SHENYANG, China -- The head of BMW AG's new China plant, the first pure-play luxury car maker in the country, admits he's perplexed by local attitudes.
Almost 90 percent of buyers for its China-made 3 and 5 Series models want white or silver. In Europe and North America, darker colors hold greater sway.
"As a European, I don't have an explanation for that," laughed BMW-Brilliance President Heinz-Juergen Preissler as he walked through a production line in the chilly northeastern city of Shenyang, a few hours drive from the North Korean border.
Incomprehensible or not, BMW is only too happy to deliver.
Demand is exploding, and there is a waiting list several weeks long of car-crazy Chinese, despite prices from $48,000 to $84,000. Those prices put a BMW beyond the reach of all but the wealthiest.
Executives admit it is now more costly to make BMWs in China than elsewhere. But it hopes to bring expenses down as its 7-month-old factory expands and gains scale, begins making engines and rides growing domestic demand.
"We are successful all over the world, so why should China be an exception?" asked Preissler, as half-built cars whizzed by on robotic arms and chestnut-colored leather seats awaited fitting.
BMW's popularity in China is driven by its brand power and the fact that it faces no direct, locally made luxury competitor.
Its closest rivals are Volkswagen AG's China-made Audis, although BMW's main German foe, DaimlerChrysler AG, plans to produce Mercedes-Benz cars in China.
In the first four months of the year, the joint venture between BMW and top mainland minibus maker Brilliance China Automotive Holdings Ltd. moved 3,877 cars.
Though Merrill Lynch analyst Grace Mak said early sales were slower than some had hoped, the BMW plant is still in the expanding stages after production started late last year.
But in a sign of the venture's profit power, Mak expects that by 2005, BMWs will account for 40 percent of earnings at Brilliance -- which makes the Zhonghua sedan, which has proved to be a poor seller.
Sitting at the end of a bumpy road on the outskirts of Shenyang, the factory is designed for initial capacity of 30,000 vehicles. The local government expects it to reach that level next year, though BMW is more cautious.
"We're pretty confident that the luxury segment will continue to grow," said Preissler, who joined BMW in 1969.
That's why BMW and Brilliance plan to invest $549.8 million in the venture to 2005, banking on demand from increasingly cash-rich, style-conscious and self-made Chinese, especially in the booming coastal regions.
"I think the middle class, self-employed people, architects, bankers and so on are the traditional BMW target groups," said the 59-year-old Preissler. "I don't think there is a major difference between European, American or the Asian markets."
Now the venture is pondering an engine plant and an expansion of its existing plant. The site already features a paint shop with capacity to spray 100,000 cars a year -- BMWs or Zhonghuas.
The government of Liaoning province, where Shenyang is, hopes the plant will produce 100,000 BMWs a year by 2010. BMW stresses nothing has been decided.
Still, the cachet of the BMW in China is such that the company says it attracts 30 to 50 applications for each job vacancy, and well over half its workers hold university degrees.
About 1,600 people, dressed in blue BMW-logoed T-shirts and overalls, work in the plant, including 60 foreign engineers. That work force is set to almost double to 3,000 by the end of 2005.
The BMW factory, with its minimalist, all-white showroom, sits next to the Brilliance plant. New BMWs are parked in long rows in vast lots near the plant's gates, awaiting delivery.
White and silver paint jobs predominate.
Now the challenge is to lower costs to compete with imports.
Under China's World Trade Organization entry commitments, import permit quotas will lapse next year, while tariffs will fall to 25 percent in July 2006 from about 40 percent now.
"At the end of the day, either you become competitive, or you have to leave the market," Preissler said.