Since this came up in a Mercedes thread a few weeks ago, I've dug out an article I remembered reading some time ago. Originally published in BMW's Mobile Tradition Live magazine in 2005.
BMW and Daimler-Benz join forces in car production (1926 to 1934)
By Caroline Schulenburg
Mobile Tradition live / Issue 03.2005
Since the 1980s BMW and Mercedes have been locked in a battle for supremacy in the premium car market. Which makes it all the more amazing that the two companies enjoyed such a close alliance during a period in their collective past. During the years of economic hardship in the Great Depression between 1929 and 1932, the powers-that-be in Stuttgart and Munich added further layers to the cooperation agreement concluded in 1926. The primary aim of the original tie-up was to work together in the production of bodywork for BMW cars at the Daimler plant in Sindelfingen.
In 1926 BMW concluded a cooperation agreement with DaimlerBenz AG. The Stuttgart-based company was the product of a merger completed earlier that year between Daimler Motoren Gesellschaft and the Mannheim-based firm Benz & Cie. Initially, the agreement appeared to lack any real punch, save for a mutual exchange of Supervisory Board members (it was decided that Franz Josef Popp would attend the Supervisory Board meetings of DaimlerBenz AG in his capacity as General Manager of BMW AG and, in return, Carl Schippert would be present at meetings of the BMW Supervisory Board as a representative of Daimler). And that, for the time being, was about as far as the cooperation went. Indeed, there was little reason to expect anything different, given the lack of common ground between the two firms’ product ranges – while BMW was turning out motorcycles and aero-engines, Daimler-Benz’ focus was on vehicle production. And Popp’s insistence that Daimler keep its finger out of the aero-engine pie poured more cold water on any potential for a closer partnership.
BMW enters the automotive world
In 1928 BMW bought up the vehicle factory in Eisenach, a branch operation of Gothaer Waggonfabrik A.G. and the plant responsible for production of Dixi cars. This was BMW AG’s ticket into automotive production, sparing the company the trouble and expense of having to build a new manufacturing facility of its own. Initially, production continued of the 3/15 small car built under licence from Austin. The purchase of the Eisenach vehicle factory came at a time when the German economy was showing signs of a tentative recovery after the hard years and the inflation which followed the end of the First World War. This welcome revival was also making its presence felt within the automotive sector. Germany’s vehicle population doubled in size between 1925 and 1928, although it still lagged some way behind that of its European neighbours. The figure in Great Britain, for example, was nudging the million-unit mark by 1929. A large number of the vehicles registered in Germany were small cars, which gave BMW good reason to expect further gains in this market segment. The reality, however, turned out to be rather different. The Great Depression of 1929 hit the car market hard. Between 1928 and 1931 vehicle production in Germany nose-dived from 150,000 to 80,100 units. Over the same period, the number of automotive manufacturers shrank from 62 firms to 36.
Troubled times in a global downturn
The BMW Board of Management consequently decided to sell the Eisenach plant and channel all its energies into the production of motorcycles and aero-engines. However, Popp and his colleagues soon had to accept that there were no takers for the plant. The Board was faced with two choices. It could abandon car production, which would mean taking an immediate hit of some 2.5 million reichsmarks, plus a further loss for the year of around 0.5 million reichsmarks. Or it could grant the factory a stay of execution, a plan dependent on developing a new small car that would generate sufficient demand in a deflated market. In order to keep the option of selling the plant open, it seemed like a good idea to get the new model onto the road as soon as possible. This would, in turn, act as a spur for potential customers. Since the price and quality of the new car were crucial if it was to make a profit, the BMW Board of Management was considering severing its ties with its Berlin based body supplier Ambi-Budd and approaching Daimler-Benz AG with a proposal of partnership. At last it was time to dust off the cooperation agreement of 1926, which had barely seen the light of day in any meaningful form since it was originally concluded. The new 7 horsepower swing-axle cars from Daimler and the similarly new 3 bhp model from BMW added depth to both companies’ product ranges.
