The ultimate money machine: BMW gained its reputation as a builder of sport sedans, but its consistently high profits and unwavering focus make it the envy--and target--of the competition.

BMW has a long history of confounding its critics. Whether as an aero engine company nearly put out of business by the Treaty of Versailles that became a force in motorcycling as a result, or as the owner of Rover who walked away from its investment while keeping control of Mini, BMW has always found a way to land on its feet. However, the German automaker has done more than survived, it has prospered. Despite unfavorable exchange rates, an increase in raw material prices, and rising energy costs, BMW managed to increase vehicle sales and show a return on vehicle sales of 6.4% for the first nine months of 2005. This is down from the 7.6% in the same period one year previous, but well ahead of most of its competition. How does this company remain so successful?

Tom Purves, chairman and CEO of BMW (US) Holding Corp. and president of BMW of North America LLC, puts it bluntly: "If we have the innovation going in the right direction--even when there is a challenge like high fuel prices or tough competition--staying successful is not an insurmountable challenge. In fact, these challenges help our success because they keep us focused." Yet some say BMW has taken its eye off the ball in recent years, pushing technology at the expense of those things that have made it the "Ultimate Driving Machine" in the eyes of its loyal--and growing-customer base. Things like iDrive, Active Steering, and other electronic systems that--when taken in concert with a radical design direction--shifted the vehicles away from their pure, sport-focused roots and toward a uniquely styled, technology heavy, luxurious approach. Despite this criticism, however, U.S. sales have risen 91% between 1999 and 2005.

"There has been more comment on our design direction from the motoring press than our customers," says Purves dryly as he explains the reasons behind the radical change. "We knew from our research that customers thought the 3, 5 and 7 Series were a bit too close together, and that the 7 Series didn't have enough presence. Plus, the 5 Series was limited by its closeness to the 3." The board gave chief designer Chris Bangle and his staff the task of coming up with ways of differentiating the models that retained BMW's brand orientation. First there was the 7 Series, followed by the Z4 and the 5, 6, and 3 Series. "I think you can stand back and see the design direction more clearly now," says Purves, "and we have made some minor modifications to the designs to take some of the edge off." It has worked. Except for tradition-minded Europe, sales of the cars have risen substantially. Says Purves: "I think history will record that it was a bold step by BMW--in some ways a dangerous step--but an astute step."

Purves claims that, compared to most automakers, BMW has enjoyed a "more collegial relationship with its suppliers," and insists on retaining control over vehicle software in order to ensure each vehicle has a BMW-specific feel and not a cookie cutter solution. "We own the software so that the intellectual property is retained within the company, even if we are working with a subcontractor on the system," he says, such that a BMW customer can tell that, "whoever designed it was thinking about the steering at the same time he was thinking about the gearbox or the ride quality" And while Purves claims he often finds something impressive in competitive vehicles, he rarely comes across ones that have a similar holistic feel. "That feel is central to what makes a BMW a BMW."

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Image plays a part as well, and it is this that has kept the 1 Series out of North America in its current form. A five-door design, the 1 Series is too close in some ways to the later 1990s Compact hatchback that was based on a de-contented 3 Series. That car felt like a BMW, but was underpowered and fitted with an interior that proved even BMW couldn't do an inviting inexpensive interior. Plus, it was too close to the 3 Series in size and--when fitted with the bells and whistles one expects from a BMW--price. Now that the 3 Series has grown to the point where a small coupe and sport sedan combo can fit between it and the front-drive Mini Cooper line, there is room for a 1 Series-based vehicle. "The BMW 1600 and 2002 of the 1960s and 1970s were very successful vehicles, and are well-loved by the people who had them in their youth," says Purves. "A vehicle like that will give us entry to younger buyers at a lower price [than the 3 Series] without encroaching on Mini."

