MUNICH-BMW AG (BMW.XE), the world's biggest premium car maker by
sales, is planning to further expand its global manufacturing
footprint to keep up with buoyant demand for its BMW and Mini
brands in North America and emerging markets.
With plants up and running in the U.S. and China, the world's
two largest auto markets, and a new factory planned in Brazil, BMW
is now considering expanding its manufacturing operations in
Russia. The moves are steadily reducing BMW's reliance on Germany,
which today accounts for around 60% of the auto maker's output of
around 1.7 million cars a year, down from around 70% a decade
ago.
But it is the increasingly violent ups and downs in global auto
demand as much as buoyant sales of premium cars that also explain
BMW's determination to broaden its production base outside
Germany.
Volatility in auto demand has increased "massively" across the
world, posing a major threat for the industry, said Friedrich
Eichiner, BMW's chief financial officer, in a recent interview at
the German auto group's Munich headquarters.
"There can be fluctuations in every market, including, for
example, China. Flexibility in production and cost management is
the only sensible answer to meet such challenges," Mr. Eichiner
said.
"In Russia we are in talks regarding future production capacity
there," Mr. Eichiner said. "It makes sense from a strategic point
of view."
Rising Russian incomes and a relatively low level of car
ownership make the country an attractive growth market for foreign
car makers. At present, only around 20% of Russians own a car of
their own, compared with around half of the populations of western
industrial countries. Around one-third of all cars on Russian roads
are more than 15 years old, twice the age of cars in the European
Union, suggesting significant pent-up demand.
Indeed, vehicle sales in Russia could rise by 7% to around 3.1
million units in 2013, which might see the market overtake Germany,
said Stefan Bratzel at the Center of Automotive Management at
Germany's Bergisch-Gladbach university. Germany is the European
Union's biggest car market.
BMW, which has yet to make a final decision on investing more in
Russia, currently puts together some cars there from pre-assembled
kits in partnership with local car maker Avtotor in Kaliningrad,
the Russian enclave situated between Poland and Lithuania. The
German car maker is now considering making cars there from
scratch.
If BMW goes ahead with the plan, it will be hoping to match the
success it has had in the reinvigorated auto market in the U.S.,
where the auto maker will be presenting new models at the coming
North American International Auto Show in Detroit, and China, where
it has already invested heavily.
Strong sales in the U.S. and China, responsible for around 18%
of BMW sales each, have made up for weak demand in Europe in the
past year. The result is that the German auto maker's vehicle sales
hit a second consecutive annual record in 2012.
BMW sold around 1.85 million vehicles, up 11% from 2011, said
Mr. Eichiner. All of the company's brands-its namesake BMW brand as
well as Mini and Rolls-Royce--contributed to the rise, he said.
Sales in China rose 40% to 326,444 cars. In the U.S., they were up
14% to 347,583 vehicles, while in Russia they rose 33% to 40,144
units. All the same, the company is sticking to an existing target
of selling 2 million vehicles in 2016, Mr. Eichiner said.
BMW opened a second plant in China this year, investing an
additional 500 million euros ($655.9 million) with its Chinese
joint-venture partner Brilliance China Automotive Holdings Ltd. to
boost production there. Meanwhile, it is spending $900 million to
expand capacity at its U.S. plant in Spartanburg, S.C., and last
month completed plans to build a $261 million plant in Brazil.
BMW's investment abroad coincides with similarly heavy spending
on new capacity in the U.S. and China by its German rivals
Volkswagen AG (VLKAY), Europe's leading auto maker by sales, and
Daimler AG (DDAIY), the maker of Mercedes-Benz cars.
That raises the prospect that if demand falls short of
expectations in the growth markets BMW is targeting, returns for
shareholders on the company's new investments could prove
disappointing.
Mr. Eichiner said BMW's investment planning remains
conservative. "If we want to continue to grow we have to consider
how to manage expanding production…[but] only when demand is strong
enough does capacity follow," said Mr. Eichiner.
With a refreshed model lineup including the launch of the new
4-series this year-BMW showcases the coupe next week in Detroit-the
group expects to record another increase in vehicle sales and gain
market share in 2013.
Industry observers forecast that overall vehicle sales
world-wide will rise around 3% on the year in 2013.
Demand in China and the U.S. should continue to propel BMW's
growth, Mr. Eichiner said. "After a sideward trend this summer, it
appears that demand in China is starting to climb again," he
said.
The company expects the Chinese market to grow about 6% in 2013,
while the U.S. market is expected to post a 5% annual increase, he
added.
In contrast, Europe's car market remains in crisis, standing
about 2 million units below the 2007 record level, and could
contract around 3% in 2013.
"There currently are no indications that the situation will
improve" in Europe, Mr. Eichiner said.
Mr. Eichiner also expressed confidence that BMW achieved its
profitability targets in 2012, despite the temporary softening of
demand in China in the middle of the year as well as pricing
pressure in Europe. "We are very sure we've achieved our goal of
reaching the upper end of the 8%-10% margin range set for our auto
division," he said.
For the first three quarters of 2012, BMW had reported a profit
margin before interest and taxes of around 11%, down slightly from
11.8% at the end of 2011.
BMW said previously that the slight margin decline was mostly
the result of heavy investment in new electric-vehicle powertrains
and lightweight materials to improve fuel consumption as
environmental regulations tighten world-wide. Mr. Eichiner said
that this will continue to be a burden on earnings in 2013, adding
that he expects BMW to invest around EUR1 billion in these
areas.
(Jan Hromadko contributed to this article.)
Write to Nico Schmidt at nico.schmidt@dowjones.com and Knut
Engelmann at knut.engelmann@wsj.com
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