On the road to partnership Visions of how the two manufacturers could work together on a technical and commercial level took on a more concrete form in the summer of 1931. The partnership would form the basis for the new BMW car, several examples of which had already been produced for testing purposes. First, however, there was the question of whether a suitable body for the new BMW model could be built at Daimler’s Sindelfingen production facility. It was a marriage of convenience which stood to benefit both companies. BMW lacked the resources to build its own bodywork factory from scratch, while the Daimler plant was operating at only half capacity thanks to the knock-on effects of the Depression. Popp had high hopes for the future success of the prospective tie-up, “as the exterior of the BMW car, when shaped to fit the Mercedes body moulds, would surely give sales a significant boost”.
Possible forms of cooperation
In addition to relocating body production to the Daimler-Benz factory, there were also plans in the pipeline to sell BMW cars though the Stuttgart-based company’s sales outlets. This was another move which made a lot of sense for both parties, as sales recorded by the Daimler sales organization would increase its revenues and allow it to spread costs more widely. Munich was also hoping to strike some kind of agreement with Daimler aimed at securing technical support from its southern German neighbour. The resultant arrangement saw the BMW prototype handed over to the engineers in Stuttgart for a thorough health check. As it turned out, Daimler had themselves made this a condition of the agreement to sell BMW cars. If the Bavarian company’s cars were going to pass through Daimler sales outlets, it wanted to be sure that they would meet its own technical standards. However, the tie-up was put on ice in the summer of 1931, with customers still needed for the 2,000 units of the old BMW car which had already rolled off the production line. On the basis that they were not likely to be found before early the following summer, the decision was taken to put the two existing test models through an extended 100,000-kilometre trial and to build 15 cars as part of a pre-production run, of which five would be fitted with bodies made in Sindelfingen. The value of the cooperation to Daimler-Benz was not to be underestimated, as the company’s Board were well aware. The Stuttgart-based firm was prepared to waive its fee for the body design provided that BMW gave the order for production to Daimler as well. However, if BMW decided to have the Daimler designed bodies manufactured at the Eisenach factory, a one-off payment would be due. An offer of 575 reichsmarks per unit was on the table for production of the BMW bodies. Although the Daimler-Benz Board of Management offered to supply the bodies at cost price, the company had almost certainly factored in a respectable profit margin. Every now and again, someone would raise the idea of taking the cooperation to the next level and building the planned Mercedes 5/20 PS – a smaller model – not at Daimler-Benz’ plants in Untertürkheim or Mannheim, but initially in a joint initiative with the BMW model in Eisenach. As construction of small cars required different working methods from those used in the production of high quality mid-range and luxury-class cars, the Stuttgart management feared that producing the new model at Untertürkheim would simply prove too expensive and would not therefore be competitive. The plans also envisaged relocating all small car production from Eisenach to the Daimler plant in Mannheim in the event of an upturn in the economy, since capacity in Eisenach would most probably no longer be sufficient to cope with an accompanying surge in demand. While Popp toyed with the idea of bringing the two companies’ small car production (up to 1,200 cc) together under an agreement of mutual interest in autumn 1931, the Stuttgart top brass saw such a move as premature. BMW, they reasoned, had not yet developed a fully formulated model range.
A cooperation agreement underpins the partnership
This led to the completion of a new cooperation agreement between the two companies in the winter of 1931. At the heart of this contract was an arrangement to bring together the two firms’ models with displacement under 1.2 litres. Added to which, there was also a commitment to providing mutual sales support by absorbing each other into their respective sales structures. Finally, it was established that BMW would commission the bodies for the new model, which was scheduled for delivery from the spring of 1932, from Daimler-Benz rather than from Ambi Budd as had previously been the case. The agreement was valid initially until December 1934. As part of the next stage in the development of the partnership, it was agreed at the beginning of 1932 that Popp should be voted in as a member of the Daimler-Benz Supervisory Board and Daimler-Benz Chairman Wilhelm Kissel elected to the equivalent body at BMW AG. Over the following years, the idea of bringing together the two firms on a more fundamental level was never far from the surface. From a technical point of view, a merger would certainly have been beneficial to BMW AG. However, the global economic downturn at the time had plunged Daimler-Benz AG heavily into the red, whereas BMW AG was based on a sound and virtually debt-fee financial footing, and Popp stopped short of pushing forward his merger plans.
