VIENNA -- BMW is expanding its engine plant in Steyr, Austria, to help meet an anticipated 27 percent vehicle production increase.
BMW wants to pass Mercedes-Benz as the world's No. 1 premium car company by 2008.
The automaker, based in Munich, Germany, aims to build up to 1.4 million BMW, Mini and Rolls-Royce units by 2007. BMW built 1.1 million vehicles worldwide last year.
BMW's largest engine plant, BMW Motoren GmbH, will get a E500 million upgrade -- the plant's seventh expansion since it opened 25 years ago.
The expansion will allow the factory to sustain the company's desire to boost its engine production while at the same time cutting costs.
BMW Motoren produced 597,000 engines working three shifts last year, a 6.4 percent increase.
The plant will produce about the same number of engines after the 37,000-square-meter expansion but on two shifts instead of three.
A third shift could be added to meet any future demand increases.
While production rose last year, revenue at the 100 percent BMW subsidiary only increased 5.5 percent to E1.86 billion.
BMW Motoren President Werner Adelsberger said that BMW expects the same thing from all its subsidiaries and suppliers: substantial reductions in the cost of production and parts every year.
BMW Motoren produces four- and six-cylinder diesel engines plus six-cylinder gasoline motors.
The plant improvement also will help BMW meet increased European demand for diesel engines.
More than 40 percent of new-car sales in western Europe in 2002 were diesels, according to ACEA, the European automakers association.
BMW Motoren is home to the BMW group's diesel engine research and development center.
Engineers there have just finished developing particulate filters for exhaust systems on BMW's 3.0-liter diesel motors and the new 2.5-liter 177hp diesel engines due to arrive on the market this spring.