Since their heyday in the mid-1980s, Germany's luxury carmakers have suffered a few crumpled fenders in the U.S. First, the strong German mark sent their sticker prices into orbit--and their sales plunging. Next, upstart Japanese models such as Toyota Motor Corp.'s Lexus and Nissan Motor Corp.'s Infiniti started grabbing sales (chart). Finally, Uncle Sam added insult to injury by hitting up the Germans' customers for 85% of the $220 million collected last year from a new luxury tax.
With a situation like that, it's no surprise that Eberhard von Kuenheim, BMW's soft-spoken, aristocratic chief executive, is taking stiff measures. On June 23, BMW announced that it will build its first major plant outside Germany--in Spartanburg, S.C. From 1995 onward, the $400 million factory will make 30,000 BMWs a year, rising to 70,000 by the year 2000--more than BMW has sold in the U.S. in any year since 1988. Moreover, it will be the sole plant producing a new model based on the company's hot-selling 3-Series compacts. Kuenheim says his aim is "to maintain, secure, and build up" BMW's position in the U.S. luxury-car market, the world's biggest.
WAGE GAP. Maybe, but even Bernd Pischetsrieder, BMW's manufacturing director, concedes that it's "a risky decision." For one reason, the United Auto Workers union says it will go all out to organize the plant. Moreover, BMW will be putting its reputation for sterling quality in the hands of the 2,000 young American workers it plans to hire. The last time a German auto maker tried stateside production, it was a disaster. After Volkswagen took over a plant at Westmoreland, Pa., the Rabbits it produced there were plagued by quality screwups. VW closed the plant a decade later, in 1987, after piling up $1.5 billion in losses and tons of ill will.
Kuenheim and corporate planning director Helmut Panke, though, say that this time the arithmetic of U.S. production is running in the Germans' favor. Assuming the UAW fails to organize Spartanburg, they figure that initial labor costs there will be at least one-third lower than the $28 an hour, including fringe benefits, that BMW pays at home. All told, savings from lower wages plus production efficiencies could save BMW $2,000 to $3,000 a car, says James E. Harbour, a Troy (Mich.) consultant. That's quite a competitive jump, considering that the cars involved start at around $22,000.
There are plenty of other savings, too. Shipping costs will drop by up to $2,500 for each car made and sold in the U.S., the company says. BMW also is reaping a cumulative $135 million bonanza in local and state tax breaks and subsidies for investing in the plant. And for good measure, South Carolina will extend the Greenville-Spartanburg airport's free-trade-zone status to the 900-acre plant site, meaning BMW won't have to pay duties on parts imported from Germany or elsewhere.
SNAFU AVOIDANCE. BMW isn't taking any chances on sacrificing quality, either. Indeed, it's so confident that the new plant's cars will be top-notch that it plans to export at least half of them to Japan and Europe. To avoid embarrassing snafus, the cars will at first be assembled mainly from German parts. And as BMW begins to buy more stuff locally, it will rely heavily on the U.S. units of trusted German suppliers such as Robert Bosch, which makes brakes and other parts. Even when the U.S. content builds up to 50% to 70% by the late 1990s, key components such as engines and axles will still come from Germany.
Kuenheim's timing could turn out to be impeccable. America's graying baby-boomers are reaching middle age, making them prime buyers of upscale autos. Susan Jacobs, president of Little Falls (N.J.) market researcher Jacobs Automotive Inc., predicts that sales of luxury autos will jump 20%, from 1.25 million this year to 1.5 million in 1995, when BMW's plant is up and running. Of course, BMW's rivals also have noticed the demographic trend. Mazda Motor Corp. plans a new luxury line, Amati, for 1994. And other Japanese rivals, such as Honda Motor Corp.'s Acura Div., may start building luxury models in the U.S. if sales warrant.
If any foreign carmaker can make a success of U.S. production, though, it's probably BMW. In just a couple of years, the company has reoriented its lineup toward lower-priced models and staved off most of the problems that loomed when Reagan-era consumption waned. Indeed, BMW's U.S. sales are expected to jump 24% this year, to 66,000 units.
BMW won't know whether its gamble has paid off until well after the first models roll off the line. But given the route BMW has mapped, the Carolina Beemers seem to be a fair bet.