Can You Picture a 49cc BMW Scooter?

Earlier this week (April 8), the motorcycle world welcomed a new tie-up between two big names in the industry: BMW Motorrad and TVS Motor Company. The two giants announced that they embarked on a long-term cooperation agreement whose result was “profitable, sustainable growth,” as BMW Motorrad's President Stephan Schaller said.
Such a move was not a surprise for anyone, given the rather long business contacts between the two German and Indian companies, and TVS' open interest in getting Bavarian technologies for their own products.

I took some time to analyze this new joint operation and now it's suppositions’ time; therefore, I'll round up everything briefly.

Neither BMW nor TVS are faring badly, despite the 2012 figures forwarded by the Germans, showing an increase in revenues and a massive drop in profits. On the other side, TVS' 3rd place in the large and profitable Indian market was stolen by Honda's local branch.

So this tells me that both companies, that given the size of their operations, have managed to cover all the not-that-good things using their massive financial buffer (reserves), took a good look at what was happening around them and decided that new directions can and must be explored.

In the wake of recent news, it now seems easier to understand why BMW decided to sell Husqvarna just years after acquiring it and having already started investments in new markets, new products and so on: Husqvarna COULD have become a very profitable brand under Bavarian umbrella, but this would have taken too long and required too much money.

However, the financial details of Husqvarna's sale to KTM CEO Stephan Pierer's Pierer Industries AG are not known, so we can only speculate based on what the official press releases said at that moment: the transaction was dubbed a win-win situation, but now it looks like BMW tried to get rid of Husqvarna as fast as possible and with as little damage as possible... because of their “strategic reorientation.”

Earlier this year, I thought that “strategic reorientation” was just some empty BS, the kind everyone uses when some politically correct babbling has to cover up for the real facts... and waited. Now, things are clearer and we can see that BMW Motorrad was indeed talking about reorientation.

Husky was already in a crowded segment in Europe and around the world, other off-road brands exerted a lot of pressure in order to be able to chew on a larger chunk of cake, so BMW thought it was easier and ultimately more profitable to try and join the rest of the big boys in the world of small-displacement bikes.

It's simple math: since the estimated profit is X, why not try the quicker and easier way to reach it? And by all means, the tie-up with TVS IS the quicker, easier way to do this. Why, some might ask. Well, here are some of the first reasons that pop in mind:

1. There is no equity involved and no royalty dispute

The partnership between BMW and TVS only means that they are summing their efforts to create a new generation of bikes. There is no Indian money going in German banks, as there are no Indian stocks changing hands to become German property. Everybody keeps to their own business, and this “treaty” makes things official: BMW does the engineering, design and testing, TVS makes the bikes.

2. Both companies' earnings are directly related to their efforts

The outcome of the BMW-TVS agreement is TWO generations of new bikes: one for the Germans and one for the Indians. Since both manufacturers get to sell what they make, it's only natural that they tried to build the best machines for the bucks they'll be spending.

3. The new bikes will expand the product lines of both brands

In the end, it's about a bigger, better offer these two manufacturers are presenting to their customers.

BMW's smallest two-wheelers are the 650cc-class maxi scooters and F650-series bikes, while the highest displacement reaches the 1600cc-class. The Germans did their homework and realized they could be making a lot of money selling small bikes and scooters, in their traditional markets and in new ones.

BMW won't be selling too many K1600 machines in countries such as Indonesia or Philippines, but if they show a 200cc bike with German design and technology and the lower price guaranteed by the Indian manufacturer... I can already hear the money rolling in.

On the other hand, TVS never went higher than the quarter-liter engine, but they saw that the emerging Asian market is gradually moving for bigger bikes. While Asia is home for many millions of bikes in the 100cc range, both smaller and slightly bigger, nobody can overlook the 100%+ increase in 150cc and bigger bikes sales during the past financial year.

And one does not need to be a marketing expert to figure out which way things are going: TVS needed bigger bikes!

Now, developing a big bike from scratch and with virtually zero expertise in the middleweight machines, TVS' plans are a no-no. However, if the new, bigger machines come with BMW engineering and modern Bavarian design, things are so much different. The small addition of an “Engineered by BMW” badge is enough to give wet dreams to many customers, and this is exactly what TVS is looking for.

4. Both BMW and TVS are tapping into fresh growth potential and when done the right way, this means serious money

The Germans and the Indians know their markets quite well and they also know none of them can hope for success in new directions without the help of a partner.

Venu Srinivasan, TVS Chairman, says that the partnership with BMW will allow TVS to take advantage of the highest quality motorcycles the Bavarians make, including sport bikes. On the other hand, the BMW Motorrad President added that he was impressed by the Indians’ capability “to manufacture small products with mass production, with high-quality engineering and technology.”

In more mundane words... TVS says “teach us how to make good bikes,” while BMW answers “we need to lower the costs of production, but still be able to keep the standards high.” And with both parties signing this agreement, good things are expected.

Srinivasan adds that TVS will bring around €20 mil ($26.1 mil) to the game and his money will go in manufacturing facilities for the new bikes in TVS' plants in Mysore or Hosur, training and tech upgrades. BMW has not forwarded a figure, but said that the development and testing costs were on them.

So, we can see that such a partnership might be one of the best choices both manufacturers could make. It's like a nice relationship between a man and a woman, but with no marriage and no hassle: nobody moves to live with the other, yet they do things together and hope for the best. And they'll just return to their homes and former lives in case things don't work out. Neat!

With the new bikes expected somewhere in 2015, the BMW and TVS partnership is well worth watching closely, especially because the motorcycle world is changing and both makers are treading on fresh grounds.

And now, just as I prepare to end this piece, I realize just how cool a well-built 49cc BMW scooter would be...
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