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BMW in 1999: Victim of Poor Strategy or Poor Implementation

Pischetsrieder resigned as Chief Executive of Bavarian Motor Works (BMW) • The company failed to deliver after buying Rover in 1994 • The strategy failed even after a calculated move to buy Rover .The scenario • Mr.

The World Motor Industry • World supply of cars to exceed demand by 2002 • Highly concentrated industry with 5 largest companies sharing 54% of the world market • BMW’s positioning – – – – an ‘apsirational’ brand More of High end customers High quality engineering Premium pricing .

sourcing from same component manufacturers. . • The way of survival was to build ‘desirable cars’ or to fight out in the market place. • Larger markets were reaching saturation. • Toyota and Honda making inroads in American markets. • Cars are losing their individuality due to look alike features. • Survival depended on volume.Market Conditions in 1999: A Mature Industry • Demand & capacity to grown by 20% from 1999 to 2002. • Excess capacity leading to more intense competition. strong marketing and cost reductions.

increased taxes on fuel and charges for usage of Cars.New Entrants: The Supplier’s Challenge • From in-house manufacturing of parts Car makers started sourcing components and sub-assemblies from system suppliers. • Discouraging people to use cars. • These system suppliers were taking a global role alongside the car assemblers • System suppliers are providing plenty of benefits to small as well as big car makers. • Reducing financial support from Government and tightening regulations also posing problem for Car makers from both supply and demand side . Government Influence on the Industry • Legislation for ‘cleaner’ cars.

Which Strategy to Follow for Survival? Growth by Acquisition or Merger • As organic growth hits the limits. • Reduces the ability to respond to the market • As more automation is coming around. mergers and acquisitions were the way to grow E. Mercedes Benz • Companies widened portfolio by acquiring smaller manufacturers and weaker competitors Survival by Staying Small & Specialist • Few detractors skeptical about growing inorganically • Acquisitions and Mergers only spread the costs over a large volume. minimum size of a efficient plant is coming down which can allow small manufacturers to stay efficient ..g.

reputation of product quality.The BMW Story • At first manufactured Aero-engines and motor-cycles • Constantly supported by Quandt family which has a major stake Engineering Excellence • High quality engineering – BMW’s DNA • Excellent in production process.BMW became a fashion icon and large volume sales began to happen Financial Strength • • • • Support of Quandt family Healthy order book Sustained profitability Good financial backing from Bankers in Germany . brand awareness and preference among its customers • Late 1960s BMW was started to be seen as a manufacturer of excellent cars with driver appeal – a high build quality sedan which is fun to drive • 1980s.

because of – Merger boom in industry and fear of takeover – Aggressive product development by rival Benz • Changed its product offering from 3 variants to a spectrum of variants (A class to S class) • Was ready to face the challenges of Benz and Audi as it had good market in luxury sports car segment and executive car segment • 1994 – Acquired Rover from British Aerospace .BMW in 1994 • Small player in a big car markets • Good image but not narrowly typecasted • BMW needed a new strategy to sustain.

then formation of Rover Group where in Michael Edwards brought the company back to life • After costing a lot to tax payers it was transferred to British Aerospace and then sold to BMW • British Aerospace saw Rover as non-core business • The sale Rover gave an owner who can stick to it on hard times and also avoided the speculated acquisitions of Rover by Honda .ROVER • Rover – the result of many mergers of English Companies • Held by the Leyland group.

. Ford and Volkswagen while BMW to retain its position in high priced segment • Land Rover was in conflict with BMW’s upcoming SUV (internal competition in SUV segment) • In the End – Results post acquisition were not so good. • Rover would be dealt as a separate unit and would produce lower end models to compete with Toyota.The Purchase of Rover by BMW • BMW saw Rover as mean to increase scale of operation in the wake of rising costs and pricing pressure from volume-car makers. – Waste of capital and management time. • Saw Rover as New area for development.

Could it have survived on its own in an industry where giants were teaming up to create mega-giants? How should BMW have assessed the suitability of potential acquisitions or partners? How good a fit was Rover with BMW’s strategic need for a suitable acquisition? Would any other company have been a better fit if BMW had moved in time? If you had been an adviser to Mr.Questions • • BMW is a successful company with an excellent brand image and loyal customers. Pischetsrieder in 1994 what advice would you have offered him to make Rovr acquisition a success? How would you rate the Rover acquisition strategically in the light of subsequent events? • • .