Harald Krueger is named new BMW CEO, Reithofer stays on as board chairman

Article by Andrew Christian, on May 15, 2015

Incoming BMW AG CEO Harald Krueger is inheriting a company that’s at the top of its game but he faces the challenge of proving himself a worthy successor to Norbert Reithofer who is making the shift to chairman. At 49 years old, Krueger is relatively young to take on the mighty responsibilities of being the CEO of a company that’s now the leader in the luxury car market.

He takes on the task of taking the reins from 58-year-old Reithofer who leaves without the recommended break of two years. Krueger will have to break from his predecessor’s strategy while managing the changing needs of the industry and the growth of new rivals like Tesla Motors Inc.

Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany, said that Krueger hasn’t made much of a mark because of his age but must now “leave his stamp” on BMW while the auto industry undergoes a time of “far-reaching” changes.

Since 2005, BMW has outpaced Mercedes-Benz and Audi. However, this lead has been shrinking. Reithofer was recently in Munich, telling shareholders that the momentum in China (its biggest market) has been slowing down because of its economy.

In a report last Wednesday, Kristina Church (a Barclays Plc analyst) said that because of the status of China’s economy and the declining profits from BMW’s joint venture in China in the first quarter, its share price will be stagnant in the next months.

Church reduced her share recommendation from an overweight rating to equal weight. Krueger will have to make decisions on how to continue the costly projects that Reithofer started. One of these is the electric-powered “i” subbrand, which includes the flashy i8 sports car and the i3 compact.

Last January, BMW said that electric models have become more difficult to sell because of the low price of gasoline. Krueger will also have to determine the next steps with regards to the company’s plan to use lightweight but expensive carbon fiber, which has been developed for mass production.

Krueger is a veteran of BMW and was part of BMW starting in 1992. He came from the best graduate engineering school in Germany, Aachen University. He played a major role in risky projects that have been huge successes.

In the 1990s, he helped to establish BMW’s plant in Spartanburg, South Carolina – which is set to be the automaker’s largest plant. Back then, BMW took a huge risk to shift manufacturing outside Germany.

After Reithofer took over in 2006, the brand’s sales grew 55% to 2.1 million units. It also became more profitable, with an improvement in its pretax margin from 6.3% to 9.2%.

Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler, said that it will be “tough” for Krueger to “emerge from the shadow” of Reithofer’s successes, particularly since he will stay to lead the supervisory board.

BMW spokesman Nikolai Glies chose not to comment on whatever implications there are of not having a cooling-off period between CEOs. It’s possible to do away with this break recommended by the German Corporate Governance Code if it’s supported by shareholders who own over 25% of voting rights.

In BMW’s case, the Quandt family (with 46.7% combined holdings) has supported the immediate transfer of Reithofer to chairman. This has happened once before at the automaker. In 1993, Eberhard von Kuenheim quickly made the shift from CEO to chairman.

Topics: bmw, ceo

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