Luxury auto manufacturer BMW is taking advantage of the dollar's weakness to move manufacturing jobs from Germany to South Carolina, a move the company expects will keep its balance sheets in the black even if sales remain flat.
The company plans to cut 5,600 jobs in Germany by the end of the year. That's on top of 2,500 positions already eliminated. That adds up to 7.5 percent of the firm's total workforce of almost 108,000, including both permanent and temporary employees.
The company will spend $750 million to expand its South Carolina plant, adding 1.5 million square feet, increasing overall employment 9.3 percent by adding 500 jobs and boosting output capability by 50 percent to 240,000 cars per year by 2012.
"It was a logical step for the BMW Group as a global player to increase production capacity in its largest market," board member Frank-Peter Arndt says.
The factory's U.S. supplier network will increase output for the automaker's higher production, which in turn reduces reliance on components made in euro denominated countries.
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According to a company spokesperson, approximately 65 percent of vehicles currently built at the South Carolina facility are shipped outside the U.S.
"This is completely driven by the plunge in the dollar," Harbour Report associate Greg Gardner told the Shanghai Daily. "It is untenable to produce at a much higher cost in Germany. Conceivably, as the volume increases and the manufacturing system at the Spartanburg, South Carolina, plant improves, costs may come down enough to cut prices of their cars."
Building the cars in the U.S. will save BMW money both because of the lower dollar and because wages in South Carolina are lower than in Germany. The declining dollar also means BMW and other foreign auto makers likely will start buying locally for more of the parts used by their U.S. plants, he said.
U.S. sales for BMW's namesake brand have gained 27 percent in the past five years. Its South Carolina factory, opened in 1994, now builds the X5, the X6 and the Z4 roadster, producing a total of 157,530 vehicles last year.
Following this new three-year expansion, the South Carolina plant will build the X3, X5 and X6 sport-utility vehicles, as well as variants of those models sold outside the U.S.
"They want to start denominating more of their production outside of the euro," analyst Michael Robinet told Bloomberg. "Look for companies like BMW or Daimler to expand in locations where they are not right now."
Indeed, executives at Volkswagen are currently contemplating building a manufacturing facility in the United States or Mexico.
Though luxury car sales are expected to be flat or a little down from last year, industry analysts expect BMW will continue to grow.
Company figures show that BMW Group — which includes the Mini and Rolls-Royce brands — sold 198,628 cars worldwide during the first two months of 2008, up from 191,357 for the same period last year.
Last month's sales of the BMW brand rose to 89,983 up from 85,310 over last February.
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