One engine Purves would like to see make the transition with the 1 Series to the U.S. market is the diesel, though that will not happen. "I only wish there was more of an infrastructure and an understanding of diesel in the United States. There is neither, nor is there any clarity in terms of being able to meet all of the regulations in the future." Which means--despite BMW's broad range of diesel engines in Europe--none will be sold here until there is a viable long-term market for this engine, and a sensible emissions framework. And while--for North America at least--the diesel will remain as scarce as its hydrogen and hybrid test vehicles, BMW continues to push the boundaries with gasoline engines. "The company has a tremendous ethos of building engines," says Purves, who admits he was surprised when he first learned of plans to launch a new generation of gasoline engines based around a magnesium bedplate design. He had good reason.

In this design, which is the standard for all BMW and Mini gas engines to come, a ridged high silicon content aluminum alloy insert forms the cylinders and coolant passages, and interlocks with the ridged magnesium upper crankcase that shrinks onto the aluminum insert while cooling. Magnesium also is used for the bedplate that forms the lower block. The upper case is lowered onto the bedplate, and a liquid sealing compound is injected into a groove in the contact surface. The head is cast via the lost foam process, and topped by a magnesium cam cover. Purpose-built racing engines, not production motors, commonly use this design. "It's a great challenge and an exciting thing for our engineers to be confronted with challenges like this," says Purves smiling. "They worked on this design for a very long time, and it's further proof that our engine guys have a very complete understanding of the global market and what is possible. It's no surprise, really. We are, after all Bavarian Motor Works."

MORE THAN JUST THE 13TH LETTER OF THE ALPHABET

Ulrich Bruhnke, CEO of BMW's M division, puts the difference between his group and the performance arms of other automakers into stark focus: "Many competitors offer the most powerful model of the series under a sub-brand, attempting to do this with as little modification as possible to the base vehicle. M is more than this. M is an overall concept."

M is a wholly owned subsidiary of the BMW Group responsible for research and development for BMW M vehicles. What's more, it oversees BMW individual, which specializes in customizing customer vehicles, and BMW Driver Training, which operates a high-performance driving school for BMW owners.

The staff of 550 employees makes M "a small company within the larger BMW company that has everything that is required to develop and market M products professionally," says Bruhnke. All M-specific features are developed by M engineers, and there is a separate M marketing and sales operation to handle, in Bruhnke's words, "demanding customers who want to be addressed on equal terms." This is no tape stripe and hot motor operation. Special stations on the normal assembly line add M parts in sequence, and approximately 20,000 M automobiles and 20,000 Individual vehicles are built each year. In addition, there are M sports packages available for most BMW models, and 75,000 3 and 5 Series vehicles were sold with an M sports package in 2004. These products meet all of the same standards required of regular production items, and are not produced at a loss. "BMW M has the same cost and profitability targets as the BMW Group, and we see ourselves as a profit center rather than a cost center," says Bruhnke. Nevertheless, this quest for profits does not come at the expense of the M name: "It is not our job to develop a top model for every series model," he says emphatically. "M supports the brand vales 'dynamic' and 'challenging.' We would never disown the M character of a car in favor of increased sales."

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That character is of a high performance car suitable for everyday use that does more than offer significantly higher performance than the most powerful standard model. "It is a vehicle that is designed by specialists whose chassis, engine, and controls are intended for the enthusiastic sporting driver," says Bruhnke. Whenever a new BMW model is created, M is involved in the development process such that--should the BMW board decides to add a M model to a vehicle's lineup--the decision is based on a proposal put forward by M, and engineers and designers begin work on development tasks specific to construction of the M version. "The process works in two directions," says Bruhnke, "projects for M automobiles are requested, and M also suggests its own projects." However, this creates something of a desirable problem: "Our team has a lot more ideas than we have capacity to do them."

In June, BMW will introduce an M version of the Z4 Coupe powered by the 3.2-liter inline six found in the M3. It is the latest of a long line of vehicles that first gained attention with the introduction of the mid-engine M1 sports car in the late 1970s, and continues through today's V10-powered M5 and M6.

