Bayerische Motoren Werke AG History

Company Perspectives:

It has always been the desire of BMW to create automobiles of unmistakable identity. As you can see, this has posed no problem to us over the last eight decades. But what you cannot see is the one thing that has always been true about BMW automobiles both in the past as well as in the present: a BMW is always the ultimate driving machine. Key Dates:

Key Dates:

1913:

Inventor Karl Rapp opens an aircraft design shop.

1917:

Rapp's original business leads to the formation of Bayerische Motoren Werke AG, under the direction of Franz Josef Popp and Max Friz.

1918:

First BMW aircraft engine is built.

1929:

First BMW car is built.

1959:

Herbert Quandt becomes BMW's dominant shareholder.

1962:

Introduction of the 1500 model creates a lasting market niche for BMW.

1994:

British-based Rover Group Ltd. is acquired for US$1.2 billion.

2000:

After years of losses due to an unsuccessful assimilation of the Rover brand, Rover Group Ltd. is divested.

Company History:

Bayerische Motoren Werke AG, popularly known as BMW, is a global manufacturer and marketer of luxury automobiles and motorcycles. In addition to its BMW brand, the company owns Rover Cars' Mini brand of cars, a vestige of its failed ownership of Rover Group Ltd. In an era of rapid consolidation within the global car industry, BMW is one of the few independent companies in operation. The Quandt family, the company's largest shareholder for more than 40 years, owns more than 45 percent of BMW.

Origins As an Aircraft-Engine Builder

Although not officially established until 1917, BMW can trace its heritage back to 1913 when Karl Rapp started to build aircraft engines for Austria in anticipation of World War I. Rapp-Motorenwerke's top customer was Franz Josef Popp, general inspector of Emperor Franz Josef's army. Popp hired Max Friz, an aircraft engine designer from Austro-Daimler; together in Munich they established Bayerische Motoren Werke based on the engineering ideas of Rapp.

Popp, an engineer, took charge of administration while Friz served as senior designer. A third associate, Camillo Castiglioni from Vienna, looked after the accounts. The trio began their enterprise at the old Rapp factory, then moved to the Moosacher Strasse factory, also in Munich, in 1918. There, Friz designed and built the company's first aircraft engine.

At the end of the war, Bayerische Motoren turned to the production of train brakes, and when in 1922 the Moosacher Strasse factory was sold to Knorr-Bremse, BMW employees moved to another Munich location, the former Ottowerke plant on the Lerchenauer Strasse. (Ottowerke had been founded by Gustav Otto, son of Nikolaus August Otto, inventor of the four-stroke internal combustion engine.)

Despite the 1923 Treaty of Versailles' ban on aircraft production in Germany, Bayerische Motoren continued to operate and thrive. Its 12-cylinder engines were used on international flights by ace pilots such as Lpuschow, Gronau, and Mittelholzer, and more than a thousand BMW VI engines were sold to the Soviet Union. Production continued to rise steadily through the 1930s.

The company's interests in motorcycle manufacture developed rapidly in the early 1920s. The first model, the R32, consisted of a flat twin engine and drive shaft housed in a double-tube frame, with valves in an inverted arrangement to keep the oil clean. Ernst Henne, riding an R32, broke the world motorcycle speed record at 279.5 kph (173.35 mph) in 1929; his record held until 1937.

In 1928, Bayerische Motoren acquired the ailing Fahrzeugwerke Eisenach, and a year later the Dixi, BMW's first luxury car, was produced at the Eisenach site. The Dixi won the 1929 International Alpine Rally, covering the mountain route in five days. But despite its success, the Dixi created major financial problems for BMW, and a merger with Daimler-Benz was discussed in detail. Meanwhile, a partnership contract was agreed upon; Dr. Wilhelm Kissel, Daimler-Benz's chairperson, and Popp, at Bayerische Motoren, joined each other's supervisory boards. A smaller 6-cylinder model of the Dixi proved to be a most effective competitor in the Daimler-Benz market, however, and Popp dropped the merger plans.

Another Dixi, the DA2, based on the 6-cylinder model, was introduced in Berlin in July 1929. It featured improved handling, better brakes, and a more attractive interior. Despite the stock market crash in October 1929 and the subsequent depression (17,000 German firms were forced into bankruptcy, including one of Bayerische Motoren's shareholders, the Danat-Bank), the company avoided financial disaster. A total of 5,390 DA2s, the 'mini car at a mini price,' were sold in 1929; this was increased the following year to 6,792 cars.

