BORGWARD RETURNS

New life for a long-dead marque, thanks to China

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AN automaker whose last car rolled off the assembly line the same year the Berlin Wall was built is banking on China’s appetite for foreign marques – in particular, German brands – to establish itself in the world’s largest car market.

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Borgward, which at one time was Germany’s third-largest automaker (after Volkswagen and Opel), went out of business in a cloud of controversy in 1961, but was resurrected in 2015 by the founder’s grandson with a significant investment by Chinese manufacturer Beiqi Foton, a subsidiary of the BAIC Group.

The modern revival of the Borgward brand first born in 1924 began in May 2008, when Christian Borgward, grandson of original founder Carl F. W. Borgward, and partner Karlheinz L. Knöss, founded Borgward AG in Luzerne, Switzerland. With the help of Norwegian designer Einar Hareide – whose most notable previous work was the Mercedes-Benz E-Class – and some seed money from Foton, the company organized itself and began to develop a car concept.

The eventual product of Borgward’s early efforts, an SUV called the BX7 built at Foton’s Beijing factory, was introduced at the Frankfurt International Motor Show in September 2015, and began selling in China, albeit in limited numbers, last July. At last year’s Geneva Auto Show, Borgward announced its second new model, a smaller crossover to be called the BX5. And last month, the company announced it would be returning to its original hometown Bremen, Germany, signing an agreement to acquire a 140,000-square meter site where a new factory will be built beginning sometime in 2018.

Deep roots
The return to Bremen will be, at the very least, a sort of long-delayed vindication for a company whose demise was somewhat controversial. The company traces its roots to 1919 when a young engineer, Carl F.W. Borgward, established a business he grandiosely called the “Goliath-Werke Borgward & Co.,” but which primarily produced auto radiators. Borgward had always had his sights on building entire cars, however, and in 1924 introduced the first to bear his name: A tiny, three-wheeled motorized cart powered by a 2-horsepower engine that Borgward called the Blitzkarren (‘Lightning Cart’).

The little vehicle, sold at a price affordable to small merchants, was a surprising hit; one of Borgward’s best customers was the Reichspost, which bought hundreds of them for mail delivery.

By 1929, Borgward was enjoying business success, a rarity in the depressed economy of post-World War I Germany. Crosstown rival Hansa-Lloyd fell on hard times, and was acquired by Borgward, who upgraded his little Blitzkarren into the Goliath by adding a timber frame, synthetic leather skin, and a 5- or 7-hp engine. With the merger, he was able to focus on a new model, the Hansa Konsul. This was followed by the Hansa Borgward 2000 in 1937; a model update changed the name to just Borgward 2000 in 1939. It was followed by the Borgward 2300, which remained in production until 1942, when manufacturing was curtailed due to wartime requirements – not the least of which being the Borgward works’ attractiveness as a target for British and American bombers.

A complex operation
Borgward’s acquisition of Hansa-Lloyd allowed him to form three separate business entities, Borgward, Goliath, and Lloyd, which aided in the company’s recovery from the damage of the war. While other manufacturers struggled to obtain materials to build cars – BMW, for instance, was reduced to manufacturing pots and pans for a period of time immediately after the war – having three separate entities allowed Borgward to sidestep steel rations.

It also created a company that was a couple of orders of magnitude more complex than its competitors, a problem that was aggravated by Borgward’s autocratic management style – something he would be openly criticized for in the German press in later years – and either lack of skill or lack of interest in the fine details of financial management.

For the most part, Borgward products were well-received by the market; about 200,000 units of the company’s most successful model, the Isabella, were produced between 1954 and 1961. Even though production and sales volumes made the Borgward group the third-biggest automaker in Germany for a period of time, the fragmented natured of the company and Borgward’s personal penchant for profligate design tinkering – the Isabella was produced in eight different variants, for instance – meant that production costs were much higher than his rivals. Whereas Volkswagen and Opel could maintain profitability by producing a large number of just a few models, Borgward’s extensive product line prevented the company from achieving any sort of economy of scale.

Borgward’s hyperactive approach to product development certainly aggravated the situation. Apart from the extensive car model line, the company also produced a number of truck models, and Borgward even produced a light helicopter in partnership with aircraft designer Heinrich Focke. The Borgward-Focke BFK-1 Kolibri (‘Hummingbird’) first flew in 1958, with two examples being completed before Borgward’s attention turned to other things, like the looming collapse of his company.

Bankruptcy controversy
A downturn in the US market in 1960 was probably the straw that broke the camel’s back for Borgward. Although the company was making money, it was seriously in arrears to many of its suppliers – contemporary reports claimed Borgward was sitting on invoices for sheet metal and tires alone that were in excess of 100 million marks – and a decline of at least 50 percent in its sales in North America sent the now 70-year-old founder of the company scrambling for financing.

The Bremen State Senate initially approved a guarantee of a loan of 1 million marks from the state bank, but an unusually harsh series of news reports in the German press about Borgward’s mismanagement caused the state government to withdraw the guarantee. A compromise was reached in early 1961 wherein Borgward would relinquish control of the company to the state in exchange for the funding.

The Bremen State Senate appointed Johannes Semler as a trustee, and he ostensibly set about reorganizing the Borgward, Goliath, and Lloyd companies to allow them to continue operations while things were worked out with the combined companies’ creditors. Semler, however, had only recently been appointed to the board of the struggling BMW, which had in turn just been saved from oblivion by a large investment by Herbert Quandt. Semler joined the boards of Borgward’s three companies in late July 1961; by September, both Borgward and Lloyd were declared bankrupt, with Goliath following in November.

Semler’s more or less official judgment, which was accepted by the state government, was that if the company had been allowed to continue, there was no certainty it would generate enough cash flow to recover. Borgward himself would go to his grave in 1963 arguing that his businesses were not insolvent, which turned out to be true; by the time all the accounts were settled, the creditors had been paid in full, and Borgward still had 4.5 million marks in the bank.

Borgward’s supporters suggested that the demise of the company was the result of a conspiracy. The unusually harsh press reports seemed perfectly timed to scuttle the original financing deal in 1960, and Semler’s appointment while he was serving on the board of a struggling rival only strengthened impressions that there was a conspiracy afoot to put Borgward out of business. One strong piece of evidence to support the notion was that Borgward was, when it was all said and done, technically not bankrupt.

It is entirely possible that there was a concerted effort to put Borgward out of business, but if that is so, it was because Borgward made himself and his company an easy target. His management style did not endear him to many of his contemporaries, and even though his company may have been financially salvageable, it clearly did have a number of financial management issues.

A chance in China?
The resurrected Borgward company is banking on the Chinese appetite for European brands to reestablish itself as a major automaker, but most analysts regard it as a brave gamble at best.

In an interview with Bloomberg last month, Borgward Chief Executive Officer Ulrich Walker noted that more than half of Chinese auto sales are foreign nameplates, and that the Chinese market holds German brands in particular reverence.

“It’s German DNA, genuine design, long history,” said Walker, who was formerly with Daimler in Asia. “We position ourselves above Japanese and Koreans, but below or close to Volkswagen” in order to target well-educated young families who “would be happy to buy a BMW but couldn’t afford it and wouldn’t buy a cheap brand.”

What may be a challenge, however, is that the Borgward name is virtually unknown outside of Germany, and even there is regarded as a quaint memory. “In Germany only some elderly people of more than 60 years have heard something of the ancient brand; in other European countries, nobody knows the name,” Ferdinand Dudenhoeffer, director at CAR-Center Automotive Research of the University of Duisburg-Essen, told Bloomberg. “Is that really a winner story for Chinese customers? I don’t believe in that.”

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