The Luxury Car Industry's New-Old Bosses -- Heard on the Street
July 19 2019 - 9:19AM
Dow Jones News
By Stephen Wilmot
The German luxury car industry has stalled. Getting the engine
running again may require fresher thinking than the insiders
appointed to run both BMW and Daimler can supply.
Late Thursday, BMW said production chief Oliver Zipse, a
"decisive strategic and analytical leader," would next month take
ove r as head of the management board -- the equivalent of chief
executive under Germany's two-board system.
The current CEO and former production chief, Harald Krüger,
decided not to seek a second five-year term in office, perhaps
because his contract was at risk of not being renewed anyway after
a marked deterioration in the company's financial results and stock
price.
Mr. Zipse is still a largely unknown quantity, but he embodies
continuity. He has spent his entire career at BMW, including more
than four years on the management board. He is portrayed in the
local press as calm and consensus-seeking -- qualities previously
associated with Mr. Krüger.
The CEO-elect doesn't seem the man to make a U-turn, which is
what BMW arguably needs. Traumatized by the losses it made on its
pioneering i3 electric vehicle project, the company hasn't invested
in a dedicated EV platform, unlike its German rivals Daimler and
Volkswagen. Instead, BMW has made much of the flexibility afforded
by simply adding electric and hybrid options onto its existing
platform.
The result could be underwhelming products that get outcompeted
by more tailored designs. EVs built on a dedicated platform will be
roomier than conventional cars as the batteries can be packed flat
on the car's floor. Moreover, as Michael Muders, a portfolio
manager at Frankfurt-based Union Investment, points out: "If you're
a consumer and you pay up for an EV, you probably want people to
see you have an EV."
Daimler's problems are more operational than strategic. This
makes them even harder to square with the company's choice of an
internal candidate, Ola Källenius, to replace longtime CEO Dieter
Zetsche two months ago.
The new boss already has been forced to issue two major profit
warnings. One problem, almost four years after the Environmental
Protection Agency served its epochal notice of violation to
Volkswagen, has been the question of diesel fraud. Regulatory
investigations into and recalls of Mercedes-Benz diesel cars aren't
going away, however long Daimler appeals against them. The company
is due to set aside roughly EUR2.5 billion ($2.8 billion) in extra
provisions for diesel issues when it reports second-quarter results
next week.
Daimler is also provisioning a further EUR1 billion for an
industrywide air bag problem that first emerged in 2013. The
overall impression is that management has been sweeping problems
under the carpet. Mr. Källenius needs to tackle this even though he
has spent his entire career at the company and has been on the
management board since 2015.
He should also follow VW's lead with an initial public offering
of Daimler's underperforming heavy-truck division and get out of
the costly and unnecessary business of Formula One car racing. It
won't help if Mr. Zetsche returns to Daimler as supervisory-board
chairman in 2021 -- a proposed move that some investors, including
Mr. Muders, are now fighting.
Executive life is a much cozier affair in Germany than in the
U.S. The preference for continuity can be good for building
expertise and brands. It may prove a hindrance when the established
industry order is being disrupted, though, and problems can also
fester.
It speaks volumes that investors' preferred German car maker
these days tends to be the old laggard, VW. For the past 16 months
it has been run not by a VW-lifer but by Herbert Diess -- a former
BMW executive. In Germany, that counts as change.
Write to Stephen Wilmot at stephen.wilmot@wsj.com
(END) Dow Jones Newswires
July 19, 2019 09:04 ET (13:04 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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