BMW to Raise U.S. Production Capacity 43% as Currency Hedge

15 May 2007 • by Natalie Aster

Bayerische Motoren Werke AG, the world's largest maker of luxury cars, plans to increase production capacity 43 percent at its U.S. factory as a hedge against fluctuations of the dollar against the euro, reported the Bloomberg.

Capacity at the Spartanburg, South Carolina, plant will increase to 200,000 vehicles annually in the coming years from 140,000 now, Chief Executive Officer Norbert Reithofer said today at the annual shareholders meeting in Munich.

``This is one element of our future strategy,'' said Reithofer. ``Taking this step will help to lower our dollar currency risk.''

The declining value of the dollar and the yen wiped 666 million euros ($902 million) from profit last year at the Munich-based carmaker. The U.S. has become BMW's largest single market, accounting for about a quarter of vehicle sales, while the company makes about two-thirds of its cars in Germany, its second-largest market.

Shares of BMW rose as much as 38 cents, or 0.8 percent, to 50.24 euros and were up 0.04 percent as of 10:17 a.m. in Frankfurt. The stock has risen 15 percent this year.

The euro has risen 5.8 percent against the dollar over the past 12 months, while the yen has slumped 13 percent versus the euro over the same period.

BMW's brand is worth $25 billion, making it the most valuable in Germany and the 14th-most valuable in the world, Reithofer told shareholders, citing a study by marketing researcher Millward Brown.

The company builds two models in the U.S., the X5 sport utility-vehicle and the Z4 sports car. From next year, the German company plans to build the X6 crossover at the plant as well as a successor to the X3, BMW said today.

This year sales will surpass 1.4 million cars and SUVs, a year earlier than planned. Sales will have doubled by 2010 from about 800,000 units in 2000. Munich-based BMW since then has rolled out about 30 new models and updated vehicles.

The company is targeting unit sales of 1.6 million by 2010 as demand for cars such as the 3-Series grows and the company introduces two new models. The company expects sales to continue to grow in the U.S. and is rolling out new models including a ``luxury sports cruiser.''

BMW sold 118,456 vehicles last month, an increase of 3 percent, with demand at the main BMW brand rising 0.5 percent to 100,141 cars and SUVs. Demand for Mini-brand cars gained 19 percent to 18,263 units.

BMW plans to raise the 2006 common-stock dividend to 70 cents a share from 64 cents. Reithofer today reiterated that pretax profit this year will increase, adjusted for the gain last year from the sale of a stake in Rolls-Royce Group Plc.

The company is reviewing its strategy and assessing what it needs to continue to be successful in the future, said Reithofer, in an interview in Shanghai, where it unveiled a concept car aimed at DaimlerChrysler AG's Mercedes-Benz CLS coupe, on April 19.

BMW faces challenges from Asian competitors in Europe such as Toyota Motor Corp., Reithofer said today. The industry is in a ``process of consolidation'' which means BMW needs to be careful about choosing the right partners, he said.

Increasing urban density, environmental changes and competition are all challenges that BMW needs to address in the coming years, Reithofer said.