Things did not look good. Indeed, BMW was rapidly approaching its final collapse and demise in the 1950s: While motorcycle production had reached a new record in 1952, production figures decreased significantly in the years to come than they had increased in the late '40s.
To offset this dismal end of the motorcycle market, BMW built the prototype of a new small car in 1950, taking up the lines of the pre-war BMW 327 and the 600cc flat-twin engine so popular at the time. But the project was subsequently discarded for economic reasons.
After launching the Isetta under licence in 1954, BMW soon realized this bubble car was too small for new customers entering the market who, as a result of the German "economic miracle", soon expected more of their new car in the late '50s. Quite simply, such spartan super-minis had already passed their peak, with customers demanding a longer wheelbase and more comfort.
At the same time, the automotive industry was booming, with production in West Germany increasing by one-third in 1955 alone. Introducing new models, BMW sought to jump on the bandwagon with the BMW 600 in 1957, a somewhat longer Isetta with its flat-twin engine fitted in the rear, intended to meet demand for a genuine four-seater at least for a while. But again, the BMW 600 turned out to be a flop, customers not accepting the concept with the door at the front of the car.
Looking hard for a solution, the Development Division initially attempted to build a conventional small car. For economic reasons it would use as many parts from the BMW 600 as possible. The wheelbase was extended to 74.8" by adding extra sections front and rear, and the front seats were moved back to provide convenient access to the car from behind the wheel arches. But soon it became evident that without a further extension of the car's wheelbase, space for the rear seats would be very limited. At the same time, the rapid increase in weight resulting from the longer wheelbase was another problem, together with the poor seating arrangement.
The attempt to modify the 600's frame and structure to meet modern demands proved to be impossible - or at least subject to significant compromises. So instead, BMW decided to find a more promising solution by re-configuring the entire design and structure of the body.
However, BMW's engineers did not want to completely give up the proven parts and components of the 600 in developing their new model. So they decided to modify the front axle of the 600 with its longitudinal swing arms for consistent track and wheel camber, carrying it over to BMW's new small car, with appropriate reinforcements, to meet the greater demands of the new model.
The engineers also carried over the rear suspension which, with its swing arms modified to a slightly higher angle, supported the car's steering as a function of acceleration in bends, counteracting any tendency to oversteer.
Further features carried over from the BMW 600 were the all-synchromesh four-speed transmission as well as the bevel gear differential - and, of course, the flat-twin power unit originally used on BMW motorcycles and now increased in from 600 to 700cc. The crucial point was to wrap this technology in an appropriate body suitable both for the market and the requirements of the future. Back in late 1957, before the BMW 600entered the market, BMW's new Board of Management had already requested the Development Division to develop and build a conventional small car with progressive design in corporation with an Italian designer and coachbuilder.
In July 1958 Wolfgang Denzel, an automotive engineer himself and BMW's importer in Vienna, proudly presented his new model designed by Michelotti in Starnberg near Munich. The decision to adopt this concept was then taken in October 1958, allowing BMW to create both a production Coup and a Sedan as an in-house development. The reason for doing this in-house was that the prototype, while being very attractive and offering excellent driving qualities, would have been uneconomical in production due to the expensive tooling required. So working hard on all the details, BMW's designers developed a dynamic little car which had nothing do to with BMW's design to date: the BMW 700.