BMW considering its first North American engine plant

Bloomberg NewsDecember 11, 2013 

— BMW is considering building engines in North America for the first time and expanding vehicle production in the region to capitalize on growing demand, three people familiar with the matter said.

The world’s biggest maker of luxury cars may establish a motor factory in Mexico or the U.S., and could potentially decide on the project in 2014, according to the people, who asked not to be identified because the talks are confidential.

The company has its only North American manufacturing plant in Greer. But it is unclear if South Carolina would be a potential location for the new work. The S.C. Department of Commerce declined to comment.

The maker of the $49,500 5-Series sedan has focused on developing fuel-efficient powertrains since Chief Executive Officer Norbert Reithofer took the helm in 2006. Munich-based BMW has kept tight control of the technology, only starting production of motors outside Europe last year with 4-cylinder engines made in Shenyang, China, to supply BMW’s local car plants in Dadong and Tiexi.

“As part of our long-term growth strategy, we’re frequently looking at different countries for possible locations of future production facilities,” Mathias Schmidt, a BMW spokesman, said by phone. “No decisions have been made yet, though, for an additional plant.”

BMW set up its only North American factory in Spartanburg County in 1994. The site produces all of the German company’s X3, X5 and X6 sport-utility vehicles, and it’s one of the U.S.’s main auto exporters. BMW may expand vehicle-making in the region beyond a new model already announced for next year, the people said.

Daimler’s Mercedes-Benz division, which ranks third in global luxury-car sales after BMW and Volkswagen’s Audi unit, makes SUVs in Tuscaloosa, Ala.

BMW, Mercedes-Benz and Audi are adding production in North America to take advantage of sales-growth potential that contrasts with stagnating demand in their home market of Europe. BMW’s 11-month U.S. sales, including the Mini brand, rose 9.2 percent to 331,801 cars. Deliveries at Daimler’s Mercedes and Smart vehicles climbed 12 percent, while sales at Audi increased 13 percent.

Local manufacturing also reduces the effects of the dollar’s moves against the euro on earnings at the German carmakers.

The Spartanburg factory will start making BMW’s new X4 SUV in 2014. Stuttgart-based Daimler expanded Mercedes production at Tuscaloosa in mid-2013 as part of a global effort to meet sales growth, and it will add the next version of the midsized C-Class sedan there in 2014. Ingolstadt-based Audi laid the cornerstone in May for a $1.3 billion, 150,000-car plant in San Jose Chiapa, Mexico, that will begin making the Q5 SUV in 2016.

A free-trade treaty that U.S. and European Union authorities are working on would boost export opportunities. BMW CEO Reithofer reiterated “absolute support” for a trade agreement on Oct. 28. Growth prospects in the U.S. remain encouraging because of a robust economy and more favorable demographics than in Europe, he said.

Costs of adding production capacity outside Europe and developing advanced technology such as lightweight construction or electric vehicles are weighing on German carmakers’ earnings.

BMW forecast on Nov. 5 that automotive profitability in the fourth quarter will weaken because of spending to roll out new models like the i3 electric city car. Spending as a proportion of revenue will exceed targets this year and continue at a high rate in 2014. The outlays led to a 3.7 percent decline in third- quarter earnings before interest and taxes to 1.93 billion euros ($2.6 billion).

The company’s expansion is part of its effort to maintain an edge over Audi and Mercedes-Benz, which have both vowed to surpass BMW in sales by the end of the decade.

“BMW remains the best positioned European auto manufacturer, due to its exposure to growth markets and the profitable premium segment,” Stefan Burgstaller, an analyst at Goldman Sachs in London, said in a note to clients on Dec. 3.

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