BMW and PSA Peugeot Citroen are forming an alliance to produce a new range
of petrol engines.

The alliance will generate economies of scale and satisfy
both companies’ small petrol engine requirements for the future. BMW may
seem to be providing a disproportionate amount of the money – but it needs
to reduce its reliance on its engine venture with DaimlerChrysler.

German carmaker BMW and France’s PSA Peugeot Citroen are teaming up to
develop and manufacture a new range of petrol engines. The two companies are
investing E750 million in the project, which will produce up to one million
engines a year.

Under the agreement, BMW’s research and development
department will design the engines, while Peugeot Citroen will handle
procurement and manufacturing. The move follows a trend in the industry for
sharing R&D powertrain costs – PSA have developed their small diesel engines
with Ford.

The engines will be used in Peugeot and Citroen models and BMW’s Mini, but
not in BMW’s luxury cars. The Mini’s production targets of 130,000-140,000
units a year mean that most of the one million engines produced will be used
by Peugeot Citroen, despite the costs being split evenly.

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Even though BMW seems to be paying more than its fair share in an alliance
that will see Peugeot Citroen taking most of the output, the agreement is
still good news for BMW. Its petrol engines for the Mini are currently
produced in Brazil under a joint venture with DaimlerChrysler.

However, this venture is operating significantly below capacity after Chrysler cut its engine requirements, putting the plant’s future in question. The plant can
manufacture 250,000 engines per year, but Chrysler is now taking just 3,000
per year while BMW takes 100,000.

Although BMW says that the PSA alliance will not impact on the Brazilian
joint venture, the latter now looks set to be wound down within the next
five years. BMW is acting now to reduce its dependence on its
DaimlerChrysler alliance, and to ensure it has an engine supply for the


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