BMW to Start Building X5, X6 in Kaliningrad

BMW will start assembling its X5 and X6 models at its Kaliningrad plant in July, hoping to gain an edge against rivals, the carmaker said Thursday.

A second production line will be opened at the Avtotor plant, and 2,000 cars -- 1,000 of each model -- will be made this year.

Localization could bring the price on the models down by 8 percent to 10 percent, said Christian Kremer, president of BMW Group Russia.

"This way, we are closer to the market, to demand, to the customers," Kremer said. "The competition in the premium segment is tight, and localizing will give us a competitive advantage."

BMW currently imports the X5 and X6 -- lighter crossover SUVs -- from the United States. But it has raised prices on all imports by 11 percent because of the ruble devaluation and increasing import tariffs.

The X5, which starts at about 2.8 million rubles ($84,000), is a bestseller in Russia for BMW, accounting for about 20 percent of total sales in January and February. BMW already assembles the 3-series and 5-series in Kaliningrad, as well as the X3 SUV.

Foreign automakers have raised prices in Russia by 23 percent on average since last summer in response to import tariffs and the ruble, according to Avtostat, an industry consultancy. Volvo announced on Thursday that it would increase prices on cars released in 2008 by 9 percent and cars released in 2009 by 12.9 percent.

The two production lines that BMW will have at Avtotor will have the capacity for 15,000 vehicles per year. Some 6,000 to 7,000 units will be produced in Russia this year, Kremer said.

BMW's line at Avtotor localizes production by 30 percent, but it does not make sense to expand localization further because the production volume is still not large enough, Kremer said. "It makes sense after the 15,000-vehicle mark," he said.

Globally, BMW is not immune to the financial crisis, with sales for the first two months of 2009 dropping by 25 percent, but in Russia, BMW increased sales by 13 percent to 2,404 cars.

Luxury brands have not been as hard hit as the Russian car market in general, which sagged by 36 percent in the first two months of the year, according to figures from the Association of European Businesses.

"Luxury cars are not mass-produced, and sales right now are made on cars that were ordered in November," said Mikhail Pak, a transportation analyst with Metropol. "A decrease in sales in this segment is possible in two to three months."