BMW Announces New City Car Plans; Forecasts Higher 2008 Profits

BMW Announces Plans for Future City Car

BMW's Chairman and CEO Norbert Reithofer has outlined plans to begin development work on a new city car which will go under the Project i name. The company is developing the model in response to the increase severity of vehicle emission regulations, especially in light of the European Union (EU)'s framework for reducing CO2 emissions to an average of 120 g/km across a manufacturer's model range by 2012 (see Europe: 20 December 2007: New European Commission CO2 Emission Limits Cause Uproar within Auto Industry). The new "i" would help BMW meet its emissions target as well as providing the world's largest premium carmaker with an entry into a market segment where it has previously had no representation—a segment that will see significant growth, especially in Western Europe, over the next decade. Reithofer also did not rule out the possibility of the new model being launched under a newly created brand, following the model that Mercedes-Benz has pursued with the Smart range of small city cars. Speaking at a BMW news conference Reithofer said, "First of all, we must define what type of vehicles we will produce then we will ask the question if those concepts fit better with the BMW brand, the Mini brand or a sub-brand within those two. If none of these options are possible then perhaps we will have a fourth brand." Reithofer also added that a completely new unit has been established to develop the concept, "This project is fully independent and even free to act beyond BMW structures if necessary." BMW is already developing an electric car powertrain and it is possible that the Project i vehicle could incorporate the results of this work, although no definite decision has been made on powertrains for the vehicle.

It appears that BMW is keeping a completely open mind about the nature of the vehicle's powertrain, and it even possible that a number of drivetrain variants could be offered; from ultra-efficient, low emission gasoline (petrol) and diesel engines, to a gasoline-electric hybrid, to a pure electric or even a hydrogen fuel cell version of the vehicle. However, it is highly unlikely that a version of the latter will be available in such a compact vehicle at launch. The vehicle will be pitched as a premium model with annual sales of at least 100,000 units. BMW spend the rest of 2008 formulating the basic format of the vehicle, relating to its size, its drivetrain and even the number of wheels it will have. Frederich Eichiner will lead a project development team of around 50 staff that will grow to around 100 by the year's end.

BMW's Chairman has also announced that the company would also focus on increasing profitability in 2008. The company will target higher underlying profit as it seeks to at least maintain the margins of its core automotive business, despite pressure such as the weakness of the dollar and the prospect of ever higher raw material costs. Reithofer said that 2008's earnings before tax figure should exceed the figure of 3.78 billion euro that BMW published as part of its 2007 calendar year financial results (see Germany: 14 March 2008: BMW Announces 9% Rise in Net Profit for 2007). BMW's chief financial officer Michael Ganal told the news conference that the U.S. dollar's weakness against the euro cost the company 517 million euro in 2007. This figure is expected to shrink to 400 million euro or less in 2008.

Outlook and Implications

BMW says that Project i will be brought to market in the first half of the next decade, presumably to meet any specific EU deadline on emissions regulation. It seems that the company is taking something of a "blue-sky" approach to the concept of the vehicle, something that should be regarded as a positive for an urban vehicle designed for what BMW terms the world's future "megacities". Handled in the right manner BMW could design an iconic vehicle which could have the double benefit of being seen as a fashionable, premium product, while at the same time having the image of being an environmentally friendly, high technology concept. At the same time some caution should be urged as a result of the experience Mercedes-Benz has had with Smart. The unit has never been profitable and has never found any real sales success outside Western Europe's metropolitan centres, despite the company's models receiving lavish press plaudits. However, so far Smart has based its vehicle designs on conventional passenger car principles, albeit a very neat and compact two-seater passenger car. It would appear BMW is envisaging something potentially more radical. However, there are also undoubted risks in investing high R&D costs in what is likely to be a low-margin vehicle. Still, it is an intriguing, and probably necessary, strategy for BMW to pursue and it will be fascinating to see the type of vehicle that emerges from the project.