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Bob Lutz's Impact On BMW AG: Revolutionising The Worldwide Distribution System
Bob Lutz, renowned in the automotive world as a "Car Guy," is celebrated for his focus on creating thrilling vehicles rather than those with broad market appeal. During his brief stint at BMW, he played a key role in developing enthusiast-focused cars like the 2002 turbo and 3.0 CSL. He also founded BMW Motorsport to reestablish the brand's presence in racing.
In 1972, Lutz joined BMW's board as a member responsible for sales and marketing, working closely with Eberhard von Kuenheim to modernise the company. Upon arriving in Munich, Lutz scrutinised contracts between BMW and its distributors. He discovered that major European distributors were profiting more than BMW itself by selling fewer cars.
The situation in the US was similar regarding profits but legally different. European laws favoured manufacturers, while US laws supported dealers and distributors. This imbalance was exacerbated by BMW's distribution contracts. Lutz and von Kuenheim swiftly replaced private importers with wholly-owned subsidiaries in France, Belgium, and Italy.
BMW's relationship with Max Hoffman had been problematic since the 1950s. Despite past issues leading to near bankruptcy, BMW renewed ties with Hoffman in 1962 under sales chief Paul Hahnemann. However, Hahnemann was later found to be corrupt, profiting from inflated advertising contracts routed through his mistress.
Hahnemann renewed Hoffman's contract multiple times, extending it until 1982 without typical provisions protecting BMW's interests. At a board meeting in 1972, Lutz described this contract as "highly unusual." He noted that objections from the legal department were ignored when signing it.
Lutz aimed to replace Hoffman Motors Corporation with a wholly-owned subsidiary like other European brands had done. Hoffman resisted these changes and even attempted to bribe Lutz to maintain their arrangement. Lutz declined Hoffman's offers of wealth and influence.
Efforts to Improve US Operations
In April 1972, BMW engaged a Washington law firm to address issues with Hoffman. George Galland, a partner at the firm and BMW owner himself, experienced warranty repair refusals from Hoffman firsthand. These problems mirrored broader issues affecting BMW's reputation in the US market.
Despite efforts to collaborate with Hoffman for better sales outcomes, he resisted changes that could have increased sales significantly. In 1971, while BMW projected US sales of up to 50,000 cars annually, Hoffman sold only 13,560 vehicles.
Tensions Rise Over Car Allotments
By 1974, tensions escalated as Hoffman's erratic ordering led to production disruptions at BMW's Munich plant. Employees faced layoffs and insecurity due to inconsistent car allotments from Hoffman. Majority shareholder Herbert Quandt advised resolving contractual burdens with Hoffman.
On July 9, 1974, BMW terminated its agreement with Hoffman citing "serious commercial reasons." The transition took nearly a year before BMW of North America assumed control over US operations from its long-time distributor.
This strategic shift marked a significant turning point for BMW's presence in the American market as they moved towards direct management of their operations.
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