A new model brings the curtain down on the partnership
The idea of amalgamating the two companies was finally scrapped at the beginning of 1934, when the Daimler-Benz Board of Management announced in the run-up to the International Motor Show (IAA) that BMW had developed a 1.5-litre car and was going to put it on show in Berlin. The Daimler Board interpreted this as a breach of the cooperation agreement, which still had until December that year to run. During the negotiations, the issue had arisen of whether BMW should agree not to build cars with displacement of more than 1.2 litres, with Daimler-Benz making a similar pledge to omit cars under 1.2 litres from its vehicle range. This clause had been removed, though, from the most recent draft of the agreement. BMW was indeed planning to show a pair of 1.5-litre sports cars in Berlin, but Popp responded to Stuttgart’s concerns by stating that, to his knowledge, the agreement did not set any kind of 1.2-litre demarcation. He also described the new model as a reaction to the 1.3-litre car developed by Daimler-Benz, which undercut BMW’s 1.2-litre car in terms of price. This pushed BMW into a corner where it was forced to come up with a car fitted with a more powerful engine, allowing the BMW car to make up the lost ground in terms of price and regain its competitive edge over Daimler’s 1.3-litre model. At the same time, he pressed his Swabian counterparts for a reduction in the price of bodies made in Sindelfingen. In a letter dated February 1934, Popp stressed how fruitful the cooperation agreement had proved for Daimler Benz AG, while BMW had seen precious little in the way of benefits: “We have given Daimler-Benz orders for bodies worth millions – and at extremely attractive prices. I have seen to it that Daimler has also received orders for aero-engine parts worth millions from us and have given them further assistance through the rights of co-sale for our cars at several Daimler branches. The cooperation agreement which we concluded has therefore worked out totally to the benefit of Daimler-Benz. Meanwhile, DB has to this day not made the slightest effort to offer us anything by way of reciprocation. Indeed, I would go as far as to say that their strategy is serving to undermine our interests.” The cooperation agreement was concluded at a time of severe crisis for the two companies, and the upturn in the German economy and the automotive industry as a whole in the second half of 1932 had taken away its primary raison d’être. The BMW Board was therefore in no mood to continue selling its cars through Daimler Benz AG. Stuttgart, on the other hand, had rather more to lose should the link-up hit the buffers, and set about drafting a new agreement – with the offending clause specifying a fixed displacement limit conspicuous by its absence. Instead, the new proposal would see the two companies exchanging information and perhaps reaching agreement on their product ranges. Daimler was keen to enshrine the cooperation within the terms of a new contract, but Munich felt it was more desirable to pursue the partnership without any contractual constraints. This, however, was not the outcome Daimler-Benz was hoping for. In mid June 1935 the company informed the BMW Board that capacity at its Sindelfingen plant had already been exhausted by demand for its own vehicles and that it could therefore no longer produce bodies for the Bavarian company. BMW responded by insisting that Daimler continue deliveries through 1936 until they had found another body manufacturer to take up the slack. In the years that followed, the lion’s share of bodies for production cars were built at Ambi-Budd, just as they had been before 1931. The companies maintained a cordial relationship after the agreement had expired and their representation on each other’s Supervisory Boards was left untouched. The intention was for the relationship to continue along friendly lines, especially as far as a demarcation of interests in aero-engine production was concerned.
End
Also from the BMW Group Classic Archive, and advert from 1932 proclaiming "Original-Karosserie Mercedes-Benz von vollendeter Qualität und Schönheit" (Original Mercedes-Benz body of perfect quality and beauty!)
