American Tastes Take Back Seat as Lux Makers Look East for Growth

American Tastes Take Back Seat as Lux Makers Look East for Growth

By Bill Visnic September 17, 2010

Front-wheel drive and 4-cylinder engines didn't form the American vision of what BMW is all about.

But increasingly, BMW - and its luxury-market rivals - figure U.S. buyers are going to have to live with some new rules about what defines those brands as automakers start to cater to different tastes, particularly those in China.

A front-drive BMW is heresy to U.S. aficionados. But thanks to the recession and a cranked-up effort from prime rival Audi AG to become the No. 1 global luxury brand, there happens to be fewer BMW aficionados to sell to; BMW brand sales in the U.S. plunged 21.1 percent last year (to 196,502 units) and so far in 2010 have recovered only 7.8 percent.

The company already crossed one bridge when it admitted that after a long hiatus, 4-cylinder engines will return to the U.S. market. And if anybody here is similarly troubled by the notion of what smaller, front-drive BMWs say about the brand, tough luck: the perceptions of U.S. buyers just aren't that important anymore. 

Look East, Young Executive

In a Bloomberg News story last week, BMW CEO Norbert Reithofer said the company plans to hike global sales from 1.29 million last year to 2 million by 2020 - and growth of that proportion is going to require new models in new segments. Many of these new models will be smaller - and, Reithofer confirmed, front-wheel drive.

BMW's development of front-drive architectures has long been reported and rumored and likely was inevitable. And BMW already has its front-drive-dependent Mini brand, of course.

But Reithofer's acknowledgement of BWM's planned break with one of its most brand-defining characteristics - rear-wheel drive - indicates BMW believes it no longer can rely solely on mature buyers in mature markets with mature ideas about what the brand must provide.

"We have plenty of different ideas on how to win new customers" with fresh small-car models, the Bloomberg News story quoted Reithofer as saying.

Reithofer did call the U.S. "a key market," but China clearly is where the action is, even if the torrid growth in the region is bound to slow. China already is BMW's third-largest market behind the U.S and Germany, and while a slow rebound in Western markets is the best anybody's looking forward to, estimates of luxury-brand growth in China are projected to double the country's typical 20-percent annual sales increases.

BMW reportedly estimates luxury-brand growth in China to be 4.5 percent annually for the next 12 years.

But Audi, part of the heavily-resourced Volkswagen Group, currently owns the luxury-brand crown in China and has made public its intention to overtake BMW as the world's top-selling luxury marque.

As part of that scheme, Audi intends to double annual sales in the U.S to 200,000 units as VW itself plots to move 800,000 vehicles in America (2009 U.S. sales: 213,454). With Audi intent on challenging for every customer in the downshifted U.S. market while there is much greater growth potential in China, BMW seemingly has decided that developing smaller cars based on front-drive architectures and aiming them at the fresh Chinese market is the wisest bet.

Global Downsizing

With increasing pressure on the auto sector to address environmental concerns, moving to smaller, more fuel-efficient vehicle platforms is inevitable, even for the steeped-in-size luxury automakers. Thanks to its VW ties, Audi always has had a model range slanted towards more reasonable sizes, and Daimler AG's Mercedes-Benz also has been veering in that direction thanks to increasing ties with other automakers with more expertise in that area.

Mostly for packaging reasons, small vehicles typically use front-wheel drive to maximize interior volume and overall utility. Front-drive architectures typically also are less-expensive to build, so for price-sensitive markets, front-drive often is a given.

But for BMW, more so than any of its luxury rivals, rear-wheel drive has been an implied vital ingredient in the mythical formula that imparts the balanced handling and responsiveness supposed to be the calling card of all its models. So to move away from rear-drive is a big move indeed.

BMW's already talked about its Megacity electric car, coming around 2013-ish. Although its electric motor is in the rear and drives the rear wheels, the Megacity line, like Mini, will enable the company to sell small and/or front-drive cars without necessarily besmirching the BMW brand.

Extending that thinking, it's expected BMW can move into markets such as China with front-wheel drive models because buyers don't have the same notions about what vehicles attributes are necessary to comprise a BMW. Jim O'Donnell, president of BMW of North America Inc., told AutoObserver last month that last year in China, 90 percent of customers were new to the brand.

In the U.S., BMW and other luxury makes have been hampered by the "substitution effect" of recession-hardened buyers downsizing either into smaller vehicles or into non-luxury nameplates, so the company also could be seen as hedging its bets by shifting more development towards smaller models.

Success in any world market means it's vital to orient vehicle attributes to buyer preferences. Now it will be a matter of which automakers can most skillfully adapt their product development processes - not to mention their marketing messages - to support one region's expectations of what the brand is supposed to deliver without ruining the brand somewhere else.

For U.S. buyers, the notion of front-wheel drive BMWs might be distasteful, but maybe they can live with it as long as front-drive Bimmers remain the flavor of a far-off land.

 

1. BMW E1 Concept a rear-engine, rear-drive indicator of the company's direction for its Megacity battery-electric car (courtesy BMW North America Inc.)

2. Little wonder BMW and its competitors are looking to China, as sales in the mature U.S. and Western European markets can't keep pace with China's outsized growth (graphic by David Greene).

3. Mini has been a mixed blessing for BMW: it allows the company to sell front-wheel-drive small cars without sullying the brand's reputation for rear-drive excellence, but sales in the U.S. have weakened (courtesy BMW North America Inc.)

 

 

Bill Visnic:  is an AutoObserver Senior Editor. Follow @AutoObserver on Twitter