Two weeks ago in a blog titled ‘Pump up the Volume’ I signed off with this thought.
‘In truth, BMW and Mercedes will have to swallow their pride and cut deals with other carmakers, if not each other. If they don’t, heavy losses will be the inevitable reward.’
Industry reports had just suggested that months of talks between Mercedes and BMW on collaboration had just broken up with little more than an agreement to share some modest under-skin components.
So the report from Germany’s Der Spiegel that the two carmakers are preparing a cross-shareholding of 7 percent is a big surprise. With little in the way of concrete news, the most logical thought is that BMW and Mercedes have finally overruled their senior engineers and pushed through plans for a collaboration on future front-wheel drive vehicles.
Perhaps minds have been concentrated by the 24 percent fall in sales enjoyed by both brands in February. Or that the fact that the Audi A4 was, for the first time, the best selling premium car in Germany in 2008.
Audi’s success should be concentrating minds in Munich and Stuttgart, It has access to VW Group technology and a record of success, for example, in selling premium-priced A3s which are no more than a Golf with slicker styling and a 500 Euro more expensive interior. The new Audi A1 isn’t far away either.
The bare facts, as neatly outlined by city analysts, is that the Mercedes A and B class have not turned a profit and the Mini project is, perhaps, only profitable at a production line level.
If, as I’ve always suspected, the development costs of the first BMW Mini were written off on the Rover Group accounts, and the subsequent ex-factory profits were used to for the second-generation re-design, it’s clear that BMW can’t afford another re-design without falling into the red. They are also seeing the average transaction price of a new Mini slipping down from a healthy £17,000.
There’s another reason for these two premium giants to run into each other’s arms. Collaboration with a mass-market maker cannot be guaranteed to prosper over the next 18 months if, as it looks increasingly likely, a major player will collapse, or have to massively slash capacity.
(Indeed, the Financial Times recently advised EU governments not to hand out any bailout cash to carmakers without guarantees on capacity reduction.)
No sensible player would sign deals with PSA, Renault, Opel or Fiat for at least another 18 months and BMW and Mercedes do not have time on their side.
Over the medium term, BMW’s and Merc’s usually profitable rear-drive models can support themselves; it’s the front-drive divisions that need urgent help. By merging operations, premium brand values can be protected.
After all, who wants to be told the Mk3 Mini shares a platform with the Mk2 Grand Punto?