BMW bets big on South Carolina

April 2, 2014, 1:00 PM UTC

The German automaker is investing $1 billion in its factory in Spartanburg, and it will become BMW’s biggest manufacturing facility.

FORTUNE — The words “auto industry” bring to mind Detroit, Nagoya — even Georgetown, Ky., the U.S. home of Toyota Camry.

Add Spartanburg, S.C., to the list of manufacturing hotspots. That’s where BMW AG last week announced it will invest $1 billion to build the equivalent of a new factory to its already formidable U.S. production site. Following the expansion, BMW’s U.S. complex will become the automaker’s biggest, larger than any it operates in Germany, its home.

Roughly 70% of the Spartanburg plant’s production is exported, representing a value of about $7.5 billion. The impact on the U.S. trade deficit would be larger if it didn’t have to be adjusted by subtracting the value of engines imported from Europe for the vehicles.

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The engines and transmissions, the soul of any vehicle, are imported from BMW’s European plants. The automaker dismisses rumors that additional production of vehicles may create a business case for its first engine and transmission plant in North America.

(Take note, European buyers of BMW SAVs: The engine in your vehicle has crossed the Atlantic twice!)

BMW will undertake the Spartanburg expansion to accommodate production of a new model, X7, a big, high-end, luxury SUV meant to compete with Range Rover, Cadillac Escalade, Lexus LX470, Porsche Cayenne, and expected entries from Bentley and Rolls-Royce. The new vehicle will feature three rows of seating.

“I have been asked many times: Why don’t you offer a BMW X model beyond the BMW X5? And today, I’m happy to provide the answer to that question,” said Dr. Norbert Reithofer, chairman of BMW’s board of management last week. “I promise this SAV will also be highly fuel-efficient while offering outstanding driving performance. It will be a true BMW. ”

BMW over the past 20 years has concentrated global production of its SUVs — which it insists on calling SAVs or “sport activity vehicles” — in South Carolina. As such, BMW has become the biggest U.S. exporter of vehicles to non-NAFTA countries, and a major booster of the U.S. balance of trade.

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The expansion will take two years and boost production capacity to 450,000 vehicles annually from the current 300,000. BMW will hire 800 workers, boosting its force to 8,800. No doubt BMW management is keeping its eye on the United Auto Workers union, which has petitioned the National Labor Relations Board (NLRB) after losing a recognition election at Volkswagen AG’s plant in Chattanooga. The UAW has vowed to organize non-union car plants in the southern U.S.

Spartanburg already builds the X3, X4, X5, and X6 SUVs.

The role of BMW in changing the economic face of South Carolina can’t be overstated. In 1992, when BMW chose the state for its first relatively modest plant, the region was known mainly for an economy based on low-wage jobs in textile and agriculture. Once BMW proved that the state was friendly and conducive to manufacturing, it gained notice by others.

Boeing interviewed BMW executives before deciding to build a manufacturing site near Charleston for assembly of the 787 Dreamliner, employing 3,800. Production began in 2011.

South Carolina politicians understand that the weakness of labor unions in the state was a big lure to BMW and, afterward, to Boeing. The UAW, which has declared it must organize non-union auto plants across the South, will face plenty of opposition if it decides to turn its sights next on Spartanburg.