Tough to gauge BMW’s China problem

A South Carolina trade delegation led by Gov. Nikki Haley will be at the big auto show in Frankfurt, Germany, which in 2013 (above) attracted more than 1,000 exhibitors.

Ask Bobby Hitt whether China’s economic roller coaster might affect Greer’s BMW Manufacturing plant — by far South Carolina’s largest exporter — and he’ll give a terse answer: No.

Data, however, indicate the issue might be more complex than the state commerce secretary’s one-word retort.

A report last month in Financial Times, an international business newspaper, shows BMW’s sales growth in China — typically in the double digits over the past few years — slowed to 2.3 percent during the first six months of 2015.

In May, year-over-year sales dropped by 4 percent — BMW’s first decline in China in more than a decade. That followed an anemic 0.6 percent increase the previous month. Sales were down again in June, by a slight 0.1 percent, and they tumbled 7.4 percent in July — the month before China devalued its currency, shocking world markets.

News reports this summer say BMW dealers in China have been discounting their vehicles by as much as 25 percent to 35 percent to move product.

“BMW is under pressure in China from a cooling economy, a government move to rein in luxury car prices, a trial program allowing unauthorized dealers to sell imported cars and tensions with Chinese dealership groups,” the Reuters news agency reported in June.

After recording a second-quarter decline in profits, attributed in part to slow China sales, BMW said in a statement that “if conditions on the Chinese market become more challenging, we cannot rule out a possible effect on the BMW Group’s outlook.”

Just how much of that flows back to the Upstate manufacturing plant is hard to say, because specific numbers for that facility are opaque. Spokeswoman Kelly Wamsley said BMW in Greer doesn’t keep financial statistics based on exports to specific countries.

“The vehicles themselves are shipped to ports, rather than countries, and then make their final transit to the dealerships via rail, truck etc. in the country or region,” she said.

A majority of Greer’s BMWs go to the Port of Bremerhaven in Germany, which serves Eastern Europe. Next, a U.K. port serves Britain, France, Spain and Portugal. The third-busiest port for Greer-made BMWs is the Port of Shanghai, which serves China.

Wamsley said the Greer plant doesn’t track the dollar value of its exports to various worldwide ports.

Federal statistics show BMW in Greer exported a total of $9.2 billion worth of vehicles from Charleston to foreign countries in 2014, more than any other car manufacturer in the nation. Those statistics don’t break down the dollar value by country or port.

Erin Dhand, spokeswoman for the State Ports Authority, which operates the Charleston port, said roughly 20,000 BMWs, or about $767 million worth of vehicles, leave the port every month. If only 10 percent of those cars made their way to China, a monthly sales drop of 7.4 percent — like that experienced in July — would amount to a nearly $5.7 million shortfall. Just for that one month.

The percentage of Greer-made vehicles going to China likely is higher — and the financial exposure greater — because the Port of Shanghai handles 10,000 incoming BMWs every month. Some of those BMWs are made overseas, but many are born in the Palmetto State. Yet, again, specifics are hard to pin down.

Dhand said the SPA doesn’t release such figures because they are proprietary to its clients. BMW in Greer also declines to disclose its China statistics.

The near-term future for China’s overall automobile sales isn’t good, according to a Morningstar report in late August that projects year-over-year numbers to be flat or to fall by as much as 3 percent through 2016.

“We think year-over-year comparisons will get worse before they get better, remaining negative through the first six months of 2016,” Morningstar analyst Richard Hilgert said in the report. “Pricing in the Chinese market has deteriorated and will remain a concern through at least the end of the year.”

All of this is a backdrop to next week’s European trip by Gov. Nikki Haley, commerce officials and others to bolster South Carolina’s automative industry cluster.

During a conference call this week, Hitt, the commerce secretary, said 15-20 trade delegates — including David Ginn, CEO of the Charleston Regional Development Alliance — will travel to Gothenburg, Sweden, and the German cities of Munich and Frankfurt for confabs with carmakers and suppliers.

The state and local officials will meet with executives at Sweden’s Volvo headquarters — Volvo is building its first U.S. plant in Berkeley County — as well as leaders at BMW, and the automaker’s suppliers, in Munich and will attend the International Motor Show in Frankfurt. The trip, which will cost state taxpayers about $50,000, will last from Wednesday through Sept. 17.

“We don’t go to these shows and expect to come back and say here are three announcements,” said Hitt, who is sending a deputy to represent Commerce. “These are really learning adventures.”

Overwhelmingly, the focus will be on finding new businesses interested in setting up shop in South Carolina.

But with BMW’s looming problems in China, the stop in Munich also might benefit from Haley’s own advice about the state’s No. 1 economic development mission, expressed earlier this year when she addressed President Obama’s Export Council.

Talking about lessons learned during the recession, she said: “What we knew was that, number one, we had to take care of the businesses we already had.”

That includes the BMW plant and its suppliers in 28 counties — an industrial cluster that, during China’s recent heyday was generating about $1.8 billion in annual pay for nearly 31,000 workers.

Reach David Wren at 937-5550 or on Twitter at @David_Wren_

Note: This story has been updated to correct the dollar figure for a hypothetical monthly loss on BMW sales in China. It is $5.7 million, not $57 million.