BMW and Daimler-Benz join forces in car production (1926 to 1934)
By Caroline Schulenburg
Mobile Tradition live / Issue 03.2005
Since the 1980s BMW and Mercedes have been locked in a battle for supremacy in the premium car market. Which makes it all the more amazing that the two companies enjoyed such a close alliance during a period in their collective past. During the years of economic hardship in the Great Depression between 1929 and 1932, the powers-that-be in Stuttgart and Munich added further layers to the cooperation agreement concluded in 1926. The primary aim of the original tie-up was to work together in the production of bodywork for BMW cars at the Daimler plant in Sindelfingen.
In 1926 BMW concluded a cooperation agreement with DaimlerBenz AG. The Stuttgart-based company was the product of a merger completed earlier that year between Daimler Motoren Gesellschaft and the Mannheim-based firm Benz & Cie. Initially, the agreement appeared to lack any real punch, save for a mutual exchange of Supervisory Board members (it was decided that Franz Josef Popp would attend the Supervisory Board meetings of DaimlerBenz AG in his capacity as General Manager of BMW AG and, in return, Carl Schippert would be present at meetings of the BMW Supervisory Board as a representative of Daimler). And that, for the time being, was about as far as the cooperation went. Indeed, there was little reason to expect anything different, given the lack of common ground between the two firms’ product ranges – while BMW was turning out motorcycles and aero-engines, Daimler-Benz’ focus was on vehicle production. And Popp’s insistence that Daimler keep its finger out of the aero-engine pie poured more cold water on any potential for a closer partnership.
BMW enters the automotive world
In 1928 BMW bought up the vehicle factory in Eisenach, a branch operation of Gothaer Waggonfabrik A.G. and the plant responsible for production of Dixi cars. This was BMW AG’s ticket into automotive production, sparing the company the trouble and expense of having to build a new manufacturing facility of its own. Initially, production continued of the 3/15 small car built under licence from Austin. The purchase of the Eisenach vehicle factory came at a time when the German economy was showing signs of a tentative recovery after the hard years and the inflation which followed the end of the First World War. This welcome revival was also making its presence felt within the automotive sector. Germany’s vehicle population doubled in size between 1925 and 1928, although it still lagged some way behind that of its European neighbours. The figure in Great Britain, for example, was nudging the million-unit mark by 1929. A large number of the vehicles registered in Germany were small cars, which gave BMW good reason to expect further gains in this market segment. The reality, however, turned out to be rather different. The Great Depression of 1929 hit the car market hard. Between 1928 and 1931 vehicle production in Germany nose-dived from 150,000 to 80,100 units. Over the same period, the number of automotive manufacturers shrank from 62 firms to 36.
Troubled times in a global downturn
The BMW Board of Management consequently decided to sell the Eisenach plant and channel all its energies into the production of motorcycles and aero-engines. However, Popp and his colleagues soon had to accept that there were no takers for the plant. The Board was faced with two choices. It could abandon car production, which would mean taking an immediate hit of some 2.5 million reichsmarks, plus a further loss for the year of around 0.5 million reichsmarks. Or it could grant the factory a stay of execution, a plan dependent on developing a new small car that would generate sufficient demand in a deflated market. In order to keep the option of selling the plant open, it seemed like a good idea to get the new model onto the road as soon as possible. This would, in turn, act as a spur for potential customers. Since the price and quality of the new car were crucial if it was to make a profit, the BMW Board of Management was considering severing its ties with its Berlin based body supplier Ambi-Budd and approaching Daimler-Benz AG with a proposal of partnership. At last it was time to dust off the cooperation agreement of 1926, which had barely seen the light of day in any meaningful form since it was originally concluded. The new 7 horsepower swing-axle cars from Daimler and the similarly new 3 bhp model from BMW added depth to both companies’ product ranges.
