BMW New 5 _ Potential Is a Heavy Burden

FRANKFURT, May 23, 2003; Nick Tattersall wrting for Reuters reported that It has jet-fighter style head-up displays, headlights that look round corners and uses infrared technology to keep its distance from the car in front while the driver just steers.

BMW's new 5-series saloon car, to be launched in Europe in July, may be giving the makers of auto electronics plenty to rub their hands about, but industry watchers wonder whether the company is getting too clever for its own good as it banks on the car to keep profits flat this year.

Months of falling sales of its core luxury brand and the cost of developing new models, which also include a 6-series coupe and X3 sports utility this year, have taken the shine off the Munich-based group's traditionally roaring profits, with core earnings down 18 percent in the first quarter.

Investors so far seem to be giving it the benefit of the doubt, with its stock outperforming the European autos sector index by over five percent since the start of the year.

But some analysts question whether the group, famed in the investment community for its conservative forecasts, will immediately be able to offset falling demand for its top-selling but ageing 3-series with the new 5.

"The new product story should come through in 2005, not 2004, in our view. The 3-series is ageing and could easily more than offset the 5-series upside," Credit Suisse First Boston analysts, who rate the stock "neutral", said in a recent note.

TOO CLEVER BY HALF

Under design chief Chris Bangle, BMW has made a departure from its traditional conservative styling philosophy, which saw updated models being launched that looked exactly like their predecessors.

The latest 7-series, the company's large executive saloon, won a rash of criticism for its bulbous looks and its "iDrive" computer system, which used a single aluminium knob to control hundreds of different functions from the audio system to the suspension settings.

"It could be that in 30 years time people will look back and say that the 7-series and iDrive was the point where the auto industry became too clever for the consumer," said Garel Rhys, a motor industry researcher at Cardiff University in the UK.

"There is a genuine fear for the driver of touching anything in the 7-series -- you might end up heading to Uranus or start to dematerialise."

Some observers fear the 5-series, one of the group's main profit drivers, may suffer the same mistake.

But in tacit recognition that the original iDrive system might have been a technological step too far BMW says it has made the system in the new car easier to navigate.

The list of optional extras nonetheless contains a mind-boggling array of three-letter acronyms, including ACC (Active Cruise Control) which can automatically control the distance from the car in front on motorways.

The plethora of gadgets that manufacturers are increasingly packing into their cars is good news for their suppliers -- Germany's Continental (XETRA:CONG.DE - News), a leading electronic braking system maker, is keeping its profits on the up with such products as its core tyre business remains weaker.

The 5-series will also be the first BMW to feature an optional "head-up" display system, which projects information such as road speed or navigation instructions onto a virtual screen in the driver's line of vision. But Rhys is sceptical.

"If too much of your attention is diverted to near sight, then before you know it your brand new 5-series will be embedded in the back of a 44-tonne truck."