German luxury car giant BMW has unveiled plans to build a new production line at its plant in Spartanburg, South Carolina, for the next-generation of X3 sport-utility vehicles currently manufactured in Graz, Austria. The German premium carmaker has been building Spartanburg in city since 1994, concentrating mainly on the larger X5 and X6 models.

BMW sells more cars in the US than in any other country except Germany. Its sport-utility range, the X series, is in particularly high demand in America. That explains why the company is investing 750 million dollars – or 540 million euros – to expand its one and only US plant.

Less vulnerable to shifts in exchange rates

"The United States is still the biggest market for premium cars," said BMW chief executive Norbert Reithofer. "There's no doubt - we need to be active there. And we need to have local production facilities to make ourselves less vulnerable to shifts in the euro-dollar exchange rate."

The addition of the X3 model will see Spartanburg's capacity climb from 160,000 to 240,000 cars per year. And there's still room for another production line for what the Bavarian automaker describes as a “high-volume” model.

"Before the crisis, the premium car market in the United States sold about two million vehicles annually," Reithofer said. "We expect the market will probably reach that volume again in 2013, so our target for US sales will be about 300,000 units."

BMW's plans have seen its South Carolina workforce grow more than 25 percent as a result, from 6,000 to 7,600 employees. Regional leaders like Senator Lindsey Graham are delighted.

"This is taking South Carolina's economy in a new direction – for every job created by BMW at this plant, three additional jobs are created to support this plant," Graham said. "It's hard to put a figure on it, but it's meant the world to the state of South Carolina."

Good reason to be there

BMW is not the only German carmaker with a factory in the United States. Mercedes-Benz builds its own SUV range in Tuscaloosa, Alabama. And Volkswagen is constructing a massive production center in Chattanooga, Tennessee.

It's no coincidence, analysts say, why these factories are located in the southern part of the US. Because the southern states are not highly industrialized, their governments are offering high subsidies to attract new investment. And the American autoworkers' union – which is traditionally very strong in the north – doesn't have a presence in the south, making it much easier for management to negotiate flexible shift times with the workers.

Meanwhile, back in Germany, unions are asking what the attractive conditions on the other side of the Atlantic will mean for the future of BMW workers in Germany. Could government subsidies see production of the X1 compact SUV shift to South Carolina as well? For now, BMW chief Norbert Reithofer says the answer is "no."

"The main market for the X1 is Europe, which is why we're producing that model in Leipzig," Reithofer said. "And that is where it's going to stay."

Analysts say that if BMW chooses to produce a fourth vehicle at Spartanburg, it would likely be the carmaker's best-seller 3-series compact.

The Bavarian company hasn't announced any concrete plans for further expansion, but a precedent already exists. Rival carmaker Daimler announced last December that the new generation of Mercedes C-Class sedan would be built in Alabama, ending the model's assembly in the German town of Sindelfingen after more than 25 years.

Author: Thaufig Khalil (sje)
Editor: John Blau