanks to Americans’ embrace of the 3-series, BMW’s sales around the world topped 320,000. It owed its success to a new category of American consumers that were emerging in the post-Vietnam era—the young urban professional, or yuppie.
With the explosion in the high-tech sector, the go-go stock market and a general sense of wealth that swept the country during the early years of the Reagan administration, yuppies seemed to be everywhere, spending their money in a deluge of conspicuous consumption. BMW fit right into their needs for status and excitement. There were no Cadillacs or Lincolns that could compete. Both companies still had lineups laden with either large cars that simply had no chic, or downsized cars that lacked the integrity, handling and character of the German models. Though Mercedes had been selling its cars in the United States for decades, it was perceived as dull by the most fashionable young consumers. BMW, by contrast, was fast, small and cool. “The 1980s yuppies didn’t want to be seen as the stodgy executive who drives a Mercedes, they wanted to be seen as the rapidly rising, dynamic go-getter who drives a much hipper Bimmer,” said Karl Brauer of Edmunds.com. BMW set a U.S. sales record in 1986, and with the addition of the mid-sized 5-series and the intimidating 7-series to its lineup, it looked as if its success would be unstoppable. But it didn’t last.
By the late 1980s, BMW faced serious competition for the first time, not only from Mercedes but from the Japanese luxury brands. It argued that it had heritage, something that Lexus, Infiniti and Acura lacked. But the Japanese cars’ quality was far better than the German cars’, and their prices were lower. “When you had a 3-series that cost nearly $30,000 in 1989 and a new, rear-drive, V-8-powered Lexus sedan available for the same amount, it was hard to deny the fact that BMWs were basically overpriced,” Brauer said. BMW struggled to keep pace, with a management that was divided over which direction to take: stay German and pure and risk seeing the U.S. market slip away from their grasp, or take some of
the same actions the Japanese did—namely, improve quality, keep prices reasonable and explore more-efficient ways of production. BMW decided to take the latter course. And one of the key people who pushed it in that direction was Panke.
In a company dominated by the industry’s most talented automotive engineers, who spend their entire careers at the Munich company, Panke is an anomaly. He is, in fact, a nuclear engineer who came to the auto company in 1982 from the German branch of McKinsey & Co., the global consulting firm. As head of corporate planning in the late 1980s and early 1990s, Panke could see that BMW’s fate would be tied up with the United States. And to really compete, he felt it needed to join other import auto companies in building a plant there. Panke himself set off across the American South, talking to people at churches and truck stops, asking about the quality of the schools and whether there was a good work ethic. He became enamored of South Carolina, particularly the Spartanburg-Greenville area, where Michelin had built its headquarters and where Carlos Ghosn lived. There was friendliness about the place, and a willingness on the part of the South Carolina government to play ball with incentives and other training money that the company was seeking. Panke convinced BMW’s aristocratic chief executive, Eberhard von Kuhnheim, to select a site near Greer, South Carolina, for the factory. He got more than a plant out of the deal—Von Kuhnheim placed Panke in charge of BMW’s American sales operations at the same time.
Working from BMW’s headquarters in Montvale, New Jersey, Panke became convinced that the auto company needed to get into the market for SUVs. But if building a plant in the United States was a risk, an SUV was almost heresy to many company loyalists. Unlike Mercedes, which had produced the hulking Gelandeswagen sport utility, as well as commercial vans and even taxicabs, BMW had never strayed from its mission to produce performance cars. Moreover, there was little demand in Europe for SUVs, for they were too big, too difficult to park and too inefficient. But Panke believed that the auto company was losing customers in the United States because it did not have one. Just as Nissan found that its owners were purchasing Detroit’s pickup trucks, and Honda discovered that its owners were buying Chrysler minivans, Panke’s research showed that one in four BMW owners had an SUV in their garage, most often a Jeep Grand Cherokee or a Ford Explorer. He knew there would be an opportunity and pushed BMW management to go there. The result was the X5, perhaps the most controversial vehicle that BMW had ever introduced. These days, people wonder whether Porsche hasn’t made a mistake with its Cayenne SUV.
Others said the same thing about BMW. But the X5 struck an immediate chord with BMW owners, nailing two characteristics that defined BMW: speed and the distinctive BMW kidney-shaped style. Nobody would mistake the X5 for anything but a BMW.
Bringing out the X5 proved nothing was out of bounds for Panke. And he is proving it over and over again, taking assumptions about BMW and smashing them. Since becoming chief executive in 2002, he has set the auto industry on its ear with what he is doing with the BMW lineup. The best example is the BMW 7-series sedan, BMW’s flagship sedan and one of its most prestigious vehicles, which it completely overhauled for the 2003 model year. While it is just as fast and smooth at 90 mph as BMWs before it, the 7-series has caused intense debate, both for the way the vehicle looks and for the way it operates. For one thing, it has no key. It has only an ignition fob, like the small remote-control device that unlocks car doors and trunk lids that many vehicles now come with. There is a slot on the dashboard where a driver inserts this fob. Then, stepping on the brake pedal, the driver starts the car by pushing a button (shades of the starter buttons that were a feature of automobiles in the industry’s early years). Don’t look for a standard-size gearshift lever on the steering wheel, or a shifter on the console between the seats. Instead, there is a tiny lever that has to be carefully toggled back and forth, from park, into reverse, neutral and drive. There also are no controls for the sound system, buttons for the navigation system, or dials for the heating and air-conditioning beyond one for the fan. All that is controlled by a big matte aluminum dial between the seats that is pushed, twisted and turned according to a complicated series of instructions found in the thick owner’s manual. (The only simple thing is opening the gas compartment to refill the tank. It doesn’t require a lever in the floor or a key to unlock. The driver only has to press gently on the little door for it to pop open.)
