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BMW Stays Close to Its Home

High-cost Germany would appear to be the last place to open a new car plant. German car workers on average earn seven times more and work 10% fewer hours than their Eastern European counterparts.

But on Friday, Chancellor Gerhard Schroeder officially opened BMW's $1.7-billion factory in Leipzig in eastern Germany.

At a time when other European carmakers and manufacturers are moving production to low-cost countries in Eastern and Central Europe, BMW's futuristic factory, designed in part by award-winning Iraqi-born architect Zaha Hadid, looks like a big gamble.

BMW chose Leipzig for a plant to build its bestselling 3-Series model over a site in the Czech Republic after a sharply contested selection process.

At stake is whether Germany can compete against its lower-cost neighbors and remain a manufacturing powerhouse.

Industry analysts are doubtful. Many were stupefied by the decision. Some believe it could be the last large car plant to be built in Western Europe — a monument to the influence that politicians wield over an industry employing 1 in 7 Germans.

Jurgen Pieper, an analyst at private bank Metzler in Frankfurt, said there was little doubt that the decision by the Munich-based automaker to locate in Leipzig was a political one. Moving more jobs out of a country where unemployment is at postwar record levels would have been highly sensitive.

But Helmut Panke, BMW's chief executive, insists that the factory is a blueprint for how manufacturing in Germany can survive. Panke acknowledges that, even taking into account the 363 million euros ($455 million) of EU aid received for investing in Leipzig, a Czech factory would have been cheaper. The difference was "qualitative factors," he said.

Read more about this BMW story here

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