(FORTUNE Magazine) – Rare is the new car that elicits instantaneous negative reaction. Rarer still--unheard of, really--is the new BMW that ignites criticism before it even leaves the factory. The latest version of BMW's flagship 7 Series does not go on sale in the U.S. until Jan. 19, but already it is being raked over at auto shows, dissed in trade publications, and badmouthed on the Web. DESIGN TALK GETS UGLY FOR BMW 7, announced a front-page headline in Automotive News, a trade weekly. "I love BMWs and have never driven anything else, [but] the new 7 looks piss-poor," said one company loyalist on a BMW Website. Volunteered another: "I bleed blau und weiss, but I'm definitely buying an Audi or Mercedes next time."

Beauty, of course, is in the eye of the beholder. Few people have seen the 7 Series in its natural habitat--on the road. And radical car designs that unsettle buyers sometimes become familiar, even beloved, over time; the Ford Taurus (introduced in 1985) is one prominent example. Still, the attacks are surprising because BMW is usually seen as infallible on matters of design.

A slip-up could be costly. The 7 Series is BMW's most prestigious and expensive. Prices for the current model start at $64,000 and climb all the way to $93,000; the new 7 will probably cost more. Typically a new design establishes a theme that will be repeated for several years in later models. BMW plans to introduce 20 models over the next six years and boost sales volume by one-third, an astounding growth target for a luxury manufacturer in a mature industry. Besides the 7, two other models are especially important to the company: the Mini, which will arrive in the U.S. next spring, and a newly conceived Rolls-Royce, which will make its debut under BMW ownership in 2003.

All this activity comes against a backdrop of worldwide economic decline that began before Sept. 11 and has accelerated since then. Upscale carmakers like BMW like to believe they hold up better in hard times than mass marketers because their affluent customers tend to be insulated from financial difficulties. But some analysts believe this recession may be different. "My view is that German manufacturers benefit more than average during a booming economy because they make 'reward yourself' cars," says Susan Jacobs, a New Jersey analyst and consultant who specializes in luxury cars. "But when the market turns, they absorb more of the downside." If buying a luxury car becomes unfashionable because of the war against terrorism, the downward pressure on sales could be even stronger.

That would bring to a screeching halt BMW's 21st-century sales surge. During the first nine months of this year, it delivered 8.9% more cars worldwide than in 2000; pretax auto profits rose 7.5%. In the U.S., BMW has broken its own monthly sales records for 37 straight months, including September and October. In the eyes of some, the company has achieved automotive nirvana: It has so many customers who want to buy only BMWs that the cost of its cars is almost irrelevant.

BMW has prospered by selling variations on a single, well-defined theme: sedans, coupes, roadsters, and multipurpose vehicles that share common design elements and promise exceptional driving performance. Ever since it introduced the 7 in 1978, BMW has used it to explore new designs and technologies before passing them down to lesser models. As the first complete redesign in eight years, the 2002 7 series was expected to set the company's direction for another decade. BMW Chairman Joachim Milberg also planned the 7 as a first step in differentiating the look of BMW's larger cars from smaller ones like the 3 series. "Due to the fact that we are expanding our brand portfolio, it was necessary to broaden our design concepts between our limousine cars and our sportier ones," explained Milberg.

BMW stuffed the 7 with new technology and then took the unprecedented step of bringing 800 automotive journalists to Munich for daylong presentations about the car's bells and whistles. Along with a new engine and transmission, the 7 has no fewer than 123 electric motors, 38 in the seats alone. Because the seats also contain up to 18 fans used for heating and cooling, a BMW acoustics expert worked to ensure that the noise from the blades was not excessive. Drivers may find all the technology more than they can use or understand. To control some 700 functions for the telephone, entertainment, climate, and navigation systems, BMW installed a rotary knob, called iDrive, on a piece of prime ergonomic real estate: the center console. To make room, the gearshift was banished to the steering column. Some BMW owners haven't taken the change lightly. "The car is overly complex," said a Website correspondent. "The iDrive will turn off a lot of older buyers."

The 7's styling gets the most flak, for good reason. Critics complain about turn signals that sit like white eyebrows over the headlights and an elongated hood that departs from traditional BMW proportions. The most controversial feature is on the tail, where a curved fender intersects abruptly with a high trunk lid, creating a look that other designers call "lumpy" and "confusing." BMW executives, who say the trunk lid was raised to balance the high roof, improve the aerodynamics, and increase trunk space, have been taken aback by the criticism. "The comments about the new design are more critical than I expected," says CFO Helmut Panke. "We had 20 different design concepts. I had put my votes on a different one that was more evolutionary. But the car has grown on me. You have to see it several times."

While the 7 Series is under attack, BMW's relaunch of the classic Mini has gotten as much positive buzz as Harry Potter (well, not quite). The British-built Mini is an enlarged and reengineered version of the iconic front-engine, two-door runabout. It goes on sale in the U.S. next spring, with prices beginning around $18,000. BMW expects to sell 20,000 a year here, out of a worldwide total of 100,000. But despite, or perhaps because of, its cuteness, the Mini may get a cool reception in the U.S. "The Mini is more of a fashion statement than any BMW," says Jacobs. "It is a vehicle most appropriate for a boom economy where people almost buy vehicles to wear. If the environment becomes less buoyant, people will look for more practical cars." Other fashion vehicles, like Volkswagen's New Beetle, have experienced feverish popularity for a year or two, but then have cooled off.

Some ask why BMW is bothering to build the Mini at all. It won't function as an introduction to the BMW brand, because it will be advertised and marketed separately. Milberg insists that the Mini will generate the same margins as the rest of BMW's lineup--6% pretax--but analysts wonder how the company can make as much money selling a $20,000 Mini as a $40,000 3 series.

Or a $300,000 Rolls-Royce. The venerable British brand has been owned by Volkswagen since 1998, but BMW is taking over on Jan. 1, 2003. It has already begun building a plant in southern England, where it will produce an all-new Rolls. BMW expects to sell up to 1,200 a year, for $300,000 or more each. "There is a limit to what we can do with the 7 Series," says Panke. "If we want to be the most successful premium brand, we can't leave the top of the market alone." Nor can other automakers. Volkswagen is launching three ultraluxury models with familiar names--Bentley, Lamborghini, and Bugatti--while Mercedes is developing a segment-topping car called the Maybach. Although the Rolls name is well established, it has been atrophying for years. The current Rolls is more notable for its craftsmanlike use of wood and leather than for modern automotive technology. Fewer than 500 were sold last year.

The months ahead are likely to be difficult for almost everyone selling premium products. BMW's ability to deal with the controversy over the 7 series will give the first clues about whether it can cope with adversity as deftly as it has with success.

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