All of this technology is grouped together under a heading called “iDrive,” which BMW contends results in an all-electronic car, more sophisticated and more robust than any vehicle ever before. What it’s resulted in is confusion, frustration and jokes. “iDrive?” said a headline in Road & Track magazine. “No, you drive while I fiddle with the controller.” There are even Post-it notes for valet parking attendants, with instructions on how to start the thing, although by spring 2003 valets in Beverly Hills, used to wealthy buyers owning the latest thing, simply shrugged when a motorist drove up in a $70,000 7-series. “We get a lot of those,” said the attendant outside the Fairmont Miramar on Wilshire Boulevard in Santa Monica (although the blasé attitude didn’t keep the attendant from misplacing the key fob, later setting off a frantic search through the hotel’s key rack for it). The technology might be enough of a jolt, but along with iDrive, BMW substantially restyled the 7-series, giving it a rear end that looked lumpy compared with the tautness of past BMW posteriors. All this combined to make people wonder if BMW had begun creating cars for itself and forgetting what customers would be comfortable driving.
Asked about it at the 2003 Detroit Auto Show, Panke likened the change in the looks of the 7-series to the way the National Basketball League has evolved during the past 20 years. Think about players like Bill Bradley or Larry Bird, and compare them with the way Michael Jordan moved on the court, Panke suggested. Why should cars look the same as they used to? “Design is nothing static,” he said. “It is an organic growth. We’re shaping the future by making design statements as a corporate philosophy.” The cars that BMW designed for 2005 “would not look like the eighties. And nor would they look like 2002. This is a bold shift. We are moving away from the design direction of the previous 7-series,” Panke said.
In charge of BMW’s design staff is an American, Chris Bangle, who has become one of the industry’s most talked-about figures, both for his results and for his attitude. Bangle is from Wausau, Wisconsin, a town that was founded by logging barons and has since become best known as the home of the big insurance company. Bangle hasn’t lost his midwestern accent, although his conversation is dotted with German and he is married to a Swiss woman. What he has gained is an audacity that is as much American as anything else—and in which Panke takes delight. Bangle, born in 1956, is basically imposing his own sense of style on a company whose cars, from the 1970s through the present day, are basically all in the same mode: sporty, expensive, heavy and daunting. He is known for both getting emotional about cars and confounding the people who sit, puzzled, listening to him expound.
At a dinner in Detroit sponsored by BMW in 2002, he drew on visions of draping cloth on nude forms in classical sculpture to talk about the Z4 roadster that BMW had just added to its lineup, taking its place alongside the 7-series as yet another one of BMW’s nonsymmetrical cars. “That nude, now with the revealing and energizing aspect of a tissue of cloth, is the Z4,” he said, as later captured by Danny Hakim in a front-page article in the New York Times. “To me, that’s as big a jump in terms of aesthetic value systems as there was between an Eve before the fall—when she was innocent and pure, and the sexiness that she had was an animalistic pureness that radiated out of her—and an Eve after the fall who discovered and was aware of the surface of her body, could use clothes and the drapery of form, a slit here, an opening there, to bring a new kind of erotic sensuality. Same woman, two different aspects.”
That Panke has entrusted BMW’s designs to so eccentric a character is one thing. But Bangle’s influence, and that of Panke, is going to be felt at BMW throughou
t the rest of the decade, and it is going to tell the story of whether Panke can truly achieve the expansion that he wants the German brand to realize. There are already wisps of warnings that it may not be as smooth as the way the German cars shift gears. The next car in Panke’s stable of sales-expanding BMWs is supposed to be a new version of the 5-series, which the company planned to equip with iDrive, and which was supposed to make its debut in fall 2003. But last spring, BMW said the car would be late to showrooms, amid speculation that it was moving away from the operating system and going back to a more conventional transmission system. In any case, it would have to make iDrive optional on any of the vehicles that it plans to sell with a manual transmission, which is what BMW’s cognoscenti demand. After the 5-series, BMW is planning to introduce a smaller SUV, the X3, which will be assembled for it by Magna Steyr, the Canadian-based automotive supplier, at its plant outside Graz, Austria. “We wanted to be fast to the market without building another plant,” said Panke. On the horizon is a new version of the 6-series coupe, and then comes the real gamble: the BMW 1-series.
Due out in the middle of the decade, the 1-series, as much as Mini, will show whether BMW can indeed go downscale as well as up into the stratosphere of automobiles. BMW has never sold a 1-series in the United States, and analysts wonder if it should try. It will have to start at around $20,000, given that the 3-series starts at $28,000. Would there be a customer for a $20,000 BMW? And who would that customer be? What would the 1-series do to the sales of the 3-series and the rest of the BMW lineup? How would people who paid $70,000 for a 7-series feel about seeing a car that cheap in the same showroom? Those are questions that people throughout the auto industry are pondering. For, at that price, the BMW 1-series would compete against the breadth of the auto market, from Hyundai on up. Consumers might face a choice between paying $20,000 for a Toyota Camry or $20,000 for a BMW.
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