For any business, growth is the ultimate marker of success, but it's never guaranteed. Companies must navigate shifting market conditions, consumer preferences, and competitive forces beyond their control. For BMW of North America, the 1980s were a period of triumph and turbulence, a decade that tested the brand’s resilience in the face of unexpected luxury competition from Japan.

The Early Success of BMW in North America

BMW’s rise in the American market was nothing short of remarkable. After taking over from Max Hoffman, BMW of North America saw its automobile sales soar—from 26,040 units in 1976 to an impressive 96,759 in 1986. This success was fueled by an efficient sales and distribution network and a lack of direct competition in the premium automotive sector. Cadillac and Lincoln prioritized plush interiors and soft suspensions, while Mercedes-Benz and Volvo emphasized safety and durability. BMW, on the other hand, delivered something different—the "Ultimate Driving Machine," a blend of precision engineering, refined performance, and undeniable driving pleasure.

However, as the 1980s unfolded, BMW faced an unexpected challenge: the emergence of Japanese luxury brands. Toyota and Nissan, seeing an opportunity to redefine high-end automotive experiences, introduced Lexus and Infiniti, respectively, and shook the industry to its core.

 1989 E34 5-Series Action 2
 

The Impact of Japanese Luxury Brands

In 1989, Toyota launched the Lexus LS 400, a meticulously designed luxury sedan that undercut European rivals on price while delivering exceptional quality, refinement, and reliability. Infiniti followed suit with the Q45, further disrupting the luxury market. Suddenly, BMW found itself in a fierce battle—not just with its traditional European rivals but with a new wave of challengers from Japan.

BMW’s struggles were compounded by currency fluctuations. Since BMW imported its vehicles from Germany, pricing was vulnerable to shifts in the Deutschmark-to-dollar exchange rate. Between 1980 and 1995, this rate swung wildly, making BMWs significantly more expensive for American buyers. A four-door 3 Series, for example, saw its price jump from $20,055 in 1986 to $28,400 in 1988.

As Lexus gained momentum, its impact on BMW became evident. In February 1990, Lexus outsold BMW for the first time—moving 4,171 vehicles compared to BMW’s 4,113. By the end of the year, Lexus had sold 63,594 cars in the U.S., nearly matching BMW’s total of 63,646.

 1989 525i Interior

A Turning Point: Innovation and Customer Service

Was BMW losing customers to Lexus? Not entirely. According to BMW NA President Karl Gerlinger, the majority of Lexus buyers were moving up from mainstream Japanese brands or switching from American luxury cars. But Lexus had set a new standard in customer service, making it harder for BMW to win over new buyers.

Lexus’s early recall response exemplified its customer-first approach. In December 1989, after two Lexus owners reported problems with the third brake light, the company immediately recalled all 8,000 LS 400 sedans sold in the U.S. Lexus didn’t just fix the problem—it set a new industry benchmark by offering customers loaner cars and returning vehicles immaculately cleaned. This level of service was unprecedented, and it put pressure on BMW and other luxury automakers to step up their game.

BMW responded by working closely with its dealers to enhance service quality. The company implemented a strategy to ensure every dealership had the necessary tools, training, and customer-centric approach that matched the brand’s premium positioning. Additionally, BMW introduced complimentary scheduled maintenance for four years or 50,000 miles—a move designed to counter Lexus’s reputation for low ownership costs.

Engineering a Comeback

To compete with Lexus’s price advantage, BMW made strategic adjustments. For the 1991 model year, it reintroduced the four-cylinder 318i, offering an entry-level option for $21,500. At the top end, BMW unveiled the V12-powered 850i, a technological marvel priced just over $90,000. Despite these efforts, sales dipped to 53,343 units in 1991—a sign that the Japanese competition was a force to be reckoned with.

However, BMW was not one to back down. Recognizing the need for both superior engineering and customer-focused innovation, the company refined its product lineup and strengthened its commitment to the U.S. market. By 1992, sales rebounded to 65,683 units, marking the start of an upward trajectory that would define BMW’s success for the next two decades.

The Road Ahead

BMW’s ability to withstand the challenges posed by Lexus and Infiniti showcased its resilience and adaptability. Rather than retreat, the brand embraced competition, refining its pricing strategies, improving vehicle reliability, and elevating the customer experience. This period of transformation cemented BMW’s status as a leading luxury automaker in America, proving that even in the face of formidable new rivals, the "Ultimate Driving Machine" could not only endure—but thrive.

As BMW celebrates 50 years in North America, its journey serves as a testament to the power of innovation, the importance of customer loyalty, and the enduring appeal of a brand built on driving excellence.

For more info, visit BMWUSANews.com