BMW's Reithofer: Room to Grow in U.S. Luxury Segment

SPARTANBURG, S.C. - BMW CEO Norbert Reithofer says there is significant room for growth in the U.S. luxury segment but the premium market won't return to the 2 million-unit level until 2013 or 2014.

BMW executives, here to preview the redesigned X3 crossover, said the luxury market today is tracking at about 1.5 million vehicles. The company counts Mercedes-Benz, Audi, Jaguar, Lexus, Volvo and Saab among premium brands.

Reithofer said his outlook is based on other countries, such as Germany, where the premium segment is 30 percent of the total market.

“That means fierce competition between Mercedes-Benz, Audi and BMW,” he said at a meeting with journalists here, where BMW also is touting its latest plant expansion.

Persistent high unemployment, a housing slump and changing spending habits have put a damper on U.S. new-vehicle demand. In the past, U.S. consumers often refinanced home loans to draw cash for major purchases that often included a new car.

U.S. light-vehicle sales rose 10 percent for the first nine months of this year, but many automakers were hoping for a more robust recovery at this point in the cycle.

"The global economic slump has changed the way consumers view and purchase all premium products from luxury watches to expensive homes,” said Jim O'Donnell, president of BMW of North America LLC. “It has had a profound effect on the auto industry as well."

Reithofer said becoming the No. 1 luxury brand in the United States is not a goal.

“It is not our first priority to overtake Lexus in America. It is to be a very good premium brand in the United States,” he said. Residual values, incentive spending and volume “all have to be in balance,” he added.

While the Chinese market is growing rapidly, the premium segment in China is likely to account for 7 percent of the total market in 2010 and is still developing, Reithofer said.

BMW is building a second factory in China, but rather than make a large sedan, it will produce the compact X1 crossover that goes on sale in the United States next year.

O'Donnell said that BMW sales in the United States are likely to increase 10 percent this year and that the brand will outpace the premium market next year because of the new 5 series.

Next year BMW will benefit from the redesigned X3 crossover, redesigned 6-series coupe and convertible, a freshened 1-series coupe and convertible and the launch of the all-new X1 crossover. O'Donnell predicted that the U.S. premium market will rise 10 percent in each of the next two years.

'Amazingly stubborn'

“The recession has proven to be amazingly stubborn,” he said. “I think we can say the start of the recovery is proving to be a bit stubborn as well.”

O'Donnell forecast that BMW brand sales in the United States will reach 212,000 to 215,000 cars this year, up from 196,502 in 2009. BMW Group's sales, including Mini and Rolls Royce, are expected to rise to 260,000 vehicles this year, up from 242,087 in 2009.

BMW Group's sales reached 336,000 vehicles in 2007.

“This is a push market. We have to work, claw and fight for every sale,” O'Donnell said. “The entire market is incentivized because even though a lot of new vehicles are being introduced, the economy remains very conservative.”