March 28, 2014 / 6:37 PM / 3 years ago

BMW to invest $1 billion to expand U.S. production by 50 percent

3 Min Read

A BMW employee works to install the kidney grill on an X4 along the production line at the BMW manufacturing plant in Spartanburg, South Carolina March 28, 2014.Chris Keane

SPARTANBURG, SOUTH CAROLINA (Reuters) - BMW (BMWG.DE) will expand production capacity in the United States by 50 percent and introduce another new offroad model, the German luxury carmaker said on Friday, in what amounts to a $1 billion bet on sport utility vehicles (SUVs).

BMW said that as well as the new X4 SUV, its factory in Spartanburg, South Carolina, would make a new X7 SUV, and it would ramp up production capacity to 450,000 cars by 2016.

The investment cuts the German automaker's dependence on fragile European markets, which accounted for 44 percent of group sales in 2013, and increases its bet on a U.S. market which is fast recovering to levels seen before the 2007 financial crisis, helped by the popularity of SUVs.

SUVs accounted for 32 percent of total U.S. vehicle sales last year, up from around 19 percent in 1999, statistics supplied by LMC Automotive show.

Gas-guzzling offroaders have proved particularly popular in the United States, thanks in part to the low fuel prices that have resulted from its booming shale oil and gas industry.

BMW Chief Executive Norbert Reithofer said cheap fuel was not the main driver of the Bavarian automaker's plans to revive the X7, a project which had been mothballed a few years ago.

"It has nothing to do with the U.S. fuel prices," he told Reuters in Spartanburg.

"It's the right product for us. It was pushed by our marketing and sales division, not the engineers. We think it will be a success in the U.S. and China, we cannot just ignore the market," he said.

The United States is BMW's second-largest national market, accounting for 19 percent of group sales in 2013, behind China with 20 percent of sales. Germany, BMW's home market, accounts for 13 percent of the automaker's sales.

BMW expects the U.S. car market as a whole to grow to about 16 million cars in 2014, almost rebounding to 2007 levels.

Spartanburg started out making BMW's 3-series sedans but today makes offroaders, producing 300,000 vehicles in 2013 including the X3 compact offroader and the X5 and X6 models.

Reuters last week reported BMW planned to build the X7 in South Carolina.

About 70 percent of Spartanburg's daily production of 1,200 vehicles is exported, BMW said.

The latest investment will see the number of people employed at the plant rise by about 800 to 8,800, BMW said, adding there were no plans to create a German-style works council.

BMW board member Harald Krueger said: "The attrition rate (of workers) is very low at this plant. It's less that 1 percent."

In 2019, U.S. domestic production of crude oil will account for 63 percent of total supplies, according to the Energy Information Administration, a significant increase from 2011 when it barely covered 38 percent of the country's needs.

Additional reporting by Edward Taylor and Benjamin Klayman; Writing by Edward Taylor; Editing by Chris Steitz, Maria Sheahan and Mark Potter

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