Trump pressure shows effect – BMW plans second US factory

It did not help much. Again, US trade policy is the main risk factor in Kruger's calculations. In retaliation for punitive tariffs imposed by the United States, China now claims imports of cars from the United States with a 25% tax. This measure will cost BMW nearly 300 million euros this year.

In addition, BMW, Daimler and Volkswagen risk sanctions if they do not meet the requirements of the new free trade agreement with Mexico and Canada (Nafta). Trump has significantly increased local value creation requirements for automakers in the Nafta region.

It could get worse. For days, the US government has threatened to raise from 2.5% to 25% the import duty of car deliveries from Europe to the United States. Trump, according to political sources, wanted "a sign of good will" from German automakers. As a reward, a new meeting at the White House invites you.

The message has arrived: Krüger plans to build a second plant in the United States, the BMW boss said at the Los Angeles auto show. There, the group could build engines and transmissions for the Nafta region.

"With our plant in Spartanburg and Mexico's new plant, we are going to increase our production volume in North America, which means we can get quantities that make sense at this stage," says BMW.

Trump demands 75% value added

According to the new free trade agreement, US automakers must generate 75% of the national value added to avoid being penalized. According to the model, Daimler and BMW, the largest automakers in the southern United States, have values ​​between 65 and 70 percent. Since "it is not enough to buy a little more steel from an American supplier," says a representative of the industry. Trump's advisers knew exactly where to pack the Germans.

For example, as BMW builds its engines locally in China, engines and transmissions for US production are delivered from Europe. BMW justified this practice by the lack of quantities in the United States, which had not yet justified the construction of an engine plant.

The pressure exerted by the works councils, which secured their sites with the German engine production facilities, was at least as important. This sometimes has absurd consequences: every X5 vehicle sold in Germany by the US production is equipped with a training block, which has been transported twice across the Atlantic.

But with the new plant in Mexico, which builds sedans in mid-2019, numbers are increasing in North America. BMW plans to produce 150,000 cars in Mexico early next decade. South Carolina is already preparing for expansion. With the new X7, BMW reaches 450,000 units in its US factory.

At the beginning of the next decade, BMW reaches a production volume of 600,000 cars, which no longer justifies the import of transmissions and engines from Europe. The investment of several hundred million euros in an engine plant is expected to quickly bring much lower labor costs in the southern United States, according to Munich. – whatever the Trump threats.

Nevertheless, BMW is looking for partners. One possibility would be Daimler. For years, BMW has been pursuing purchasing cooperation with the main competitor of "non-branded components", such as window lifters and belt tensioners. The annual purchase volume should now include five billion euros.

However, according to antitrust investigations currently carried out by the EU, an expansion is considered difficult, particularly with regard to engines. More likely is the cooperation in transmissions with a supplier. For example, ZF Friedrichshafen, BMW's largest transmission provider, is located in South Carolina.

Part of US production goes to China

Trump is less likely to like the way BMW wants to get around Chinese punitive tariffs. For several months, Munich's plans have been used to transfer part of US production to China. After the X3, it is apparently now the decision to build the X5 in China before. Until now, the well sold SUV is fully exported from South Carolina to China.

In any case, the Beijing government has already decided Krüger on the go: BMW is the first foreign manufacturer to take over most of the production joint venture in China.