BMW Chief Milberg Does Not Convince The Press

BMW CEO Leaves Too Many Questions Unanswered [4/2000]The news that Land Rover was to change owners for around three billion Euros appeared not to be worth mentioning by BMW. Despite this, it is a respectable amount of money for that part of the Rover group which achieves a turnover of around 3.8 bn Euros per annum and which has contributed – at its best – an operating profit of nearly 200 million Euros.

The “no comment” strategy was justified with the argument that executive-board representatives of the workforce had already published details of the Rover deal. Further details would only be necessary in the case of unpublished facts. Some experts interpreted this as proof that the Chairman’s board could not be regarded as the institution which always spoke for the company.

Certainly a lot of the press representatives were unhappy at their treatment.New Smaller BMW ModelsCEO Milberg revealed that BMW will develop a completely new product range for the lower and middle ranges of cars. Where these are to be built has not yet been decided.

Alchemy Partners Ltd. has already made an offer for Rover and MG as well as their production facilities. The investment trust wants to bring the two car labels under its complete control and BMW will supply the Rover 75 to Alchemy Partners.

Although BMW has had a very successful year, Milberg’s statement showed that it had not been possible to subsidise the horrible loss of money any longer and BMW had been forced to react. BMW has made provisions to the tune of 3.15 bn Euros to cover future expenses and restructuring.

There are many reasons for the Rover disaster. Sales volumes decreased by around 25% (50,000 cars) and the home market shrank sharply. Last year, sales reached a mere half of the 1995 results, when Rover sold 206,000 vehicles.

An important factor is the strength of the British currency, which has negatively influenced the annual results and increased costs by another 350 million Euros. Referring to this, Milberg criticised the British government for introducing discussions concerning the Pound and EU integration. All this, combined with the fact that the new product offence has failed completely, has driven BMW to decide to part company from Rover.

Ford Wants Land RoverA “Memorandum of Understanding” was signed with Ford for the sale of Land Rover, whereby Ford, or so it was reported, will pay three billion Euros. BMW has successfully started (with the X5) to build off-road cars of its own, which could have caused competitive problems. With the concentration purely on BMW, a kind of “new beginning” is planned, after which BMW will take its place in the international car industry as before.

Milberg again underlined the fact that the Quandt family does not want to sell the concern to anyone. There are, however, a number of unanswered questions. How can a three-year old investment group with no experience in the automobile sector succeed where the professionals from Bremen failed? How expensive will the “necessary financial support” be? Does it not seem that the investment group will have to do the dirty job which those responsible at BMW wanted to avoid in any case? How long will it take before Rover finally perishes? The protestations of faith from the Quandt family impress no-one.

There have been rumours in the past and it is not only Volkswagen that has shown interest. In mid-February, there was a rumour that Ford was willing to pay 50 Euros per share, which was regarded as a completely crazy price. But no less crazy than the price that was finally paid for Land Rover.

It seems quite probable that the main shareholder, the Quandt family, has pushed the sale of Rover in order to strengthen the position of BMW. With changed tax legislation from the year 2002 that means these profits are tax-free, a sell-out of BMW by Quandt would seem more likely then than now. And if the great consolidation process in the car industry takes place as predicted, leaving just five big car manufacturers able to survive as independent companies, it would be a major question for a main shareholder (such as the Quandt family) as to whether he still wants to be an active investor in such an industry.