It's not just the faltering U.S. carmakers and their various affiliates that need to seek partners nowadays. Even the reigning kings of German automotive arrogance, Mercedes-Benz and BMW, are finding it tough to go it alone.
Compared with rivals like Audi, which is part of the six-million-unit-per-year Volkswagen Group, and Lexus, an arm of the Toyota juggernaut, the two German premium marques may be long on prestige but they're short on volume, stuck below the two-million-unit waterline. And right now, both BMW and Mercedes-Benz are experiencing a troubling trend toward smaller, lower-profit models like the Mini and the 1-series, in BMW's case, or Benz's B-class and C-class. At the same time, there is a need to invest heavily in technologies such as higher-output batteries, hybrid powertrains, electric motors, dual-clutch transmissions, lighter architectures, and new safety concepts. In order to amortize those costs, the two German brands need to hook up with a high-volume, mass-market player to dramatically increase their economies of scale.
Both will have to get over recent bad experiences. The Bavarians got burned when they acquired, nurtured, and then disposed of Britain's Rover Group. And Daimler is still suffering from its recently ended marriage to Chrysler, a toxic ex-spouse that is still inflicting financial pain. But even if those scars haven't fully healed, both BMW and Daimler still need a volume partner to ensure long-term financial health.
What's the urgency? Frankly, at BMW, the financial well is running dry. In the fourth quarter of 2008, the Bavarian carmaker put aside $2 billion to offset the drop in residual values of its aggressively marketed lease cars. In the first two months of 2009, BMW saw its global sales decline by 24 percent. Worse still, BMW has squeezed its most important new product launches into the narrow 2010-to-2012 time frame, when the next X3, the new 5- and 6-series, the 1-series replacement, and the follow-up to the 3-series are all scheduled. Also under development is the ultra-low-emissions, high-mileage Project i range, but no one can figure out how on earth this ambitious lineup of eco-friendly vehicles can make money at a total volume of only 300,000 units over its entire life cycle. Meanwhile, the Mini brand is doing OK, but it lacks the economies of scale that rival Audi will enjoy with its soon-to-debut, VW-based A1. Even Rolls-Royce is at risk now that the superluxury niche has been dented by the financial crisis. ...next page >>