Giant car makers Daimler-Chrysler and VW competed furiously for the public's attention at the recent Detroit motor show, as both companies introduced new models with great fanfares of publicity. Daimler-Chrysler unveiled its Chrysler 2001 PT Cruiser, with its unusual design that appears at once old-fashioned and futuristic. For VW, the big news was a sports version of the new Beetle which can achieve a maximum speed of 280 km per hour.
While Germany's two biggest car manufacturers vied for the limelight, the third big player, BMW, was making secret plans that could herald the Bavarian company's biggest change in direction for a generation. Rumours of a take-over by Ford threw the press off the scent of the real story, which has taken the German motor industry by surprise.
After decades spent targeting the upper end of the market, BMW is about to spend 4 billion deutschmarks (#2.05 billion) developing two small cars to compete with VW's Golf and Polo.
BMW's chief executive, Mr Bernd Pischetsrieder, revealed his plan to senior managers at a meeting in Munich a few days before Christmas. Code-named UKL 1 and UKL 2, the cars will be developed by BMW's British subsidiary Rover and built at Longbridge. Mr Pischetsrieder expects Rover to sell at least 500,000 of the new cars each year.
Many senior BMW managers are sceptical about the idea, which would involve the biggest single investment in the company's history. They are especially concerned that Mr Pischetsrieder has chosen to enter the cut-throat mass market with the Rover marque, which many customers associate with poor quality.
Established mass producers such as Ford, VW and General Motors earn little from small cars, which they need to produce to make full use of their factories and distribution networks. Only the top models in the compact class, such as the Golf GTI, make significant profits.
Mr Pischetsrieder's plan represents a major expression of confidence in Rover, which lost 1.1 billion deutschmarks last year alone. But some of his colleagues fear that their boss's foray into the mass market could destroy both Rover and BMW. They argue that there are only two cost-effective ways of building a small car: either BMW and Rover develop a joint platform or the company takes up a recent offer by VW boss, Mr Ferdinad Piech, to work together and build Rover cars on the Golf platform.
Mr Pischetsrieder rejects both ideas and appears intent on pouring more money into Rover, despite an internal BMW report which recommended that the British subsidiary should cease production on all models except the Mini and the Land Rover. But the BMW boss's confidence does not extend to Rover's managers, whom he has effectively stripped of all influence, ordering them to report to BMW executives.
Members of BMW's board are reluctant to approve Mr Pischetsrieder's plan but they fear that, by rejecting it, they will lose their hitherto successful chief executive. The danger in going ahead with such a big gamble is that it could imperil the company's position as one of the most successful car makers in the world and even place the firm's independence in question.
BMW's competitors are enjoying the sight of Mr Pischetsrieder's discomfiture but they must realise that the Bavarian firm is not the only one with problems. VW's attempt to enter the luxury market has proved to be extremely expensive. Apart from paying 1.4 billion deutschmarks for Bentley, the company is believed to have parted with 100 million deutschmarks for the rights to the name, Bugatti, and it is preparing to invest billions of deutschmarks in new luxury car factories.
At Daimler-Chrysler, the problem is a cultural one as German and US managers attempt to work together. Although Juergen Schrempp and Bob Eaton claim to get along famously, it is clear that some of their junior colleagues are experiencing culture shock. US executives visiting Stuttgart are surprised to discover that their senior German colleagues earn less than they do themselves. And Daimler managers complain that Chrysler people want to cut production costs at the expense of quality.
If Mr Pischetsrieder's gamble succeeds, BMW will be well placed to survive the new era in car manufacturing, in which each company must produce a full range of cars. If he fails, as most observers predict, get ready for a new addition to the motor merger merry-go-round.
