BMW Chases Audi's U.S. Sales Spurt With Cheaper Compact SUV

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, is revamping its X3 model to catch up with Volkswagen AG’s Audi in the U.S. market for small sport-utility vehicles.

The compact SUV, which goes on sale in the U.S. on Jan. 22, will bulk up, adding more than 3 inches in length and 1 inch in width, and be sold at a lower price, to take on the Audi Q5. The current X3’s sticker price of $38,850 is $3,650 above the Q5.

“It’s a Q5 segment now,” said Jim Hall, principal of consulting firm 2953 Analytics in Birmingham, Michigan. “BMW has to get their position back, and that’s tough to do.”

The X3, which exploited a niche for small, upscale SUVs when it was introduced in 2004, has since fallen behind. Nine- month U.S. deliveries of the Q5 jumped 78 percent to 16,636 vehicles, making it Audi’s second-best seller in the country after the A4 sedan. The X3’s nine-month U.S. sales dropped 1.2 percent to 5,036 as consumers wait for the new version.

The overhauled X3, offering optional in-car Internet access, will have a starting price of $37,625, Jim O’Donnell, BMW’s U.S. chief, told reporters today at the carmaker’s factory in Spartanburg, South Carolina, where BMW is shifting X3 production. BMW will begin selling the X1 SUV in the U.S. in 2011, he said.

Reviving sales of the small SUVs is part of BMW’s push to overtake Toyota Motor Corp.’s Lexus in U.S. luxury-car sales. The German carmaker’s U.S. sales rose 9.2 percent to 157,464 vehicles through September. Daimler AG’s Mercedes-Benz nine- month deliveries climbed 18 percent to 159,729 cars and SUVs. Lexus remained the U.S. leader with purchases of 162,438.

Closing Gap

“We feel comfortable that we’ll close the gap” to Lexus and Mercedes for the rest of 2010 and into next year with the X3 and new 5-series sedan, O’Donnell said. BMW today forecast U.S. sales will gain 10 percent this year and 15 percent in 2011.

BMW shifted global production of the X3 to Spartanburg from Graz, Austria, to reduce currency exposure and make the SUV more competitive in the U.S., where Lexus has been the top-selling luxury brand since 2000.

Chief Executive Officer Norbert Reithofer is keen to re- build U.S. operations after 2009 sales slumped 28 percent from the pre-crisis high of 335,840 vehicles. BMW is looking for “balanced” growth, and the U.S. is “very key” to these plans, Reithofer said in an interview last month.

“The U.S. will remain the world’s largest premium market for the foreseeable future and we intend to participate in the expected growth with the expansion of our activities here,” Reithofer said today in South Carolina, where BMW executives are showing the X3 and discussing the carmaker’s U.S. strategy.

U.S. Investments

The maker of BMW, Mini, and Rolls-Royce autos is investing $750 million in the 16-year-old Spartanburg factory to accommodate the X3, which will join the X5 and X6 SUVs at the site. Following the expansion’s completion in 2012, capacity will rise to 240,000 vehicles a year from 160,000, making it the biggest BMW plant outside Europe. BMW exports SUVs from South Carolina to more than 120 countries, including its home market.

BMW has invested $1 billion in its U.S. operations since 2008, including an expansion of the Spartanburg factory, new distribution facilities, and a $100 million North American headquarters in Woodcliff Lake, New Jersey. BMW also has a design unit, emissions testing, and technology lab in California as well as a financial subsidiary in Ohio.

BMW may add another model in Spartanburg and expand the plant further, Reithofer said today, adding that the carmaker has no plans to add an engine factory at the facility.

Cultural Influence

“The U.S. is definitely important above and beyond the size of the market,” said Juergen Meyer, a Frankfurt-based fund manager with SEB Asset Management whose top holding is BMW shares. “American culture and the American way of life influence people around the world, so for the image, it’s important to be successful there.”

BMW will use the introduction of the X3 to renew a push for Americans to custom build their cars. The effort will feature images of the customer’s vehicle as it’s produced. The video clips will be taken from seven stages of the production process and uploaded to a personalized website, said Kenn Sparks, a spokesman for BMW’s U.S. operations.

Moving production to Spartanburg makes the program possible because of shorter delivery times and a production process that allows buyers to make changes to the vehicle order as late as six days before the assembly date, said Sparks.

Profit Generator

Audi, VW’s biggest profit generator, is expanding the Q5 range in the U.S. by adding a fuel-efficient, four-cylinder engine for the 2011 model year, and a hybrid version later in the year, said Esther Bahne, a spokeswoman for the VW unit. Inventory averaged 15 days for the Q5 compared with normal levels of 45 to 55 days, she said.

Ingolstadt, Germany-based Audi is targeting U.S. deliveries of at least 100,000 this year, surpassing the 2007 record of 93,506 vehicles. The Q5 went on sale in the U.S. in March 2009.

The RX 350, Lexus’s smallest SUV, starts at $37,625, according to the carmaker’s website. Nine-month RX sales in the U.S. gained 4.4 percent to 67,896 vehicles.

“We intend to fight for and achieve leadership in the segment” from 2011, O’Donnell said.

To contact the reporter on this story: Chris Reiter in Spartanburg, South Carolina via 6226 or creiter2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

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