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What's special about BMW is its management depth and persistence. Two years ago, the company floundered when its attempt to get big--the 1994 takeover of Britain's Rover--went awry. That cost the company $3.9 billion and prompted a flurry of talk that BMW would be bought by Ford or GM or Toyota. But since Milberg emerged as chairman in 1999, the company has stayed ahead of the luxury pack. Although most of its 21 factories are in Europe, BMW built a new plant in Spartanburg, S.C., which now exports the company's popular X5 SUV to 100 countries. Aiming to develop technologies such as alternative-fuel engines and drive-by-wire (an electronic, joystick-controlled steering system), Milberg forged partnerships with Robert Bosch and Delphi Automotive. Karl Ludwigsen, an auto analyst in London, contends that a carmaker need not be huge to survive. Rather, he says, "you've got to be big in the segments in which you compete, and you've got to be competitive in those segments globally."
BMW and Porsche have defied the notion that keeping pace with tech advances will break an indie carmaker's bank. One reason: parts suppliers have become powerful arbiters of success, as more auto companies outsource R. and D. of their components. Traditionally, Mercedes would develop a new antiskid technology in conjunction with a high-end component maker like Germany's Robert Bosch. Then, after Mercedes had made a splash by being the first to sell cars with the new technology, it would allow Bosch to sell the technology elsewhere. Now the suppliers are driving the process. Says Flynn: "BMW is going to get a shot at the suppliers' best technology because suppliers want to be associated with them." And Porsche has an engineering-services division that supplies other automakers with high-end equipment.
Paradoxically, Daimler and Chrysler began their union with long lists of rules that prevented that kind of synergy. Chrysler parts were not allowed in Mercedes cars, for instance--out of fear that the luxury brand might somehow be cheapened. That stance has since been relaxed. Schrempp still insists, however, that "Mercedes will never do a platform exchange with Chrysler."
BMW's Milberg, like top executives at Honda and Fiat, contends that the best way to stay ahead is to rely on partnerships rather than mergers. Schrempp disagrees, telling TIME editors that "consolidation in the industry is far from over." He may be right. But investors around the world are placing wagers on these two visions. And right now, most of the betting is on BMW.
--With reporting by Joseph R. Szczesny/Detroit and Charles P. Wallace/Berlin
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