BANGLE'S passionate PURSUIT

If automotive design is about passion, then Chris Bangle, who joined BMW in October, 1992, and now serves as head of design for the company, has turned up the heat higher than anyone in the industry, especially since his "flame surfacing" design theme appeared on the much-maligned E65/E66 7-Series in 2002. How many other automotive designers have a webpage devoted to his dismissal that nearly 13,000 people have signed (http://www.petitiononline.com/STOPCB/petition.html)? Bangle, who hails from a place far from Bavaria--Ravenna, Ohio--, may actually quell some of the complaints as the design renaissance he initiated is nearing its conclusion with the 2006 3-Series. When the 7-, 6-, 5-, and 3-Series models are put in context (along with the Z roadster siblings), what Bangle has wrought begins to make sense. In fact, designers from other vehicle manufacturers seem to be borrowing from Bangle: consider, for example, recent designs from Pontiac. Bangle says with an implied sigh, "I think we were ahead of the curve without a doubt and the curve is catching up with us now. Every once in a while I see more and more indication people are starting to follow our trend."

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Bangle just didn't come into BMW and turn its design on its head. Bangle says the automaker's management board agonized over whether it needed to take a radically new course. After all, demand for BMWs were relatively strong, and everything seemed to be humming along pretty well. "If you go back and look at our cars in the '80s and '90s, you'll see that we were heavily into scaling." Each of the models was essentially a scaled version of the others. This changed in 1999, when the Z9 concept car was unveiled. Bangle acknowledges, "It was a tough leadership choice the company made."

MINI Makeover. With the BMW brand work essentially complete, Bangle will focus his attention on another automotive icon, MINI. The little car with a big attitude stormed onto the market in 2001; the next-generation of the MINI is slated to debut in 2007.

Bangle and his team have already given the world a partial glimpse at the next iteration via the MINI Concept Frankfurt, which debuted at the IAA last year. Bangle is mum on specifics when it comes to the future of MINI design (and let's hope the front fascia of the concept isn't dead-on) but he is willing to say that MINI is more than the car itself: "MINI is a brand, not a car. To me it's less a question of what kind of MINI will be out there, but how will MINI make a jump to the next paradigm," Bangle says. "There's a lot of room to work in." The future of MINI's design is now in the hands of Gert Volker Hildebrand, after the original contemporary MINI designer, Frank Stephenson, moved on to Bangle's previous alma mater, Fiat. Hildebrand will have to be careful not to tinker too much with the signature MINI design, Bangle says, comparing the MINI to Porsche, which he credits for expanding its product range to include the Cayenne and Boxster, while maintaining the iconic 911 design: "I give them a lot of credit for that," he says. While they may stay true to the "look" of the vehicle, chances are there will be variants of the car, including a longer wheelbase wagon and possibly a pickup.

Manufacturing Matters. While many of Bangle's competitors are scrambling to keep their heads above water, he exudes a level of confidence that is more determined than arrogant. He calls himself "blessed" to work for BMW, one of the few automakers that understand the direct link between the design and manufacturing disciplines, he says. "We have a complete pallet of manufacturing approaches, everything from semi-farmed out with motorcycles, to in-house hand-finishing with Rolls-Royce, to large series production with BMW. We have a deep pool of people with a broad imagination between our manufacturing, engineering and design ranks." Bangle laments the majority of auto designers have no comprehension of what is required in the manufacturing process, pointing that most design schools pay "little or no" attention to the fundamentals of manufacturing. "The manufacturing guys in this industry are advanced thinkers, but the designers don't understand how the manufacturing game is played."

