Germany's carmakers go abroad to grow

As the yen weakens and Europe's debt crisis spreads, Volkswagen and its German peers are planning to spend more than US$25 billion by 2017 to expand production outside their home region and insulate themselves from currency convulsions.

BMW, already among the largest German carmakers to export from the US, says it will start producing its new X4 sport-utility vehicle at its factory in South Carolina, in addition to the other three SUVs it makes there. Daimler is expanding a Mercedes-Benz plant in Alabama, and VW's Audi is building a US$1.3 billion factory in Mexico.

The German carmakers' overseas investment leads European rivals PSA Peugeot Citroen, Renault and Fiat, which remain more focused on their home region. VW opened its 100th production facility this year - a US$550 million engine plant in Silao, Mexico - helping make it the world's most global carmaker.

VW has 77 per cent of its production capacity outside its home country, outpacing General Motors' 76 per cent and Toyota Motor's 59 per cent, consultancy Oliver Wyman estimates. BMW, Mercedes and Audi have a more diverse footprint than luxury rivals like Lexus, Cadillac and Volvo.

"Our approach is a global approach," Jonathan Browning, head of VW's US operations, said in a TV interview at the New York International Auto Show last month. "If you've got a spread of geographic presence, a spread of brand segments across the marketplace, then you can manage these fluctuations more easily."

The investments come even though the euro's 18 per cent slide against the dollar since its 2008 peak has made it more profitable for the Germans to manufacture at home. Daimler says its operating earnings got a €958 million (HK$9.7 billion) boost from currency swings last year as the euro sank to a two-year low against the US dollar. And with the greenback up almost 20 per cent against the yen since November, analysts expect Toyota's profit to jump 50 per cent this fiscal year.