Is it the end of the road for the motor car marque?
Mercedes and BMW battle to keep significance of brand alive as ride-hailing grows
Sitting near four futuristic concept cars at BMW’s Munich headquarters, chief executive Harald Krüger says his company has no problem differentiating its products from the likes of arch-rival Mercedes.
How BMW feels and handles is based on drivetrain and software expertise that other manufacturers cannot deliver, he says. BMW’s Mini, for instance, “has an iconic driving feel,” while its Rolls-Royce cars are “like a magic carpet”.
But, in the next decade, product differentiation may become increasingly irrelevant as growing numbers of passengers using car-booking apps, such as Uber, Didi and Lyft, no longer care as much about the make or model of the vehicle.
Like the airlines, the carrier company may become more important to the consumer than the vehicle’s brand, with passengers often unaware whether they are flying in a Boeing or an Airbus.
Adapting to this change in consumer demand is one of the key challenges for the world’s leading carmakers. As vehicle ownership is expected to decline, the business is evolving into a race against the software groups to build new ecosystems that will be autonomous, connected, electric and shared.
“When we talk about mobility services, I don’t look to Munich or to BMW,” says Wilko Stark, head of strategy at Daimler, which owns Mercedes.
“We look to China — Didi, for example — we look to Uber and Lyft. We look at what Google is doing with [its self-driving car project] Waymo, and also Apple is trying a lot of things. These are the new competitors.”
Jürgen Bilo, head of strategy at German supplier Continental, adds: “Business models are going to change completely [as] the Googles and Apples are coming in.”
To complicate the picture, the competition between traditional carmakers is likely to intensify. In Detroit, Ford and General Motors are competing on autonomous cars, while Nissan and Toyota are fighting it out over electric technology in Japan.
In Germany, the rivalry between BMW and Mercedes, the world’s two biggest selling premium carmakers, where make and marque are integral to success, offers a good example on how different groups are responding to changes in the industry.
For both BMW and Mercedes, which have been reliant on performance, styling and brand to deliver profit margins, the focus has shifted to autonomous driving, shared vehicles and electric cars.
On autonomous or self-driving, the two companies are taking different approaches.
BMW is partnering with technology groups, Israel-based Mobileye and California-based Intel, to release an autonomous car by 2021 in a non-exclusive partnership that it hopes will form the blueprint for these vehicles in the future.
The idea is to create an operating system for other self-driving cars to be a part of — potentially creating a new line of revenue for BMW.
Ian Robertson, BMW’s sales director, recently told a car conference in London that there had been other expressions of interest in joining the group.
He declined to say who, but within weeks Delphi, which supplies technology for the car industry, joined the team and explained that anyone trying to do “everything on their own or in a very closed system are going to really struggle”.
Mercedes’ parent Daimler is looking at other options. It can deploy its self-driving technology for its cars as well as lorries, buses and vans — important areas where BMW does not have a presence. “We are using the synergies within our group,” says Daimler’s Mr Stark.
On shared vehicles and the potential threat to business of falling car ownership, the groups look more closely aligned, at least at first glance. Both have launched inner-city car-sharing schemes, with BMW’s DriveNow featuring Mini, electric i3 cars and smaller BMW 1-series, while Mercedes’ car2go programme has recently expanded from low-end smart cars to more luxury vehicles.
However, differences are emerging. Daimler has taken a lead in ride-hailing, by purchasing taxi-booking apps Hailo and MyTaxi and then incorporating them into its “moovel” app, a one-stop shop for all of its transport services.
In partnership with supplier Bosch, Daimler plans to build “robo-taxis” to be part of its shared fleet in the next decade.
In contrast, Mr Krüger says BMW’s self-driving cars will still be driver-focused, handing control back whenever desired. “We will not deliver robo-taxis,” he says.
BMW is trialling an “Airbnb for cars” scheme to let drivers in the US rent out their own cars to others using an app.
Mercedes has a similar scheme in Germany, called Croove, but it is open to all drivers regardless of car brand.
Julie Boote, an analyst at Pelham Smithers, says these moves are necessary as car ownership will increasingly be displaced by fleet services that will operate cars at all hours of the day, necessitating faster replacement that could lift overall sales.
Christian Ludwig, analyst at Bankhaus Lampe, calls this a paradigm shift from simply building the best cars.
“I don’t believe that operational excellence will become obsolete, but it won’t be the main pillar to build success on, as it was in the past,” he says. “The current business model will not suffice to be successful.”
A third split between BMW and Daimler/Mercedes is how to build electric vehicles.
Both are involved in assembling batteries and creating high-powered charging units, but their approach to fitting electric vehicles into their future line-ups is diverging.
Last month BMW said the “architecture” used in its Dingolfing plant to build its future iNext car emphasises “unparalleled flexibility” that allows it to install three types of powertrains — electric, hybrid or combustion engine — depending on demand.
Daimler, by contrast, says it will invest up to €10bn by 2022 for an electric-only platform called EQ. This architecture will be scalable for all electric vehicles from coupes to sport utility vehicles.
Analysts say BMW is being cautious, in case the ramp-up to electric vehicles is not as steep as some believe.
Daimler’s more aggressive approach could work better in an optimistic sales scenario, but it could also result in heavy losses if the electric market stalls.
“Going for a complete, dedicated architecture offers you higher electric range and offers you a high flexibility regarding the body style,” says Daimler’s Mr Stark.
“The risk is, in a worst-case scenario, that electromobility is not coming and the €10bn is gone. But this is not going to happen.”