Two of the world’s largest motor companies, Ford and Volkswagen, have set the scene for a titanic clash, as two former BMW heavyweights battle for control of the luxury car market. But many believe the fight is a mis-match, that one cannot make the weight.
The fighter in question is former BMW chief executive Bernd Pischetsrieder, who is about to be installed as head of VW’s new luxury car division (MW last week).
It follows Ford’s decision to pool its luxury marques into the Premier Automotive Group headed by former BMW marketing and engineering executive Wolfgang Reitzle – and arch rival of Pischetsrieder’s.
Ford has a stock of impressive brands in its luxury division – Lincoln, Mercury, Aston Martin, Jaguar, Volvo and now Land Rover – while VW’s brands, although well respected, do not quite add up to the PAG portfolio. VW has Bugatti, Lamborghini, Audi, Bentley and for only two more years, Rolls-Royce. Ironically, the rights to Rolls-Royce go to BMW in 2002.
The move is likely to intensify the battle for BMW if its principal owners, the Quandt family, ever throw in the towel and sell their controlling share of the company.
There are now five industry giants – General Motors, Ford, Volkswagen, Toyota and DaimlerChrysler – which would relish the chance to own a prestigious brand such as BMW, but only two which would die for it.
As one German automotive analyst says: “Ford and Volkswagen will fight to the death to buy BMW, and even if they [the Quandt family] claim they won’t sell, inevitably it’s something they must consider. Even if it is just an alliance, in order to compete against these global giants which can produce a car for less money.”
Pischetsrieder and Reitzle are likely to make any bidding war a personal quest. The battle will be between not just two rival companies, but two former colleagues desperate to get back what they see as rightly theirs.
The two men, who both lost their jobs last year over the Rover debacle, have BMW blood pumping through their veins.
Pischetsrieder, who only formally joined VW at the start of this month, has yet to make his mark at the German car company. For the time being, he is working as head of quality control and has overall responsibility for the Seat brand. His role in the new luxury division is expected to be announced at the start of autumn.
“A year out of the ring will have given Pischetsrieder time to hatch plans for the group. Any new grouping of luxury brands for VW will have been his idea. Reitzle may have a head start, but Pischetsrieder is tipped to take over from VW chief executive Ferdinand Piech in the top job, and he must show how valuable he is,” says the German analyst.
In the meantime, by focusing on the luxury market, both will be an aggravation to the company that they left so abruptly last year.
Both were BMW “lifers”, who lived and breathed the brand.
Reitzle, who was responsible for product development and headed sales and marketing for BMW, was, at the age of 38, the youngest executive to be appointed to the board. He served the car company for 23 years and frequently passionately declared BMW to be “an extension of the driver’s central nervous system”.
Reitzle was expecting to get the top job, but in 1993 Pischetsrieder beat him to it. The two became bitter rivals, who frequently found it difficult to agree on company strategy.
It was Pischetsrieder who first realised that for BMW to survive in a world of global giants, it must acquire other car companies. His choice of acquisition would later cost him his job.
The company bought Rover a year after Pischetsrieder was appointed as chief executive, and after failing to sort out the ailing Rover brand after four and a half years, he was ousted. Reitzle should have succeeded him, but failed to win the support of the unions and left.
Since the boardroom bust-up that led to their exit, Pischetsrieder has kept a low profile, but a place on the VW board marks his return to the arena.
And now the scene is set for a war of egos – Reitzle, with his swash-buckling, film-star matinee glamour against Pischetsrieder, the cooler but masterful goatee-bearded introvert.
“There is no doubt that Reitzle will have a psychological advantage over Pischetsrieder,” says one source. “Reitzle has been in his role for over a year, and he was popular with the Quandt family. Pischetsrieder is still in disgrace.
“VW would have to offer a deal the family and shareholders could not turn down. What that would be, I don’t know.”
Although the rivalry between the two executives would be more than about acquiring BMW, both will have in the back of their minds that they must create a stable of brands BMW would think worthy enough to place itself in. Analysts say VW needs it more than Ford.
Professor Garel Rhys from the Cardiff Institute of Automotive Research says: “It looks as if VW is trying to create an organisation to house BMW, should the opportunity arise. It still needs one big string to its bow. But it also looks like Pischetsrieder is trying to show BMW what it has lost.”
Last year, after Ford had bought Volvo to add to its collection of many of the world’s best-known luxury car brands, it made a decision to create the PAG – not as a separate division from its mass-market brands, as most industry observers have claimed, but to group the luxury cars together.
“We wanted to refocus the activities at the luxury end of the market,” says a Ford spokesman. “Before this, they didn’t naturally fit in together.”
In fact, apart from some shared dealerships planned for the US, it is still not easy to discern the benefits of the new PAG, and even harder to see the benefits VW will accrue in creating something similar.
In the past few years, the car industry has consolidated rapidly, a trend which has accelerated over the past 18 months. Those who shuddered when Ford bought Jaguar back in 1989 have been forced to admit that the mass-market car company has treated the Jaguar brand with respect. Ford has actually strengthened the marque by improving the cars.
Reitzle has big plans to increase sales to more than 1 million cars within four years, making the PAG the world’s fastest growing auto company. But it is not that straightforward, because if volumes are doubled, maintaining a luxury brand status becomes harder.
If the new VW luxury division has the same ambitious sales figures as the PAG, prices will have to be cut. To achieve low costs, the luxury cars will have to share many components with the mass-market brands.
This is already happening to an extent within the PAG – the new Jaguar, codenamed X400, will share a platform with the Mondeo. The S-Type already shares a platform with the Lincoln LS.
Both Pischetsrieder and Reitzle are likely to have their work cut out. The hardest part will be to exploit VW and Ford’s resources and network of suppliers in order to achieve cost benefits, without diluting brands. But they will have to tread carefully upmarket.
The PAG strategy may yet have to prove itself, but Reitzle’s extensive experience of creating a luxury brand with far reaching appeal has already started to show. Jaguar’s reintroduction to Formula One motor racing at the start of this season is one example, although the team has yet to really take off.
Pischetsrieder’s reign at VW will be under close scrutiny by industry observers – none more than Reitzle and former BMW executives.
“BMW must be wondering if it has been running an MBA course for senior car management,” says Rhys. “Two of its most senior executives have come back to haunt it.”
And the German automotive analyst adds: “Pischetsrieder experience at BMW will have taught him to be cautious. His plans for a new luxury division will be a guarded secret. It is not likely to be exactly the same as Ford, because he will not want it to look as though he is copying Reitzle. He will want to come with something that he considers strategically better.”
Colleagues of the “workaholic” Reitzle are quick to point out that the PAG is already showing signs of success. Insiders claim all of the brands will be a success under his stewardship.
But whatever Reitzle’s success, the fact remains that VW must acquire something else to make its division viable. It desperately needs BMW to hang up a “for sale” sign. Although many believe BMW would never sell to VW, Piech may convince the family otherwise. Until that point, VW’s luxury division is likely to be underweight.