Will Daimler and BMW be Germany’s Ford and GM? Germany is worried about its two prides and joys: “Some senior executives already question whether Daimler and BMW will survive the crisis as independent companies,” writes Der Spiegel, translation via Business Week. “And close examination reveals that both companies have significant Achilles heels.”
“The biggest risk for BMW stems from its successes in recent years,” writes Der Spiegel. “BMW has almost doubled its car sales since 1999, and since 2007 the Bavarian carmaker has been the world’s top seller in the premium class.” Now, BMW sits on $25b of car loans and leases, backed by cars with increasingly dubious residual value.
Second risk for BMW: Customers, shame on them, buy the wrong cars. Instead of buying big bore 7 and 5-Series Beemers, as they should, customers suddenly insist on smaller models and lesser engines. BMW’s Munich-based engine factory is caught unprepared. “We are producing the wrong engines,” says Manfred Schoch, the chairman of BMW’s works council. Eight-bangers, even six-cylinder engines are piling up unsold. Daimler is even more distressed.
Daimler got hit with a double punch: Even the affluent don’t want to flaunt their wealth in these critical times. The Mercedes truck business has come to a “virtual standstill.” Very often, both big rigs and fancy wheels are sold through the same Daimler-owned dealerships. These days, they are lucky if they sell a car a day. More often than not, it’s a used one “with 3,100 miles on the odometer – but already available at a 40 percent markdown.” Benz suffers the same problem as BMW: They were betting on the bigger models, their A and B class offerings are produced in numbers that are way too small. And, “small car, small profit.”
BMW’s Reithofer and Daimler’s Zetsche have long agreed that they should face the enemy united. For instance, by sharing the cost of developing new entry-level offerings. Reithofer and Zetsche indeed face a common enemy:Their own engineers. At meetings between BMW and Daimler, BMW engineers preach to Daimler that BMW’s technology is best. Daimler engineers answer: “Hey, we invented the car.” Then, in typical German fashion, both groups return to their top management and report that there are just much too many problems. Reithofer and Zetsche may pound the table as much as they want, in the next presentation, they get more problems. If you think South Korea and North Korea have communication problems, then you should be in a meeting between Daimler and BMW engineers. All both companies could come up with was a food co-op for Chinese parts. And even that is going slower than planned. Currently, Daimler and BMW don’t share much more than common pain.
BMW is in a teensy-weensy better position: They have a major share owner, the Quandt family. Sex scandals or not, the Quandts are – so far – faithful to BMW. Daimler’s shares on the other hand are dispersed all over the place. The lower their stock goes, the higher the risk of being taken over, sliced and diced. So what’s in the car(d)s? A merger between BMW and Daimler? A united Korea is more likely. (Which doesn’t mean it can’t happen.)