[Caught Looking]

Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury vehicles, is progressing with plans for a second North American factory to tap rising demand for its vehicles in the region.

“We will decide this in the next months,” Harald Krueger, BMW’s production chief, said in an interview in an internal publication for staff obtained by Bloomberg News. “On the North American continent, there’s still potential.”

BMW has been narrowing the list of locations, with at least two sites in Mexico still being considered, people familiar with the matter said. The Munich-based carmaker is weighing building its bestselling 3-Series at the new plant, said one of the people, who asked not to be identified discussing internal deliberations.

Chief Executive Officer Norbert Reithofer said last month that BMW will need an additional factory in the region “at some point” as part of an expansion to fend off Volkswagen AG (VOW)’s Audi and Daimler AG (DAI)’s Mercedes-Benz. BMW announced plans March 28 to spend $1 billion expanding its South Carolina plant, which will become its largest facility worldwide.

“As part of our long-term growth strategy we’re frequently looking at different countries for possible locations for future production,” Mathias Schmidt, a BMW spokesman, said by phone. “No decisions have been made yet, though, for a new plant in North America.”

BMW will raise production capacity 50 percent in Spartanburg, which assembles sport-utility vehicles, by 2016 to 450,000 vehicles and add a large SUV called the X7. The carmaker’s biggest factory has been in Dingolfing near Munich, where it produces the 3-, 5-, 6- and 7-Series. The automaker built 342,000 cars in Dingolfing last year.

BMW posted its best March sales ever in the U.S. and narrowed the gap to Mercedes, which claimed the top spot in North American luxury-car sales last year. BMW sold 32,107 vehicles last month, an increase of 19 percent. Mercedes delivered 27,401 vehicles, an 11 percent gain.

BMW increased U.S. first-quarter deliveries 12 percent to 72,377 vehicles. Mercedes’s sales in the period rose 5 percent to 72,614, while Audi gained 3 percent to 35,228.The U.S. was BMW’s second-biggest sales region last year, accounting for 19 percent of global volume.

“Specifically for BMW it makes sense to widen production in North America, because it’s such a large market for them,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. “It helps to produce close to where the demand is. Currency fluctuations have increasingly become a problem.”

Record Deliveries

BMW, Audi and Mercedes-Benz are all planning record global deliveries in 2014 on growth in China and the U.S., the world’s two largest auto markets. All three are adding capacity as demand outstrips production.

Mercedes announced plans last month to spend 1 billion euros ($1.4 billion) to double capacity at its Beijing plant to more than 200,000 autos a year in 2015.

Stuttgart, Germany-based Mercedes, which ranks third in luxury-car sales to BMW and Audi, makes SUVs at a factory in Tuscaloosa, Alabama, where it’s adding production of the C-Class sedan in June. Daimler CEO Dieter Zetsche said last month the company may set up a new plant in North America to add capacity as he rolls out 30 new models by the end of the decade, a dozen of which will have to predecessor.

Audi, which doesn’t yet produce vehicles in the region, is constructing a $1.3 billion factory in San Jose Chiapa, Mexico, that’s scheduled to begin building the Q5 SUV in 2016.

Production in North America helps European automakers reduce exposure to swings of the dollar-euro exchange rate. Currency shifts may weigh on car-division revenue this year, BMW said in March.

[pmeloche]

A plant in Mexico. It worked so well for Volkswagen.