On the road to partnership Visions of how the two manufacturers could work together on a technical and commercial level took on a more concrete form in the summer of 1931. The partnership would form the basis for the new BMW car, several examples of which had already been produced for testing purposes. First, however, there was the question of whether a suitable body for the new BMW model could be built at Daimler’s Sindelfingen production facility. It was a marriage of convenience which stood to benefit both companies. BMW lacked the resources to build its own bodywork factory from scratch, while the Daimler plant was operating at only half capacity thanks to the knock-on effects of the Depression. Popp had high hopes for the future success of the prospective tie-up, “as the exterior of the BMW car, when shaped to fit the Mercedes body moulds, would surely give sales a significant boost”.
Possible forms of cooperation
In addition to relocating body production to the Daimler-Benz factory, there were also plans in the pipeline to sell BMW cars though the Stuttgart-based company’s sales outlets. This was another move which made a lot of sense for both parties, as sales recorded by the Daimler sales organization would increase its revenues and allow it to spread costs more widely. Munich was also hoping to strike some kind of agreement with Daimler aimed at securing technical support from its southern German neighbour. The resultant arrangement saw the BMW prototype handed over to the engineers in Stuttgart for a thorough health check. As it turned out, Daimler had themselves made this a condition of the agreement to sell BMW cars. If the Bavarian company’s cars were going to pass through Daimler sales outlets, it wanted to be sure that they would meet its own technical standards. However, the tie-up was put on ice in the summer of 1931, with customers still needed for the 2,000 units of the old BMW car which had already rolled off the production line. On the basis that they were not likely to be found before early the following summer, the decision was taken to put the two existing test models through an extended 100,000-kilometre trial and to build 15 cars as part of a pre-production run, of which five would be fitted with bodies made in Sindelfingen. The value of the cooperation to Daimler-Benz was not to be underestimated, as the company’s Board were well aware. The Stuttgart-based firm was prepared to waive its fee for the body design provided that BMW gave the order for production to Daimler as well. However, if BMW decided to have the Daimler designed bodies manufactured at the Eisenach factory, a one-off payment would be due. An offer of 575 reichsmarks per unit was on the table for production of the BMW bodies. Although the Daimler-Benz Board of Management offered to supply the bodies at cost price, the company had almost certainly factored in a respectable profit margin. Every now and again, someone would raise the idea of taking the cooperation to the next level and building the planned Mercedes 5/20 PS – a smaller model – not at Daimler-Benz’ plants in Untertürkheim or Mannheim, but initially in a joint initiative with the BMW model in Eisenach. As construction of small cars required different working methods from those used in the production of high quality mid-range and luxury-class cars, the Stuttgart management feared that producing the new model at Untertürkheim would simply prove too expensive and would not therefore be competitive. The plans also envisaged relocating all small car production from Eisenach to the Daimler plant in Mannheim in the event of an upturn in the economy, since capacity in Eisenach would most probably no longer be sufficient to cope with an accompanying surge in demand. While Popp toyed with the idea of bringing the two companies’ small car production (up to 1,200 cc) together under an agreement of mutual interest in autumn 1931, the Stuttgart top brass saw such a move as premature. BMW, they reasoned, had not yet developed a fully formulated model range.
A cooperation agreement underpins the partnership
This led to the completion of a new cooperation agreement between the two companies in the winter of 1931. At the heart of this contract was an arrangement to bring together the two firms’ models with displacement under 1.2 litres. Added to which, there was also a commitment to providing mutual sales support by absorbing each other into their respective sales structures. Finally, it was established that BMW would commission the bodies for the new model, which was scheduled for delivery from the spring of 1932, from Daimler-Benz rather than from Ambi Budd as had previously been the case. The agreement was valid initially until December 1934. As part of the next stage in the development of the partnership, it was agreed at the beginning of 1932 that Popp should be voted in as a member of the Daimler-Benz Supervisory Board and Daimler-Benz Chairman Wilhelm Kissel elected to the equivalent body at BMW AG. Over the following years, the idea of bringing together the two firms on a more fundamental level was never far from the surface. From a technical point of view, a merger would certainly have been beneficial to BMW AG. However, the global economic downturn at the time had plunged Daimler-Benz AG heavily into the red, whereas BMW AG was based on a sound and virtually debt-fee financial footing, and Popp stopped short of pushing forward his merger plans.
