Future BMW X3: Made in the U.S.A.

BMW AG has made it official: It will build the next generation of the X3 SUV in-house, at its plant in Spartanburg, South Carolina, when its current contract runs out in 2010–2011.

While not unexpected, it is a blow for Magna International which currently assembles the X3 for BMW at its Magna Steyr plant in Graz, Austria. In preparation for the addition of the X3, which launched in January 2004, Magna purchased its next-door neighbor, Chrysler’s Eurostar plant that was making minivans and PT Cruisers. Once Magna owned the whole complex, minivan production moved to Magna’s original plant; PT Cruisers were consolidated at the Toluca, Mexico, plant; and the vacated Eurostar space was prepped to set Magna up as the sole source for the new BMW.

In 2006, the X3 represented about 45 percent of Graz’s total vehicle output. But the writing has been on the wall since BMW officials began suggesting the next X3 could share underpinnings with the Z4—and both could end up adopting the new 3-series architecture.

BMW is spending $3 billion to expand capacity at Spartanburg within three years from 140,000 units annually to 200,000. It already revamped operations, replacing two separate assembly lines with a single flexible one that builds the Z4 and the midsize X5 SUV. The new coupe-shaped X6 (based on the X5) also will be sourced out of South Carolina next year. The continued strength of the euro vs. the dollar is one of the reasons for building more of the BMW lineup in the U.S.

Meanwhile, Magna, which specializes in niche-vehicle production, says it is talking to customers to fill the excess capacity that looms in a couple years. That includes discussions with BMW, which is studying whether to source a different vehicle from Graz. The German automaker could be mulling something along the lines of the Concept CS revealed last month at the Shanghai auto show, and based on the 7-series. Or a smaller luxury sports tourer, based on the 5-series, could be under consideration.

It’s not been a good week for Magna. The Canadian parts maker also learned it lost out on its bid to buy Chrysler Group. Cerberus Capital Management is buying an 80.1 percent stake in the automaker in a deal expected to close in the third quarter.