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BMW logos are seen next to the production line of the German car manufacturer's plant in the Bavarian city of Dingolfing in this file picture. (MICHAELA REHLE/REUTERS)
BMW logos are seen next to the production line of the German car manufacturer's plant in the Bavarian city of Dingolfing in this file picture. (MICHAELA REHLE/REUTERS)

Magna may need new plant if it wins more auto contracts Add to ...

Magna International Inc. will likely need to build a new assembly plant if it wins more contracts to manufacture vehicles, chief executive officer Don Walker says.

The Canadian auto parts giant and Germany-based car maker BMW AG announced Thursday that the new version of BMW’s 5 Series sedan will be assembled at Magna’s plant in Graz, Austria, beginning next year.

That contract, plus another to build so-far unidentified vehicles for Jaguar Land Rover Ltd., and the extension of an agreement to make a Mercedes-Benz sport utility vehicle in Graz, will take production volume in the Magna plant up to 200,000 vehicles a year.

The Graz plant, called Magna Steyr, will be at full capacity later in the decade, Mr. Walker said.

Related: Magna wins major BMW contract

Magna has no plans at the moment to build a new assembly facility, he said. But another plant would be necessary if the company were to sign more contracts that would generate production of 150,000 to 250,000 vehicles a year.

Neither BMW nor Magna would reveal how many cars Magna Steyr is expected to build, but industry sources said in January that annual production should be about 100,000. The cars will also be built at BMW’s existing plant in Dingolfing, Germany.

Global sales of the 5 Series sedan hit 287,663 in 2015 and fell 2.1 per cent to 183,240 in the first eight months of 2016.

Magna began assembling vehicles for BMW in 2003, when it launched the X3 crossover. The Graz plant then built two vehicles for BMW’s Mini brand. Production of the 5 Series will replace output of the Mini vehicles.

“In the last 15 years of our collaboration, Magna has proven to be a trusted partner with expertise in world-class production capabilities, Oliver Zipse, BMW management board member responsible for production, said in a statement.

Magna said in January that revenue from its vehicle assembly business is expected to more than double by 2018 to between $5.3-billion (U.S.) and $5.8-billion. That compares with a forecast that the contract assembly business will generate revenue between $1.7-billion and $2-billion this year.

It’s generally a lower-profit-margin business than other Magna operations, such as its Cosma metal stamping division, but Mr. Walker said the return on invested capital means it makes sense for Magna to pursue more contracts.

“The return on capital can be very good,” depending on how the contracts are structured, he said.

Assembling vehicles also provides a window for Magna Steyr to get involved in the engineering and development of new vehicles.

Magna Steyr also has access early in the vehicle development process to new technologies being developed by Magna’s other divisions, including back-up cameras and other navigation aids, and front grilles that open and close automatically depending on when air flow is needed.

New entrants to the automotive business could also decide it makes sense to contract out vehicle manufacturing, he added, although he would not identify any companies involved in discussions with Magna.

Apple Inc. and the Google division of Alphabet Inc. are among the technology giants that have put vehicles on the road or are testing them.

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