By Jorn Madslien Business reporter, BBC News

BMW's new boss has yet to earn his spurs with shareholders

A year after taking over at the helm at BMW Group, Norbert Reithofer has stepped into the limelight.

On Thursday, he announced a corporate shake-up aimed at dramatically raising sales and profits, while cutting costs and emissions, all without a single job cut.

It is a tall order, built on a string of slogans such as natural currency hedging, global sourcing and economies of scale.

But Mr Reithofer is convinced he will succeed.

"All cost structures will be put to the test," he insists. "The BMW Group will be even more attractive to shareholders."

Investors were not immediately convinced.

Ahead of Mr Reithofer's announcement on Thursday the group's stock had surged more than 4% towards 50 euros per share.

Afterwards, investors beat a swift retreat, sending the stock sliding back to close 1.5% below the morning's opening price of about 46 euros.

Strong or weak?

In short: in the eyes of investors, Mr Reithofer has yet to earn his spurs, and he is evidently annoyed by this.

From a strategic point of view, it was absolutely right to have a 1-series BMW, to have a Mini BMW chief Norbert Reithofer See BMW's share price

"People say that 'in the first half of 2007, the BMW margins were not good anymore'," he told BBC News during a briefing earlier this month, referring to how the automotive division's profit margins slipped to some 5.5%.

"You could even get the feeling that we're at the bottom end of the car industry."

But, contrary to investors' belief, BMW is already doing very well, he insisted, pointing out that at group level its profit margin is 7.2%.

"Only one car company worldwide was better, and that was Toyota Group," he said.

Shareholder focus

Focusing on profits from the automotive divisions alone means investors fail to understand the full picture, Mr Reithofer explains.

For instance, BMW financial services contributes a lot to the group's bottom line, not least in the US where the lease penetration "is going up and up and up", he said.

So if the profits from a leased car helps the financial services division, but not the car division, the situation is still one where the BMW Group benefits, he insisted.

Nevertheless, Mr Reithofer acknowledges that for its automotive divisions, "our profits have displayed disproportionately low development", and he has vowed to raise the automotive divisions' profit margin from 6.3% in 2006 to between 8% and 10% by 2012.

Meanwhile, BMW will be gunning for a sharp rise in sales, from 1.4 million vehicles this year, to 1.8 million in 2012 and more than 2 million by 2020.

"We will focus the entire organisation on the return on capital," Mr Reithofer says, a move applauded by analysts.

The new strategy "addresses the major points of investor concern", says automotive analyst Stephen Cheetham of Sanford C. Bernstein, describing Mr Reithofer's profit and growth targets as "credible".

"Though criticism on the grounds of lack of detail is possible, and execution remains key, we believe this announcement should finally lay to rest the idea that BMW management does not care about profitability or shareholders."

Curbing spending

Such criticism has arisen in part because of BMW's unique ownership structure.

The shares are 47% owned by the Quandt family, descendants of the man who turned the firm into an automotive powerhouse.

But BMW's propensity to spend freely has also come under fire.

In recent years, BMW has spent more than its main rivals on research and development, capital and labour. And although it is not about to cut back, it will be squeezing more out of its existing resources.

To assist with such efforts, the current head of the firm's motorcycle division, Herbert Diess, was promoted to BMW's board of management, which is chaired by Mr Reithofer.

Mr Diess will be heading up a new department responsible for purchasing and supplier networks, forming part of BMW's efforts to seek economies of scale through cooperation with parts suppliers.

"Cooperation is supposed to lead to economies of scale for components, modules and drive systems," says Mr Reithofer.

A second additional division that will oversee corporate and brand developments will be headed up by former planning boss Friedrich Eichiner.

Finance chief Stefan Krause and marketing chief Mikhael Ganal will swap jobs.

New models

BMW will also continue to expand its product range, initially by producing two new small sports utility vehicles, a Mini and a BMW X1.

Adding small models makes it easier for BMW to reduce the average carbon emission levels, as future regulations are set to require, without alienating customers who prefer large and powerful cars.

Under an anticipated credit/debit compensation scheme, small cars like the 1-series and the Mini help reduce the group's average emission level, thus allowing it to continue to sell its large gas-guzzlers.

"From a strategic point of view, it was absolutely right to have a 1-series BMW, to have a Mini," Mr Reithofer told BBC News during the recent briefing.

This is despite the fact that small cars are much less profitable than large ones.

Though BMW will also produce two new and really rather large models, a four-door Gran Turismo that will go head to head with the hugely successful Bentley Continental GT and a Rolls-Royce Phantom coupe, Mr Reithofer said Thursday.