A new model brings the curtain down on the partnership
The idea of amalgamating the two companies was finally scrapped at the beginning of 1934, when the Daimler-Benz Board of Management announced in the run-up to the International Motor Show (IAA) that BMW had developed a 1.5-litre car and was going to put it on show in Berlin. The Daimler Board interpreted this as a breach of the cooperation agreement, which still had until December that year to run. During the negotiations, the issue had arisen of whether BMW should agree not to build cars with displacement of more than 1.2 litres, with Daimler-Benz making a similar pledge to omit cars under 1.2 litres from its vehicle range. This clause had been removed, though, from the most recent draft of the agreement. BMW was indeed planning to show a pair of 1.5-litre sports cars in Berlin, but Popp responded to Stuttgart’s concerns by stating that, to his knowledge, the agreement did not set any kind of 1.2-litre demarcation. He also described the new model as a reaction to the 1.3-litre car developed by Daimler-Benz, which undercut BMW’s 1.2-litre car in terms of price. This pushed BMW into a corner where it was forced to come up with a car fitted with a more powerful engine, allowing the BMW car to make up the lost ground in terms of price and regain its competitive edge over Daimler’s 1.3-litre model. At the same time, he pressed his Swabian counterparts for a reduction in the price of bodies made in Sindelfingen. In a letter dated February 1934, Popp stressed how fruitful the cooperation agreement had proved for Daimler Benz AG, while BMW had seen precious little in the way of benefits: “We have given Daimler-Benz orders for bodies worth millions – and at extremely attractive prices. I have seen to it that Daimler has also received orders for aero-engine parts worth millions from us and have given them further assistance through the rights of co-sale for our cars at several Daimler branches. The cooperation agreement which we concluded has therefore worked out totally to the benefit of Daimler-Benz. Meanwhile, DB has to this day not made the slightest effort to offer us anything by way of reciprocation. Indeed, I would go as far as to say that their strategy is serving to undermine our interests.” The cooperation agreement was concluded at a time of severe crisis for the two companies, and the upturn in the German economy and the automotive industry as a whole in the second half of 1932 had taken away its primary raison d’être. The BMW Board was therefore in no mood to continue selling its cars through Daimler Benz AG. Stuttgart, on the other hand, had rather more to lose should the link-up hit the buffers, and set about drafting a new agreement – with the offending clause specifying a fixed displacement limit conspicuous by its absence. Instead, the new proposal would see the two companies exchanging information and perhaps reaching agreement on their product ranges. Daimler was keen to enshrine the cooperation within the terms of a new contract, but Munich felt it was more desirable to pursue the partnership without any contractual constraints. This, however, was not the outcome Daimler-Benz was hoping for. In mid June 1935 the company informed the BMW Board that capacity at its Sindelfingen plant had already been exhausted by demand for its own vehicles and that it could therefore no longer produce bodies for the Bavarian company. BMW responded by insisting that Daimler continue deliveries through 1936 until they had found another body manufacturer to take up the slack. In the years that followed, the lion’s share of bodies for production cars were built at Ambi-Budd, just as they had been before 1931. The companies maintained a cordial relationship after the agreement had expired and their representation on each other’s Supervisory Boards was left untouched. The intention was for the relationship to continue along friendly lines, especially as far as a demarcation of interests in aero-engine production was concerned.
End
Also from the BMW Group Classic Archive, and advert from 1932 proclaiming "Original-Karosserie Mercedes-Benz von vollendeter Qualität und Schönheit" (Original Mercedes-Benz body of perfect quality and beauty!)
