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Global Approach for BMW Pays Off With Big Third-Quarter Profit

BMW (BAMXF.PK) said it can now produce more cars and trucks in Spartanburg, S.C., about 240,000 a year, than its home town of Munich, Germany. That milestone says a lot about globalization in general and BMW in particular.

The payoff for BMW's long-term thinking is that BMW announced today it made a much-improved profit of $1.2 billion in the third quarter, more than 10 times what it earned in the year-ago quarter. Year to date, BMW had net income of about $2.8 billion, also a huge improvement over a thin profit a year ago.

BMW took 2008 and 2009 as rebuilding years. It conceded earlier than other manufacturers that the global downturn was going to require some retrenching and cost-cutting, and BMW gave up quicker than others on unrealistic sales goals. After thin and spotty profits in 2009, those retrenching efforts are paying off this year.

BMW has been hammering away for a while now on the point that flexible manufacturing is The Next Big Thing in auto manufacturing. That's doubly true for brands like BMW that charge a premium for a relatively low volume of cars and trucks.

Part of the reasoning behind that is in industrial terms. BMW can respond faster to changes in consumer tastes if its flexible manufacturing plants can build different models, without a lot of delay and additional investment to switch from one to another. It also helps BMW save money on development costs and on parts, if its models look different on the outside but share a lot of content on the inside. Those trends are playing out across the auto industry.

The other part of BMW's strategy is customer-facing, and more unusual. That is, other manufacturers are reducing complexity and reducing the number of options. BMW is running contrary to that trend, offering a longer list of possible options and combinations or options. Not only that, BMW allows customers to tinker with their orders and change their minds until the last minute, relatively speaking, before their car is actually built.

BMW is betting that customers are willing to pay extra for that aspect of flexible manufacturing. So far, that's more the case in markets outside the United States. Most American customers prefer to order cars out of dealer stock, but in other countries, customers like to custom-order a car fitted out to their exact specifications, even if that costs more and takes longer.

That brings us to another point about the Spartanburg manufacturing complex. It's different from a lot of other foreign-brand plants in the United States because its output is intended for sale around the world, not just in North America.

In fact, BMW brags that it's the biggest auto exporter in North America. Since 1994, the Spartanburg plant has built more than 1.5 million cars and trucks, many of which were exported.

Today, BMW's U.S. plant is the brand's home for its "X" models of small, medium and large SUVs, the X3, X5 and X6. Customers in other countries who buy those models get them from the United States. The thing is, the South Carolina plant can also build cars, including small cars like the BMW X4.

BMW's identity will always be rooted in Germany, even as it builds more and more cars and trucks in the United States and also China. But in reality, it's really a lot more global than some much larger and less-flexible car companies.


Graphic: BMW