For BMW, Volvo Was A Brand Too Far

Posted by: David Kiley on September 27, 2007

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BMW AG chairman Dr. Norbert Reithofer laid out an extensive plan for expanding and growing BMW’s business.
One of the principal aspects of the plan is to create a fourth brand under the corporate banner in addition to the BMW core brand, MINI and Rolls Royce.
BMW had been studying the acquisition of Volvo from Ford. But it has widely decided against it. Though Reithofer did not mention Volvo by name, he gave the following reasons for not acquiring a brand: We took a look at the competitive environment to determine whether we can generate added growth by purchasing a fourth brand. Such a brand would have had to meet the following criteria:
1. An additional automotive brand would have to be a perfect fit for us and our strengths.
2. Rising unit figures would have to result in a decline in unit costs and thus lead to economies of scale.
3. The new brand would have to at least make the same contribution to earnings as our existing automobile business.

None of the automotive brands we evaluated meets our requirements at present.

Of course, BMW has experience in trying to add brands with legacies. It has MINI by way of its disastrous acquisition of The Rover Group in the mid 1990s. It passed up on Volvo for the reasons Reithofer gave, but also because it went to school on Ford’s inability to effectively integrate Volvo into its organization, and Volvo’s intractable engineering and management culture in Sweden.

BMW realizes it can’t grow it way to the 2 million units per year it desires by 2020 by continuing to see how much elasticity is in the BMW Roundel. To that end, BMW has scrapped the idea for a vaguely defined “people mover” that was not going to be an SUV or a minivan, but a new invention of space and flexibility management. One has to think that the long tortured study over this vehicle drove BMW to the decision to build a new fourth brand from scratch.

From scratch is a better idea. Ask Toyota about Lexus. Ask Honda if it’s happier to have launched Acura, or does it wish it had bought Rover when it had the chance. Ask Ford how happy it is that it bought Jaguar and Land Rover. Oh, and ask Toyota if its happier having launched Scion from scratch, or whether it thinks it would have been better off acquiring, say, the MG brand to reach youth.

Indeed, nobody asked me…but if I was Ford CEO Alan Mulally, I would task a team at Ford with developing an idea for a new brand from scratch to either go after the premium market or the youth market, to be implemented after profitability is restored in 2009-2010. Mercury is dead. Lincoln can be folded into the Ford distribution. Take the Lincoln-Merc dealer network and use it for a new brand with no baggage and no legacies. Leverage the reformed and re-tooled Ford manufacturing and product development system instead of trying to make sense out of British legacy systems.

 

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News, opinions, inflammatory meanderings and occasional ravings about the world of advertising, marketing and media. By marketing editor Burt Helm, Innovation Editor Helen Walters, and senior correspondent Michael Arndt.

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