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Embracing Efficiency. He is equally critical of the lack of emotion in passenger car design, pointing out that many of the cars on today's market lack any sort of excitement: "We are seeing cars as de-emotionalized products," he says, adding the U.S. market also needs to diverge from its reliance on horsepower and begin to embrace more fuel-efficient and environmentally friendly vehicle designs, especially in light of higher fuel prices. "I am a little worried that this horsepower trend in America has distracted us from the real issues," he says. Asked when U.S. consumers will change their tastes from large SUVs and pickup trucks, Bangle proclaims the days of the mammoth SUVs are waning, even though BMW will introduce a larger people-hauler in 2007 to compete against Mercedes' R-Class. He says the American psyche is beginning to change, thanks in part to the next generation of vehicle buyers increasingly being made up of technology savvy and eco-friendly consumers, although the transformation will take some time: The man who hails from Ohio observes of American consumers: "They are not going to leave their comfort zone happily."

MARATHON MAN

Dr. Mario Theissen, director of BMW Motorsport, knows about stamina. A marathon runner who no longer has the time to indulge his passion, Theissen packs his free time with cycling, skiing, jogging or other physical training, and was instrumental in setting up the BMW Fitness Program for the BMW Motorsport staff. He also oversees BMW's Formula One engine program, where rules stability often is sacrificed for political advantage, and changes are mandated late in the season that fundamentally affect design and development. Theissen also leads the takeover of the Sauber team and the construction of the first all-BMW F1 car, a project that will demand stamina--and patience.

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"The realignment of our Formula One strategy is based on two insights," says Theissen. "First, the influence of the engine on the potential of the overall package has diminished; the car tires, and drivers play a greater role then they used to. Second, from our point of view, an optimal overall package can only be achieved with a fully integrated team and cohesive processes." Taking control of the Sauber team based in Hinwil, Switzerland, gives BMW a solid base on which to build, and includes a state-of-the-art wind tunnel facility. Though it ran on limited budget--something of a non sequitur as yearly F1 budgets often run in the hundreds of millions of dollars--the Sauber team finished eighth overall last season, and-ironically-was the team that brought Mercedes into Formula One in the early 1990s after a successful partnership in sports car racing. (Together Sauber and Mercedes won the 24 Hours of Le Mans in 1989. They also took the World Sport Car Championship in both 1989 and 1990.) It ran Ferrari engines under the Petronas badge between 1997 and 2005 under the direction of Engine R & D director and former Honda F1 racing team leader Osamu Goto. In short, it is no technical backwater.

The team will be managed from two locations: the Sauber factory, and BMW headquarters in Munich. This places control over the day-to-day operations in the hands of those closest to the situation, and integrates the design and development functions into the broader BMW organization. BMW designs and manufactures its F1 engines in Munich near its Research and Innovation Center already and, says Theissen, "has massive resources that we benefit from directly." This includes creation of an in-house engine management system designed by the same engineers that created the units for the M3 and M5 models. Technology transfer also flows from racing to production, with the 7 Series and M Series models utilizing two microprocessors that were first deployed and tested in F1, use of F1 memory technology in the Internet access and navigation systems of the 7 Series, and the addition of sequential gear shifting with integral launch control on the M3, M5 and M6 models.

"Another area of shared experience is casting," says Theissen. BMW's Landshut foundry casts components for production vehicles, and includes a Formula One casting center. "A dedicated facility was added in 2001 and the two departments operate under joint management," says Theissen, "which guarantees an on-going exchange of information. Oil sumps for the M3, M5 and M6, and the intake manifold for the V8 diesel employ the same sand-casting procedures as used on the Formula One V10." Theissen makes clear the interchange doesn't stop there. Since the number of design modifications to the F1 engine each season rivals the total number of design changes for the entire BMW engine lineup, the F1 engine team has direct access to the Rapid Prototyping/Tooling Technology Dept. at the Research and Innovation Center. "As soon as the necessary parts have been designed using a CAD/CAM system, they use laser beams or 3D pressure engineering to create scale models of resin, plastic powder, starch or wax," says Theissen, "so installation and part interactions can be simulated without delay and modifications made before the final manufacturing process is set in motion." These same processes will now be expanded to include work in advanced composites, structure, suspension and aerodynamics that will flow in both directions.

