How Bob Lutz created the enemy

If you’ve read my posts here before, you’ll know that I aspire for Saab to haul in the massive might of BMW. I believe firmly that the foundation is there for Saab to build fantastic automobiles – every bit as good, if not better, than their German competitors.

I’d heard that Bob Lutz had worked previously for BMW, but I’d never read any of the details of his role there.

Until now.

From the Car Connection, a fantastic excerpt from what i think would be a very interesting book….

Read on to find out about bob Lutz – BMW builder, hardline negotiator, and reluctant chick-magnet!

From Six Men Who Built the Modern Auto Industry

By Richard A. Johnson, © Richard A. Johnson, 2005

Together, von Kuenheim and Lutz would show the world that BMW had never been anything but the most admired automobile brand in the world. Von Kuenheim’s 23 years in command was the longest span of power by any post-World War II auto CEO who did not own the company. Under von Kuenheim, BMW’s sales revenues grew from 1.5 billion deutsche marks in 1970 to over 30 billion marks in 1993, the year he retired.

“I came in 1970 when BMW was selling 140,000 cars a year,” said von Kuenheim. “The year before had turnover of one billion deutsch marks. That was a fixed point. Quandt wondered what to do with BMW, because it was very small. The experts said you could only succeed if you produce 500,000. We didn’t have enough money, capacity, research or development people. When you are small you have only one chance – to produce more expensive cars. Higher turnover or higher volume. We went for the premium sector.

“How do you come out of that mousetrap to become bigger or go in a special sector niche? You go someplace where there is more or less no competition. We had a luxury sporty car. Good engine, good handling, and we got as high a price as possible. The VW Beetle sold for 4,500 to 5,000 marks in those days. I remember the BMW management board said, ‘let’s take 1,000 more, 20 percent more.’ We had a fight on the board and decided 1,000 was not enough. We decided in 1970 to take 3,000 more,” von Kuenheim said.

“It didn’t work so well. It was a very bumpy road. The idea was right to go in that direction. But it was a company guided and controlled by engineers. We had excellent technical content. We had the best chassis, best engine, best handling. But we had no sales organization. And we were very provincial. Not a European company, not even a German company. It was a Bavarian company.”

BMW began to make its first strides toward the top rank of world automotive brands when von Kuenheim and Bob Lutz decided in 1972 to take control of the company’s national importers around the world. This was an unprecedented move that was tremendously taxing in time and energy. But the two men decided that it had to be done. The small Bavarian company had been flogging its motorcycles in overseas markets, but the car business was mainly focused onGermany. Hahnemann had put together a network of private distributors that was costing BMW a lot of money. The distributors were getting rich, while BMW was barely breaking even on the cars it sold outside of Germany.

“It was a very important decision to take control of the importers,” said von Kuenheim. “They all were millionaires and we said we could use that money. I had very good help from a man named Bob Lutz. That was one of the secrets.” When it was all over, BMW was able to control its brand and keep more of the profits from its cars. It was this strategic move that set BMW on a 30-year run as the world’s most profitable – for its size – auto company.

Bob Lutz always felt that his single greatest contribution at BMW was getting the distribution under control. “BMW only sold through its own dealers in the United States ,” he said. “Everywhere else it had importers, and the importers were taking these horrendous margins.”

Even in Europe, BMW had independent importers. “We already had the EC, and we had a separate importer for France, one for Belgium, one for Holland, and Italy ,” Lutz said. “In the U.S. we had a man named Maxie Hoffman. These guys all had multi-year contracts. They owned a lot of their own retail distribution, plus they had a 15 percent distributors’ override, plus the 22 percent retail, so if they ran their own retail stores they’re operating with a margin of well over 30 percent. We were essentially shipping them the vehicles at cost. We only made money on the vehicles in Germany . So I said to von Kuenheim, ‘Hey, this isn’t working.’ He said this was the system that Hahnemann put in, and he seemed to be very friendly with these guys. Well, no wonder.”

So young Lutz set off around Europe buying the import rights back from the entrepreneurs who held them. He moved around Europe with a young BMW lawyer named Hagen Luderitz. “It involved a lot of negotiating, a lot of threats, and a lot of knowledge of new EC law. Finally we got rid of Maxie Hoffman, and that was the last one; that was such a quantum change in the profitability of BMW. They were siphoning off the profit, and they were living like kings,” said Lutz.

The extravagance of the private importers was unbelievable. The French importer had a 19-year-old son who wore white suede Elvis outfits and had a chauffeur in white livery who drove him around Paris in a white Rolls-Royce Phantom with white leather upholstery. Some of the BMW management board members had become used to the perks handed out by the distributors when they traveled around Europe. After Lutz had got rid of the French distributor, one member of the management board complained.

“I was just in Paris with my wife. We went to the Paris show, and I must say I am very, very disappointed with Mr. Lutz’s performance here with our national sales company,” said the man. Lutz asked why the man was unhappy.

“Well, back in the old days with our former distributor, my wife and I would go to Paris , and we’d be picked up at the airport in a Rolls-Royce, and we’d be driven to the Plaza Athénée and there on the cocktail table would be a nice gold watch for me and a diamond bracelet for my wife. And now I get to the hotel room and its just, ‘Welcome to Paris . Your show tickets are enclosed in this envelope, please let us know if we can do anything for you.’ This is an outrage. It was much better on the old days.”

Lutz asked his colleague, “Did it ever occur to you, sir, who was paying for that gold watch and that diamond bracelet? It was coming out of the obscene profits made distributing our cars.”

Lutz said there were a lot of personal linkages between distributors and senior people at BMW from the pre-von Kuenheim days. “These distributors weren’t dumb,” he said; they would entice the senior people at BMW with lavish bribes, such as cruises to the Greek islands.

According to Lutz, a distributor might say to a BMW man, “Just tell me when you’d like to go. I will make my yacht available to you, and I have a full crew. Tell me what kind of wines you like. Here, I’ll give you this map. Show me what ports you’d like to see.”

“Wow, is it okay?” the BMW executive would ask.

“Don’t worry about it, nobody need know.”

When Lutz tried to remove a distributor in Italy , the man asked him, “Mr. Lutz, do you like women?”

“Well, I’m sorry to say it is one of my weaknesses,” Lutz said.

“Good, good, I just wanted to know,” the distributor replied. “I have in the Mediterranean this beautiful yacht, just beautiful. And instead of talking about how you want to take away the distributorship from me, why don’t we go on the yacht for ten days. I have this beautiful countess, she is a little bit older, maybe 45, but she is for me. But her daughter is 19. I tell you the countess for me; the daughter for you. Nobody talks about it.”

“Well, I could just see pictures of me fornicating this 19-year-old, the hidden video cameras are rolling. So I didn’t fall for that one,” said Lutz.

Hahnemann was in the center of the morass. “Hahnemann had to go because there were ethical violations of titanic proportions,” said Lutz. “I mean absolutely titanic proportions. The mind boggles at the amount of money that came in through fictitious billings to the advertising agency and the fact that all BMW printed materials were printed by a publishing house that belonged to Hahnemann’s mistress and it was never put out for bids. I think I would feel safe talking about it now because I think the statute of limitations has run on it. He was encouraged to resign under threat of prosecution. I was brought in because he had been canned.” This was the mess von Kuenheim – and Lutz – inherited in the early 1970s.

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