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Old 09-10-2003, 09:02 AM
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beware_phog beware_phog is offline
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When is a BMW not a BMW (X3)

From today's Wall Street Journal:

When Is a BMW Not a BMW?

Luxury Car Maker Farms Out
Production of New Compact SUV


GRAZ, Austria -- At the Frankfurt auto show this week, Bayerische Motoren Werke AG will introduce its X3 compact sport-utility vehicle, and with it a torrent of technical details: horsepower, torque, weight, length down to the last centimeter.

But there's one fact the company isn't likely to say much about***********: The X3 isn't being built by BMW in its own plants but in this Austrian town by an outside manufacturer, a division of parts supplier Magna International Inc. The Magna factory already assembles the Chrysler Jeep Grand Cherokee for European markets, the Mercedes G-Class off-road vehicles, certain versions of the Mercedes E-Class and the Saab 9-3 convertible.

BMW has long leveraged the aura of German engineering to market its cars. But its own resources have been tapped out by the slew of new vehicles it is creating in a bid to grab a greater share of the luxury auto market. Following the new 5 Series sedan and last year's Z4 roadster, the X3 will make its debut in Frankfurt along with a sports coupe, the 6 Series. A new entry-level BMW aimed at younger buyers, the 1 series, is due next year.

Working with Toronto-based Magna enabled BMW to add the X3 while assigning its own engineers and facilities to those other autos, says Chief Executive Helmut Panke. "This is all about speed," he says. "If we were doing the X3 on our own manufacturing network, we would be forced to build another plant, and that would take time and money."

The move underscores the pressures squeezing car makers in today's increasingly competitive industry. Three decades ago, most manufacturers offered half a dozen vehicle styles. Today, they offer many more -- including SUVs, roadsters, hatchbacks, coupes, minivans, wagons, pickups and "crossovers" -- and they are designing them more quickly while being forced to keep capital expenditures under control.

Outsourced manufacturing is standard practice in many other industries, including computers and clothing. But in the car industry it has been limited to specialty vehicles, such as convertibles and sports cars that are produced in low volumes of 30,000 or so a year.

Until this year, about half of all Porsche Boxsters were made by Valmet Automotive in Uusikaupunki, Finland. The new Chrysler Crossfire sports coupe is being made in Germany by Wilhelm Karmann GmbH. At the Boxster's peak, about 23,000 were sold each year, while DaimlerChrysler's Chrysler is hoping to sell 40,000 Crossfires annually.

BMW is taking this approach much further. Magna's Magna Steyr unit will be the sole source for the X3, producing perhaps 150,000 a year. If it works, other car makers are likely to try outsourcing higher-volume vehicles themselves.

It will be easier to outsource car assembly in Europe than in North America, where unions regularly fight any move to shift production out of unionized plants. BMW is growing and hiring more workers, so there's little issue of BMW creating jobs elsewhere at the expense of German workers.

Still, the pressure to lower capital expenses and diversify product lines will force U.S. auto makers to take a hard look at outsourcing, says Magna Executive Vice Chairman Siegfried Wolf. "We are thinking about how we can convince our customers in the Nafta region," he says, referring to the North American Free Trade Agreement countries of Canada, the U.S. and Mexico. Unions "can't control the market," he says, noting that even Germany's formidable auto workers have suffered setbacks recently.

For car makers, the potential financial benefits of outsourcing are huge. Figuring out how to manufacture a vehicle and setting up an assembly line costs more than a billion dollars. That's a fixed cost a car maker can pass on to an outside manufacturer, says Peter von Hochberg, manufacturing partner at consulting firm Booz Allen Hamilton in Düsseldorf, Germany. "It lowers the risk of producing a vehicle that is going to sell in a moderate volume," he says.

One question is whether image-conscious, luxury-car buyers will accept a BMW not made by BMW. Quality shouldn't be a concern, Mr. von Hochberg says. Historically, vehicles made by outside assemblers have had no more problems than models made by car companies themselves, he says.

Still, upscale brands worry that outsourcing could undermine their image. Porsche, as a result, rarely discusses Valmet. BMW declined requests for interviews about its Magna partnership. "We're not talking about that," a BMW spokesman says.

Asked at a reception in Munich, BMW's head of development, Burkhard Goeschel, said he's confident Magna's role won't be an issue for buyers of the X3. "It drives like a BMW," he says. "It's a BMW."

Write to Neal E. Boudette at neal.boudette@wsj.com
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Old 09-10-2003, 09:06 AM
in_d_haus in_d_haus is offline
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Sounds like a solid business decision
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Old 09-10-2003, 11:14 AM
Alex Baumann Alex Baumann is offline
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Magna-Steyr plant is only a few hundreds kilometer away from Munich.
"Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes."
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Old 09-10-2003, 11:36 AM
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A lot of automakers do this. BMW's done this at least once (the M1, which was originally assembled by Lamborghini, then by Giugiaro, I think), and maybe twice (Graz, back in the early Neue Klasse days).
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Old 09-10-2003, 11:41 AM
bmw325 bmw325 is offline
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Originally Posted by Kaz
A lot of automakers do this. BMW's done this at least once (the M1, which was originally assembled by Lamborghini, then by Giugiaro, I think), and maybe twice (Graz, back in the early Neue Klasse days).
I think early versions of the e24 6 series were built by Karmann (or was it the CS coupe-- can't remember).
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Old 10-09-2003, 10:21 AM
philippek philippek is offline
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Let's not the myriad of wonderful things that have come out of Graz...like my governor!
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