BMW grabs wheel from Land Rover

While the majority of four-wheel drive owners may only use their vehicle to drop the kids off at school, the image of a car which provides an escape to the great outdoors is a popular one pedalled by car manufacturers, especially industry stalwarts such as Land Rover.

But all is not well in the BMW-owned Land Rover camp. Despite record sales worldwide, its managing director Peter Kinnaird and marketing director Jim Campbell left the UK operation abruptly two weeks ago (MW June 17). Charles R Hughes, founding president and chief executive of Land Rover North America, also resigned from the company last week.

Motor industry commentators say the Munich-based car manufacturer is flexing its muscles by installing its own people within the Rover Group because it wants complete control.

Some believe there is concern in Germany that too much attention focused on Rover could be detrimental to the BMW brand. Some shareholders are calling for the Rover Group to be sold, fearing the ailing British group could pull the “beemer” empire down.

Simon Miller, motor vehicle stock market analyst with Credit Lyonnais, says BMW has decided to take charge. “Clearly, allowing Rover to manage its own affairs has not worked,” he says.

Miller says Land Rover’s Freelander model, launched at the beginning of last year, experienced early handling problems such as loss of power on hills in 4WD mode. These problems have worried BMW, which has built its reputation on engineering quality.

“It is understandable BMW tried the softly-softly approach so as not to seem heavy handed. But it should have made these changes five years ago – some of the shareholders probably wish it had,” adds Miller.

The recent movements at Land Rover follow the departure of Rover Group’s marketing director Martin Runnacles in April. His exit followed the transfer of Tom Purves, Rover’s board-level sales and marketing director – and Runnacles’ boss – to the US.

In Purves’ place, BMW imported senior German marketer Dieter Laxy to oversee marketing in the UK for the combined Rover and BMW brands.

In addition, BMW is creating four global brand director roles to oversee international development of the Rover, Mini, Land Rover and BMW brands. Karl-Heinz Kalbfell, marketing director of BMW Germany, is expected to take a complementary role alongside these four directors (MW May 6).

Professor Garel Rhys, of the Institute of Automotive Industry Research at Cardiff University Business School, says: “I think BMW is trying to compensate for not being as assertive as it first could have been.

“BMW could not allow the haemorrhaging of money to continue at Rover. It’s almost panic management. It’s taking over complete control of Rover. It is under pressure from its shareholders to do so.”

He says the management shake-up at Land Rover is part of an overall “ethnic cleansing” strategy by BMW to bring in German executives and purge British managers from top positions at the company.

Rhys adds: “BMW is considered a small company within the world-wide motor industry. All of a sudden it looks vulnerable. So it is no wonder it wants entire control.”

Bayerische Motoren Werke (Bavarian Motor Works) bought Rover from British Aerospace and Honda for &£800m in 1994.

Last year it reported total worldwide sales of $37bn (&£22.7bn). Of that figure, $25bn (59 per cent of the total) was BMW automobile sales, and $9bn (23 per cent) were Rover sales.

But these figures are only part of the story. Despite BMW pouring &£2.5bn into it, Rover lost &£650m last year, and its share of the UK car market fell to just five per cent.

The ray of light was Land Rover operations. Worldwide sales across all four Land Rover models in 1998 were 151,500 – the highest since production began in 1948.

BMW may also be tightening the reins at Land Rover in the face of increasing competition from other 4×4 manufacturers.

Industry observers believe Land Rover’s products do not match the standards of the Japanese or US equivalent, especially the big players in the 4×4 market such as Chrysler’s Jeep and Toyota’s Land Cruiser. Rhys says: “It is no secret that Land Rover will have to fight to maintain its position in the market.

“It needs to take it to more markets around the world, with a much fuller and wider dealership presence. Clearly BMW is starting to put this into place.”

Mitsubishi has been a thorn in Land Rover’s side since it launched the Shogun in 1983. Its hi-tech yet affordable positioning has made it a popular brand.

The Japanese company claims the problem with Land Rover’s Freelander is that it is smaller than the Discovery and Range Rover models but larger than most popular 4×4 models, and thus doesn’t fit in with a particular sector of the 4×4 market.

Mitsubishi believes its new and smaller Shogun “Pinin” model, rolled out in the UK on July 6, will give the Freelander a run for its money.

A Mitsubishi spokesman says: “BMW hasn’t changed the Land Rover brand, only the names behind the brand. To appoint people quickly from within the company is very BMW. It is putting its house in order to streamline the operation.

“Land Rover has had major changes. The old vehicles were tough as nails, but were never developed. We have clawed into the middle ground while Land Rover did nothing and lost a lot of customers.

“BMW’s goal is simple – German efficiency and a high quality product. BMW is very good at protecting its brands. Perhaps we will see a radical redesign of Discovery and Range Rover models in due course.”

A Rover Group spokesman says the whole of the BMW group has been restructured, and as Land Rover is a brand within the company, changes were expected. “It is a BMW Group issue. How it organises brands and restructures management is up to the company,” he says.

Munich-based BMW spokesman Jurg Dinner says: “We saw that Rover managing Rover and BMW managing BMW didn’t work. It was a mistake made by the former management. The Rover Group had high losses but the BMW brand made good profits. We are strong enough to weather that.”

BMW is now realising four years too late that the Rover Group should either have stayed with Honda, or it should have been helped much sooner. It could not have foreseen that Rover would still be massively in the red, or that its very future depends on the success of the new 75 saloon car, launched last week.

No wonder BMW wants full command of Land Rover’s direction – before there is any hint of it sliding uncontrollably down the same muddy hill as Rover.