When Hitler assumed power in 1933, Bayerische Motoren, along with other German automotive companies, was required to manufacture airplane engines for the new air force, the Luftwaffe. In the same year, BMW acquired licenses to produce the 525 horsepower Hornet engine and to develop small radial engines for sports planes. The company also launched its 300 automobile series with the 303, the first car to feature the long-familiar 'kidney' shape. Lighter than comparable models, the 303 was 50 percent more powerful. Its success encouraged BMW to introduce two popular compact sports models, the 315 and the 319. Early in 1936, the 326 model was launched in both sedan and convertible versions. The all-steel bodied 327 was also introduced that year, and in September Popp unveiled the standard-production 328, which proved to be the fastest sports car of its time; it won the Italian Mille Miglia race in 1938.

The company's rising production of aircraft engines and armored motorcycles resulted in an expansion of facilities at the Milbertshofen plant on the Lerchenauer Strasse, which previously had been devoted to motorcycle manufacturing. A 1939 edict of the German Ministry of Aviation required Brandenburgische Motorenwerke to merge with Bayerische Motoren, and a new factory, Allach, was constructed with government money. The Allach buildings, tucked away in woods near Munich, were constructed at a distance from one another to minimize damage in the event of an air raid.

BMW played an important role in the German war effort and at the height of Nazi domination the company operated plants as far afield as Vienna and Paris. In two crucial areas of military technology, BMW was in the vanguard: with the guidance of Dr. Hermann Oestrich of the German aviation test center, the company developed the 003, the first jet engine to enter standard production; and under conditions of intense secrecy, it opened a rocket testing and production plant at Zuhlsdorf.

Intent on maintaining a plentiful supply of military aircraft, the Nazi government instructed Bayerische Motoren in 1941 to halt all motor car production. Popp, who had been at the company helm for 25 years, refused. He was forced to resign and narrowly avoided internment in a concentration camp. It was left to his successor, Fritz Hille, to institute Bayerische Motoren's automatic system of monitoring production--a mechanical forerunner of the computer.

After the defeat of the Nazis, Allied Command ordered the dismantling of many BMW facilities; at the same time, reconstruction of the now divided Germany got underway. In the immediate postwar years, few West Germans were in a position to buy cars, but by 1948, the year of German currency reform, there was a substantial need for motorcycles. BMW produced a new model out of spare parts provided by dealers. Known as the R24, this motorcycle was put into production and in 1949 almost 10,000 machines came off the assembly line. Production in 1950 increased to 17,000, 18 percent of which was exported.

Post-World War II: The Emergence of a Luxury Car Maker

Bayerische Motoren's return to car manufacturing in 1951 proved to be a disappointment. The 501 model, a 6-cylinder conservatively styled car with few technical innovations, was not well received; neither was its successor, the 502, which featured a V8 engine. The company pinned its hopes on the 503 and 507 models, highlights of the 1955 Frankfurt Motor Show. Both cars were designed by Albrecht Graf Goertz and were powered by Alex von Falkenhausen engines. They proved to be too expensive, however, for the majority of West German motorists. To add to BMW's woes, its motorcycle sales dropped drastically, and the Allach factory had to be sold.

The company's fortunes revived a little in the late 1950s during the era of the 'bubble car.' Its Isetta mini-car, a mere 2.29 meters (7.51 feet) in length and fitted with motorcycle engines, reached a speed of 53 mph. Customer interest in the machine was short-lived, but it enabled BMW to recoup some of its recent losses.

To capitalize on the increasing market for cars--albeit inexpensive ones--Bayerische Motoren introduced the rear-engined 700 LS model in August 1959. Available as a coupe or convertible, and powered by motorcycle engines, the 700 LS was initially unprofitable. By 1965, however, when annual sales reached 18,000 units, the car had become the company's first long-term success of the postwar years.

BMW's fortunes further improved with the launching of its 1500 model. Indeed, this first 'sports sedan' secured the company's prominence in the automotive market for the foreseeable future. The balance sheet showed a profit of DM 3.82 million in 1963 and a six percent dividend was paid. By the end of the decade, the company's long-suffering shareholders were much happier. Nine more models had been introduced, sales for 1969 set a new record of 144,788 cars, and turnover was up to DM 1.4 billion.

