November 12, 2009

BMW to Build New China Plant on Luxury-Car Demand

Nov. 12 (Bloomberg) -- Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, plans to build a new China factory to meet rising demand for premium products in an economy that’s poised to surpass Japan in size.

The 5 billion yuan ($732 million) plant will have an initial capacity of 100,000 vehicles a year by 2012, eventually rising to 300,000, BMW’s Chief Financial Officer Friedrich Eichiner said today in Beijing. Capacity at BMW’s existing plant in northeastern China’s Shenyang will more than double to 75,000 by the end of 2010, he said.

BMW wants to make more 3-Series and 5-Series sedans in China as demand for top marques catches up with this year’s expected 28 percent growth in vehicle sales, enough for China to surpass the U.S. as the world’s largest vehicle market. Sales of China-made BMW cars and imported models including the Mini brand jumped 37 percent in the first 10 months.

“When the overall vehicle market grows, you can see an exponential growth in the premium segment of the market,” Eichiner said. “Our existing capacity just isn’t enough,” to meet that demand, he said.

Munich-based BMW lags behind Volkswagen AG’s Audi unit in China in the segment of vehicles that cost more than 280,000 yuan ($41,000) each. The company is also facing a challenge from Daimler AG, which assembles the Mercedes-Benz C-Class sedans in China. Daimler Chief Executive Officer Dieter Zetsche said yesterday he expects Mercedes to overtake BMW in China “soon.”

Happy Partners

BMW and its Chinese partner Brilliance China Automotive Holdings Ltd. will each contribute half of the expected investment to their new plant. The new factory will assemble a new 5-Series sedan with a longer wheel base, designed specially for Chinese buyers, who tend to be chauffer-driven in luxury vehicles rather than be owner-drivers.

“We are quite happy with our Chinese partner, so there’s no reason to look for a new partner,” Eichiner said at a press conference, in response to a question on whether BMW plans to make its flagship 7-Series luxury cars with SAIC Motor Co., China’s largest carmaker and a Volkswagen partner.

BMW sales were helped by a government mandate this year that allowed luxury marques to be procured by public offices including the central government and provincial agencies. The police escort that accompanied BMW executives to today’s press conference drove a BMW sedan, Eichiner said.

Chen Zhenggao, governor of Liaoning province where BMW’s China factory is based, said his government will “lead the way” to fit out its fleet with the German brand to support the venture.

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