* Brazil a possible site as market overtakes Germany in size
* BMW group sales rose 54 pct in Brazil in 2011
* Sees well over 1.5 mln car sales, record profits in 2011
* Automobiles EBIT margin to surpass 8 pct in 2011
* Shares fall 2 pct vs 4 pct drop in autos index .SXAP
By Christiaan Hetzner
MUNICH, March 15 Germany's BMW (BMWG.DE) looks
set to replace rival Mercedes-Benz (DAIGn.DE) as the only luxury
carmaker in Brazil, if it decides to assemble cars there for the
first time, underlining the region's growing ecomonic
The move would diverisfy BMW's geographic footprint in Latin
America and in Brazil in particular, where living standards are
rising swiftly as the country prepares to host the 2014 World
Cup and 2016 Olympics.
Sales are still small in Brazil at just about 10,000 units
out of 1.46 million last year worldwide, but grew at an annual
pace north of 50 percent - far and above that of mature markets.
"For us, it is really about the significance and prominence
of the market, since we believe it has a big future. The
development of Brazil over the past ten years is impressive,"
BMW production boss Frank-Peter Arndt told Reuters on the
sidelines of the company's annual news conference on Tuesday.
At the news conference, BMW predicted another record year
for earnings, helped by new model launches like the 1-Series
MkII which would boost vehicle sales significantly above the 1.5
This would raise BMW's automotive operating margin above 8
percent as currency tailwinds mostly offset added raw material
burdens in the low hundreds of millions of euros.
"2009 was the year of the economic crisis. 2010 was our year
of a new beginning," said Chief Executive Norbert Reithofer,
adding "2011 will be our year of opportunities."
Brazil clearly could be one of them.
Light vehicle sales in Brazil rose 11 percent to 3.33
million units last year, surpassing for the first time in size
Germany, Europe's largest car market, according to data from the
German automotive industry association VDA.
Daimler was the first luxury carmaker to start car
production in Brazil, where it began building the Mercedes-Benz
A-Class in 1999. But it ceased car production in December and is
re-fitting its Juiz de Fora plant to build heavy trucks.
SOUTH AFRICA A MODEL
Arndt said a key criteria in judging whether to expand BMW's
motorcycle assembly in Manaus to include cars or to set up an
all-new plant would be finding easy logistical links to a strong
This is because BMW only accounts for some 20-30 percent of
the manufacturing value-added in its vehicles.
If approved, BMW would initially start with a pure assembly
operation where cars are made from "completely-knocked-down"
kits comprised of major component groups -- a common first step
when entering an untested market.
"In India, we started with a maximum capacity of 2,000
vehicles in two shift operations but you can imagine almost any
size," Arndt said.
"This will more likely be determined by the number of models
and derivatives you decide to build there than by the (sales)
volume. The team there has to first deal with this complexity
before it is able to guarantee the same quality found at any
other BMW plant," he said.
Depending on the development in demand, BMW could then
expand the plant to include anything from its own steel stamping
operations to welding car bodies together and painting them --
which always means a higher fixed cost base and capital spending
that can be 10 times the initial investment.
When asked whether this kind of decision would first require
volumes of at least 100,000, he said: "For years, if not
decades, we've done very well in South Africa with our Rossyln
plant producing only around 50,000 cars a year, so I can imagine
other increments as well."
BMW already runs CKD assembly sites in Cairo, Egypt;
Chennai, India; Jakarta, Indonesia; Kulim, Malaysia;
Kaliningrad, Russia; and Rayong; Thailand.
Often carmakers resort to these small-scale plants just to
circumvent trade barriers that impose punitive import duties.
(Editing by Hans Peters, Louise Heavens and Jane Merriman)