BMW Keeps The Home Fires Burning

It's new, cutting-edge plant is in Germany, not in low-wage Eastern Europe

Bathed in an ethereal blue light, unpainted car bodies glide silently along a steel track high overhead at Bavarian Motor Works' new, $1.6 billion factory in Leipzig. With its futuristic design, vaulting spaces, and hardwood floors -- even on the production line -- BMW's latest plant is an ode to the art and science of building luxury cars. In the body shop nearby, robots equipped with lasers check the dimensions of parts as they weld them, flagging minute defects automatically. But the most startling thing about the new factory is that it is located in Germany, where labor costs for auto workers, at $42 per hour, are the highest in the world.

BMW is bucking a trend. Across much of Western Europe, carmakers and their suppliers are slashing thousands of jobs and transferring production to low-cost Eastern European countries. That's why, in a show of gratitude, German Chancellor Gerhard Schröder traveled to Leipzig on May 13 to inaugurate the new BMW factory. The plant, which secured $454 million in European Union subsidies, will employ 5,500 workers in a region of eastern Germany where unemployment tops 21%.

BMW Chief Executive Helmut Panke pointed out that the company's decision to invest was based on winning unprecedented labor flexibility from German unions. For example, line workers will toil Saturdays without extra pay. The labor agreement will allow BMW to boost the use of its plant and equipment by 40% without incurring overtime charges, compared with plants without such leeway. "That makes a significant contribution to a competitive productivity level," said Panke at the plant's inauguration.

Auto industry experts say the Leipzig factory agreement marks a major leap forward. Depending on demand, BMW can run the facility as many as 140 hours a week without having to pay overtime. By contrast, the company's Bavarian factories pony up 50% extra to workers on Saturday shifts and must negotiate new compensation agreements each time BMW wants to boost or cut production significantly. Another plus for Leipzig: Its normal workweek is 38 hours, compared with 35 in western Germany. According to Panke, when Leipzig is humming at full capacity, the savings achieved by not having to pay overtime could reach 20% of the plant's total payroll costs. "The new factory is a benchmark plant in Europe," says Ferdinand Dudenhöffer, director of the Center for Automotive Research at the University of Gelsenkirchen.


It's also a paradigm of efficient design. The star-shaped layout, with logistics engineers, quality experts, and administration located at the center, is meant to speed communications by keeping managers and technicians a few steps from the production line instead of in a separate building.

The assembly line can handle any of BMW's 10 model series, allowing the company to rejigger production quickly when demand for a given model surges or flags. While Leipzig will initially churn out the new 3-Series cars, analysts expect that production of the compact 1-Series and the next-generation X3 baby sport-utility vehicle will likely migrate there. "BMW tries to make its plants flexible enough to extend running hours without new investment," says Jürgen Reers, partner at Munich consultancy Roland Berger. That strategy helps the carmaker achieve operating margins of around 8%, among the highest in the industry. The Leipzig plant will be scrutinized by auto makers everywhere for the secret to building cars profitably in the heart of high-cost Europe.

By Gail Edmondson in Leipzig

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