Bayerische Motoren Werke AG this year plans to diversity its assembly of cars in Kaliningrad in Russia to include its 3-series, the company told

Output of the 318i and 320i could start as early as April 2001, and sample sets of the models already have been completed, BMW executives said.

BMW 320i

The 3-series would complement production of the 5-series, and the company hopes over 2,000 vehicles will be built in 2001, compared to 600 in 1999 and 1,350 in 2000. [The 7-series (mainly the 728i) has been made too, though only on order.]

BMW contracts out assembly of its vehicles to one of two plants owned by ZAO Avtotor in Kaliningrad, formerly named Konigsberg, birthplace of philosopher Immanuel Kant and historical capital of East Prussia. The city now is capital of the Kaliningrad Region, a Russian enclave on the Baltic Sea. The region is a special economic zone, enjoying exemption on certain customs duties, including tariffs on kits of car parts, an important incentive for BMW. (Avtotor’s other plant produces models from Kia Motors Corp of Hyundai Motor Co Ltd.)

The German automaker launched the discreet venture in August 1999 with the 523i and 528i, models made through October 2000. In November 2000, assembly began of the 525i and 530i.

“The cars are assembled on BMW equipment,… and the process is according to BMW standards maintained worldwide,” said Klaus-Einar Liske, a BMW executive stationed at the plant to manage production. He spoke at AUTOCEE2001, an auto conference in Warsaw (23-26 January 2001).

BMW 530i

“After three months of operation, we had reached German quality standards,” Liske said, noting the plant soon expects certification for ISO9000. (The operation, begun with 12 BMW specialists from Germany, now employs only two expatriates full-time.)

“An important reason for the success is the workers are highly qualified, and each has been trained for three months at our plant in Dingolfing,” Liske said. “Over 40% are academics.”

(The workforce is roughly 200.)

Avtotor, which already has poured DM12m into its facility for BMW, plans to invest DM50m-DM80m to expand operations, Liske said. This may involve the introduction of a paint shop and body shop, he added. (Two paint booths already have been installed for repair work.)

“The questions to answer about the body shop are: what parts should be pressed? Who would pay for the tools? Who would deliver the steel to the plant?” Liske said.

BMW aims to put over DM100m into Russia from 1999 to 2004, but it has no equity in the plant.

“BMW is investing in Russia in three areas: developing a dealer network; establishing a distribution centre for parts; and supporting the plant. But we have not put capital directly in the factory,” Wolfgang Schlimme, managing director of BMW Russland Trading OOO, said in an interview published by 25 January 2001.

BMW plans to increase sales in Russia from 711 in 1999 and 1,301 in 2000 to more than 2,000 in 2001, Schlimme said today. The growth rate of 83% last year was the company’s third-highest in the world, behind China and South Korea, he added.

Wolfgang Schlimme, BMW managing director for Russia

The company has 20 car dealers in Russia with plans to add five or six this year.

Last year, sales included roughly 950 5-series, 250 3-series, 100 7-series and 100 X5, said Carsten Haverich, BMW’s commercial director in Russia.

Between December 1999 and December 2000, sales included 300 to government agencies (federal and regional) as well as 200 to corporate customers (domestic and international), Schlimme said.

[Editor’s Note: According to daily newspaper Kommersant of Moscow on 16 January 2001, the BMW plant has built over 10 cars (including the 523i and 735i) ordered by the high command of Russia’s army. BMW would not confirm the report.]

Despite low output, BMW’s plant is assuming growing responsibilities. For the 5-series, it already completes assembly of doors, front and rear axles, seats and tires, Liske said.

(Kits for the 5-series include over 2,000 parts to be assembled, Schlimme said.)

BMW has localised a few items like starter batteries, but it has struggled to source components from Russia, partly because car output in Kaliningrad is too low to attract its traditional suppliers to invest there. “We have targets for bringing our suppliers in Europe to Russia,” Liske said. “But this is not easy. They must take the risk. BMW cannot subsidise them.”

Avtotor BMW production in progress

To entice foreign parts makers to produce in Russia, BMW may need to offer opportunities for them to deliver components to car plants worldwide, not only the site in Kaliningrad, observers said.

BMW declined to announce expected prices for the 3-series from Kaliningrad, but Russian media have suggested the models would cost $4,000-$5,000 below import versions.

Avtotor, the largest producer of foreign vehicles in Russia last year, is a private company, understood to be controlled by Vladimir Scherbakov, who held key posts in the USSR, including minister of labour (1988-1990), minister of economics and planning (1990-1991) and first vice prime minister (1991). At AO KamAZ, a Russian producer of heavy trucks and mini cars, he was director of economics and planning (1982-1985). Avtotor assembled an estimated 1,300 KIA in 2000.

The only other plant to make even 500 models under a foreign mark last year was OAO Avtoframos, a 50/50 venture between Renault SA and the city of Moscow. It rolled out roughly 1,000 R19 sedans from kits supplied by Oyak Renault Otomobil Fabrikalari AS in Turkey.

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