Car Plant Gives Hope to East Germany

At first sight, high-cost Germany seems like the last place to open a new car plant. But the high productivity of German labor and a hefty dose of subsidies from the regional state of Saxony have prompted BMW's management to choose Leipzig as the location for their new factory nevertheless.

The BMW group invested about 1.3 billion euros ($1.7 billion) in the best modern-day car manufacturing has to offer -- some 360 million of that amount came in the form of subsidies from Saxony and the European Union. BMW will produce its 3 Series saloon in the new plant. Managers hope that in a few years it will reach full capacity production of 650 cars per day. Construction of the new plant took BMW just under three years.

The plant is the second big investment by a German automaker in Leipzig after luxury car manufacturer Porsche came to the town a few years ago. In his inaugural speech, German Chancellor Gerhard Schröder praised the new plant as a visible sign that Germany remains an attractive location for business.

"The secret of economic success is innovation," he said. "In view of the pressures of globalized markets, innovative strategies like those of BMW will keep Germany ahead of international competition and will ensure that our companies continue to be the best in the world in important technological areas."

An attractive location

In recent years, clever economic policies, including less bureaucracy and generous state subsidies, have lured a number of big German companies to the region. Germany's largest postal courier DHL is planning to make Leipzig airport an international hub for its services.

Siegfried Bülow, the head of Porsche's Leipzig plant, also spoke highly of the location.

"I can only recommend it," he said. "The support we've received here and the good infrastructure has made it easy for us to decide to come here. I believe this was also a prime reason for BMW to build its plant in Leipzig."

Indeed, Leipzig was able to beat more than 200 other locations all over Europe in a tough competition for the new plant. Now some 5,000 people have been given jobs there. Experts believe the same number of jobs will be created around the factory.

Words of caution

But Martin Rosenfeld from the Economic Institute in Halle said hopes for a major upswing in the depressed region are still premature.

"BMW will of course improve the job situation," he said. "But given the fact that there are about 50,000 people unemployed in Leipzig and more than 150,000 in the entire region, the new plant won't be able to make a substantial dent in unemployment there."