Theissen admits there are no directly applicable elements that have moved from the racing to the production side of the ledger, and states that those looking for such direct interactions will be disappointed. However, "as the same physics apply to any engine, one can certainly learn a lot from extreme research and development such as F1 requires," he remarks, "since the general targets are the same: high power output, low weight and low fuel consumption." Of course, controlling and optimizing the gas exchange process, mixture and combustion at 19,000 rpm means reaching beyond state-of-the-art technology. "What we learn here certainly will influence the design of road car engine," states Theissen. It already has affected the V10 used in the M5 and M6, much as the lessons learned from the design and development of the 2.4-liter P86 V8 will affect future V8s.

The almost arbitrary switch from 3.0-liter V10s to smaller V8s well ahead of the planned 2008 deadline didn't totally obsolete what had been learned with the V10, but it has forced a rethink and perhaps a further justification for the purchase of Sauber. "The critical vibration area for the V10 lies around 12,000 rpm, a rev band where the engine doesn't spend too much time since it operates mostly at peak revs," says Theissen. "That creates a problem or the V8 since it enters a critical zone at 16,000 rpm where vibrations impact on the service life of the engine and the chassis components." The first P86 engine was run on a test stand in May 2005, and tested on the track that July before further development work took place in Munich in preparation for winter testing. As Theissen had expected, some of the knowledge gained with the V10 was carried over, new knowledge was obtained, and--from a technical point of view--the process presented a fascinating challenge. Also, "the switch from one engine type to another is certainly not leading to the desired reduction in costs--quite the opposite, in fact."

Theissen steers clear of making predictions or laying out a concrete five-year plan. After years in the sport, he is familiar with both victory and defeat, and the fine line that often separates the two. "The example of Toyota and the teams at the top today has shown that you can't expect success from the word 'go.' It takes time, stamina and a winning car, and our goal is the World Championship title." Don't bet against him achieving it.

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HISTORICALLY SPEAKING 

BMW may have built aero engines during WWII-including powerful jet engines toward the end of the conflict-but the Isetta "bubble car" was its top seller during the economic recovery of the 1950s. Powered by a single-cylinder BMW motorcycle engine coupled to a four-speed gearbox, it had three wheels, a top speed of 53 mph, returned 63 mpg, and a single door on the front of the egg-shaped vehicle to which the steering column was attached. It was later joined by a stretched, four-wheeled version with a 582 cc twin, but in either guise the Isetta was by no means "The Ultimate Driving Machine."

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Count Albrecht von Goertz designed the 507, a convertible of almost feline beauty, and a rare vehicle with only 412 built. Powered by a V8 engine it shared with the sturdy looking 500 Series sedans and cabriolets, the 507 was created primarily for the U.S. market, but was outperformed in that arena by the Mercedes 300 SL. Both are very desirable collector cars, although the 507 has since drawn interest it could only dream of in the 1950s.

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The introduction of the "New Class" range of cars in 1961 put BMW on the road to its current success by setting the tone for all BMWs that Followed. At their heart was Alex von Faulkenhausen's M10/M12 Four-cylinder engine that started at 1.5-liters, but soon grew to 2.0-liters and was built into the 1980s. Perhaps the most famous vehicle in this line is the 2002 ti (pictured) which evolved into the 3 Series that is BMW's highest volume vehicle today. Reportedly, the 2002 is the template for the 1 Series coupe slated For North America.

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Von Faulkenhausen's later inline six-cylinder engine may have set the stage For the 3,5,6, and 7 Series models as we know them today, but it was the introduction of BMW's 5.0-liter V12 in 1987 that established the 7 Series as a realistic contender in the luxury sedan segment. Its introduction also permitted the 3 and 5 Series to move upmarket as they sought to stay one step ahead of growing competition.

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By Christopher A. Sawyer, Executive Editor & Kevin M. Kelly, Senior Editor