The 1970s, a period of dramatic growth in Western Europe, proved to be a time of significant reorganization and development at BMW. All motorcycle production was moved to West Berlin, a new plant was opened, the popular 520 sports sedan was launched (1972), the Dingolfing plant in Lower Bavaria was further expanded (providing jobs for 15,000 farmworkers), and following the establishment of the European Economic Community, BMW subsidiaries were set up in member countries. Halfway through the decade, a U.S. importing, marketing, distribution, and support subsidiary was formed in Montvale, New Jersey, and later in the 1970s the company built a car plant at Steyr in Austria.

Early in the 1970s, it appeared that Bayerische Motoren's interests in motor racing, operated by BMW Motorsport GmbH, might be curtailed; in fact, however, the company was able to expand its racing activities. For some years, BMW had been the leading producer of racing car engines in the classification known as Formula 2; the company now decided to compete in the Formula 1 market as well. Success was swift. In 1975, Nelson Piquet won the Formula 1 World Championship in a BMW-powered Brabham. This was the first turbo-charged engine to win in the 34-year history of Formula 1 racing.

The Steyr plant in Austria commenced operation in the early 1980s as a producer of turbo-charged diesel engines. By the mid-1980s, the factory was a major petrol engine manufacturer and at full capacity could turn out 150,000 engines a year. Another factory, at Spandau in West Berlin, opened in the spring of 1984 to make BMW's new four-cylinder, water-cooled K series of motorcycles. This machine won the January 1985 Paris-Dakar Rally, the world's toughest and longest off-road race. The company's motorcycles won this rally four times in its first six years.

BMW's car sales during the 1970s and 1980s increased along with the demand for higher-priced models, and healthy domestic sales were enhanced by the successes of foreign subsidiaries. In 1984, for example, BMW of North America sold 71,000 cars. On the other hand, motorcycle sales suffered. High unemployment, high interest rates, and loan restrictions decreased the purchasing power of a crucial motorcycle market--young Europeans; and competition from Japan became fierce.

As the company entered the 1990s, competition from Japanese car manufacturers represented perhaps the greatest threat to BMW's future growth, although high German labor costs continued to be a perennial problem. Adopting design characteristics from European luxury models, the Japanese produced cars of similar quality, yet sold the cars at substantially lower prices than those offered by European manufacturers, including BMW. Exacerbating BMW's woes, economic conditions in Europe soured during the early 1990s, portending dismal financial results for the coming years. Despite these ominous developments, however, BMW entered the decade in sound shape. BMW exhibited a vitality few other European car manufacturers could muster, thanks to robust sales during the 1980s and comparatively small debt. In this regard, BMW was the exception rather than the norm in a troubled European automobile industry. But the 1990s promised to be quite different from the 1980s, when luxury items and luxury cars sold extremely well, and as the company charted its future it braced itself for less profitable times.

1990s: The Rover Saga

As the recession increased in intensity, BMW's financial performance suffered, but not to the extent that other European manufacturers exhibited. The most glaring decline in the company's growth took place at its U.S. operations, where the Japanese struck their first blow in the luxury car market, and the German mark's strength against the dollar slowed sales and squeezed profit margins. By 1992, BMW of North America was recording a 50 percent decline in sales from the subsidiary's peak years in the mid-1980s. BMW management regarded the American situation as boding ill for its European operations. To strengthen its position in the United States, the company announced plans that year to construct an approximately US$300 million assembly plant near Spartanburg, South Carolina, which, through the plant's state-of-the-art equipment, was designed to produce 72,000 cars a year. Half of this annual production volume the company planned to export overseas, which lessened BMW's dependence on its domestic production facilities and the associated high labor costs of German workers.

