German carmakers to spend $25 billion to expand foreign production

Article by Anita Panait, on April 17, 2013

German carmakers like Volkswagen Group, BMW Group and Daimler AG are planning to spend over $25 billion by 2017 to expand production outside Europe and thereby protect their earnings from the effects of currency swings. BMW Group has disclosed that it will commence building the new X4 crossover at its South Carolina plant in the United States, in addition to the other three sports utility vehicles it currently produces in the location.

Daimler AG, meanwhile, is increasing the capacity of a Mercedes-Benz site in Alabama. Volkswagen’s Audi, on the other hand, is currently constructing a $1.3-billion plant in Mexico. The foreign investments made by German carmakers so far exceed those made by their European rivals like French manufacturers PSA/Peugeot-Citroen and Renault SA and Italian company Fiat SpA – all of which still focus on their home market. VW Group launched this year its 100th production plant -- a $550-million engine plant in Silao, Mexico – boosting its bid to become the world’s most global carmaker.

Consultancy Oliver Wyman estimates that around 77 percent of VW’s production capacity is situated outside Germany, much larger than General Motors Co.'s 76 percent and Toyota Motor Corp.'s 59 percent. German luxury carmakers BMW, Mercedes and Audi also have more diverse footprints than their rivals like Lexus, Volvo and Cadillac. Jonathan Browning, head of VW's US operations, told Bloomberg TV in an interview at the New York auto show in March that their approach is a global one. He noted that if a carmaker has a spread of geographic presence and a spread of brand segments across the marketplace, it could manage fluctuations much easier.

The German carmakers’ $25-billion foreign investment come even as a weaker euro compared to the US dollar means that it is more profitable for them to build vehicles at home. According to Daimler, its operating earnings received a EUR958-million ($1.25 billion) boost from currency fluctuations in 2012 as the euro weakens to a two-year low versus the dollar. The weakening yen, meanwhile, is expected by analysts to boost Toyota's profit by 50 percent this fiscal year. Daimler, meanwhile, says that currency fluctuations this year will cut operating profit by around EUR200 million.

Topics: bmw, daimler, production

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