In 1993, von Kuenheim ended his 23-year reign at BMW and was replaced by Bernd Pischetsrieder, who had spent his entire career at BMW. Under Pischetsrieder's stewardship, BMW concluded a momentous acquisition that promised to dramatically change the company's future and bolster its position worldwide. In January 1994, less than a year after gaining control of BMW, Pischetsrieder announced the acquisition by BMW of Rover Group Ltd., the esteemed British manufacturer of sport utility vehicles (SUVs) and Rover Cars. The purchase, a US$1.2 billion deal, immediately doubled BMW's share of the European market to 6.4 percent and gave the company a prestigious presence in the SUV market, which was growing exponentially during the early 1990s. The purchase of Rover Group stunned the industry, particularly Honda Motor Company, which held the remaining 20 percent interest in the British car manufacturer and did not learn of BMW's purchase until three days before Pischetsrieder's announcement.

BMW's prospects after the acquisition of Rover Group were exceedingly brighter. With the addition of Rover Group, BMW gained not only an entry into the fast-growing SUV market, but also the high-volume business of Rover Cars. Pischetsrieder's bold move, made less than a year after he took the helm, was designed to usher BMW into the mainstream with a product line geared toward the mass market. One line of thinking held that BMW was too large to compete as a niche player catering exclusively to the premium segment of the car market and too small to compete as one of the major global concerns. The acquisition of Rover Group, when viewed from this perspective, represented a solution to the company's dilemma, giving it a product line that stretched from entry level models all the way through to the high-priced, luxury end of the market. Pischetsrieder's formidable task was to make the strategy work. If he succeeded, the BMW of the late 1990s and beyond would figure as a full-bodied car manufacturer, competing model against model with global heavyweights such as Ford Motor Co. and General Motors Corp.

As Pischetsreider set out to incorporate Rover Group into BMW's fold, a change of command occurred in the backdrop. The publicity-shy Quandt family, which owned nearly 50 percent of BMW, had controlled the company since Herbert Quandt became its dominant shareholder in 1959. Johanna Quandt sat on BMW's supervisory board when the Rover Group acquisition was made, but in 1997 she relinquished her post to the fourth generation of Quandt leadership, sister and brother Susanne and Stefan Quandt. When the Quandt siblings assumed control, they, like the industry analysts who were charting Pischetsrieder's progress, wanted to know why Rover Group was continuing to lose money three years after its acquisition.

The marriage between BMW and Rover Group was failing miserably, leading one BMW shareholder to describe the acquisition as the worst investment deal in German corporate history, according to the May 17, 2000 issue of the Financial Times. The financial losses incurred by Rover Group were numbing. As BMW poured billions of dollars into the company, all it received in exchange were successive years of financial losses, punctuated by a staggering US$1 billion loss in 1998. Critics charged that BMW never properly assimilated Rover Group into its fold and that the company gave U.K. managers too much control. Consequently, the branding of BMW cars and Rover Cars never came together to form a cohesive strategy. Instead of using Rover Cars to gain entry into the mainstream market, BMW marketed the British cars as a premium brand, despite the fact that the cars were distinctly midmarket models. What BMW was left with was two premium brands that competed against one another and no solution to the dilemma that had precipitated the purchase of Rover Group in the first place.

Disaster loomed as BMW entered the last year of the 1990s, a year that would end with another US$1 billion loss recorded by Rover Cars. In February 1999, a board meeting was held to determine the fate of Rover Group. By the end of the meeting Pischetsrieder had resigned, as had his deputy and heir apparent, Wolfgang Reitzle, leaving a leadership vacuum that was filled by little-known Joachim Milberg, an academic who had joined BMW a mere six years earlier. With Milberg in charge, BMW continued to suffer both from the losses incurred by Rover Cars and from the distraction the British subsidiary caused, which adversely affected the progress of BMW's luxury car business. Sales of Rover Cars fell approximately 25 percent in 1999, a year in which the launch of Rover 75, a US$30,000 luxury sedan, was delayed by six months. In response, increasing numbers of BMW's research and development staff were dispatched to develop new models and improve production quality at Rover, but the rescue efforts occurred at a time when the company was under great pressure to develop new BMW models. BMW's luxury sedan business began to suffer from the distraction, as Mercedes eclipsed BMW in the lucrative U.S. market in 1999. In Europe, the company's market share fell to 3.1 percent, dropping from the 3.4 percent the company held in 1996.

As BMW entered the 21st century, the struggle to resuscitate Rover Cars continued. Milberg promised to improve quality standards and to turn Rover Cars into a profitable enterprise by 2002. To show his commitment to the ailing British subsidiary, which the German business press had dubbed 'The English Patient,' Milberg announced plans to invest roughly US$5.3 billion in Rover Cars between 2000 and 2005, an investment that represented one-third of BMW's total projected spending during the period. By March 2000, however, the company had conceded defeat and announced it would abandon its efforts at Rover Cars. During BMW's six years of ownership it spent an estimated US$4.4 billion on Rover Cars. The decision to dispose of Rover Group led to a US$2.85 billion restructuring charge and left Milberg with the daunting task of formulating a future for BMW in the post-Rover era.

Rover Cars was sold to Phoenix Consortium, a loose alliance of English businessmen who paid a nominal fee of US$15 for the beleaguered carmaker. Ford Motor Co. acquired Rover Group's Land Rover SUV operations. BMW retained ownership of Rover Group's Mini brand. Milberg planned to release an entirely revamped line of Mini cars in 2001. Milberg also planned to develop an entry-level BMW in the midprice segment to take on Volkswagen's US$14,000 Golf, which dominated the midprice segment in Europe. The company's plans also called for the development of the luxury brand Rolls-Royce, which was set to come under BMW's control in 2003. As the company pushed forward, amid speculation that it would be acquired by a larger competitor, few certainties about its future existed, making the first years of the 21st century a critical period in BMW's history.

Principal Subsidiaries: BMW Ingenieur-Zentrum GmbH; BMW Rolls-Royce GmbH (50.5%); BMW Bank GmbH; BMW Maschinenfabrik Spandau GmbH; KONTRON GmbH; BMW Leasing GmbH; BMW Motorrad GmbH; BMW Fahrzeugtechnik GmbH; BMW INTEC Beteiligungs GmbH; BMW M GmbH; KONTRON Elektronik GmbH; BMW Motoren Gesellschaft m.b.H. (Austria); BMW Coordination Center N.V. (Belgium); BMW France S.A.; BMW (South Africa) (Pty) Ltd.; BMW Finance N.V. (Netherlands); BMW Austria Gesellschaft m.b.H.; BMW Overseas Enterprises N.V. (Curacao); BMW Holding AG (Switzerland); BMW (Schweiz) AG (Switzerland); BMW Holding AG (Switzerland); BMW Japan Corp.; BMW Holding Corporation (U.S.A.); BMW Ltd. (Great Britain); BMW Italia S.p.A.; BMW Iberica S.A. (Spain); BMW Australia Ltd.; BMW Belgium S.A.; BMW Canada Inc.; BMW Nederland B.V.; BMW Sverige AB (Sweden); BMW New Zealand Ltd.

Principal Competitors: DaimlerChrysler AG; General Motors Corporation; Ford Motor Company; Toyota Motor Corporation; Volkswagen AG.

Further Reading:

• 'BMW Board Set to Decide Chief's Future,' Financial Times, February 5, 1999, p. 24.
• 'BMW Could Use a Little Skid Control,' Business Week, January 24, 2000, p. 134.
• 'BMW: Unloading Rover May Not Win the Race,' Business Week, April 3, 2000, p. 59.
• Burt, Tim, 'Europ,' Financial Times, September 1, 2000, p. 24.
• Flynn, Julia, 'How BMW Zipped In--And Called Rover Right Over,' Business Week, February 14, 1994, p. 44.
• Kay, John, 'A Takeover That Missed Its Marque,' Financial Times, February 18, 1999, p. 18.
• Kurylko, Diana T., 'Profit Fell, BMW Discloses,' Automotive News, January 31, 1994, p. 2.
• ------, '10 Years of BMW Growth Stalling Now,' Automotive News, March 29, 1993, p. 4.
• Loeffelholz, Suzanne, 'Kuenheim's Complaint; The BMW CEO Spurns the Japanese and Berates Washington, Wall Street and Detroit,' FW, January 9, 1990, p. 26.
• Marquardt, Stephan, 'BMW's Bold Gamble: Buying Rover Makes BMW Twice As Big As Mercedes,' Automotive Industries, April 1994, p. 44.
• McElroy, John, 'Why Can't Germany Compete?,' Automotive Industries, August 1992, p. 22.
• 'Then There Were Seven,' Economist, February 5, 1994, p. 19.

Source: International Directory of Company Histories, Vol. 38. St. James Press, 2001.

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