Canada's Magna International is producing some of Europe's most prestigious cars in its own factories. Hello, Detroit.

August 14, 2003; John Turrettini writing for Forbes reportesd that by this fall a single factory in southern Austria will be churning out Saab convertibles, BMW sport utility vehicles and Mercedes-Benz station wagons. No, those carmakers haven't merged into some crazy-quilt behemoth. The owner of the factory: Magna International, a Toronto-based auto parts maker.

Magna , the world's seventh-largest auto supplier ($13 billion revenue in 2002), has turned its European subsidiary Magna Steyr into the only parts company offering automakers fully outsourced engineering and production. A car manufacturer provides Magna the styling for a new model and a chassis to build it off of, and Magna executes the engineering, builds the assembly line and produces the cars.

Except for a few small, mostly ill-fated efforts, you won't find American branded manufacturers having their cars built and engineered at outside plants. Overcapacity at company-owned factories and union opposition have slowed such plans.

But European manufacturers like Bayerische Motoren Werke, whose plants are already running flat out, are embracing the practice. Europe has a bit of history with this method. In past decades coach builders like Pininfarina in Italy and Karmann in Germany jazzed up designs and produced specialty cars, like Volkswagen's Karmann Ghia. Now Europeans are outsourcing engineering as well as design and production. The idea is to free up resources for a company's mainstay products, while getting niche vehicles out the door sooner.

BMW says that's why it turned to Magna to build its small SUV, the X3, which will debut in a few months. It's the first BMW built in a non-BMW plant. BMW says the move accelerated production of the estimated $35,000 car by several months. And costs should be lower, thanks in part to Magna's 30% lower labor costs in Austria compared with Germany's. Analysts also estimate that BMW's upfront costs, for defraying Magna's tooling and startup expenses, will be only about $100 million, rather than the estimated $500 million it would have cost to expand BMW's capacity. Merrill Lynch analyst John Casesa estimates BMW will pay Magna $14,000 for each X3 built; with sales plausibly reaching 100,000 in 2005, that's a $1.4 billion order.

Will customers pause before considering a BMW built by outsiders? Analysts say BMW essentially handed Magna its 3 Series sports sedan chassis and a final design for the X3, and told Magna to engineer and build the SUV off of the sedan. Not so, says BMW, which insists that virtually all the important engineering, apart from some of the final assembly execution, was done by BMW, and that the X3 is substantially different from the 3 Series.

Saab, too, turned to Magna when it decided to develop a convertible along with its new 9-3 sports sedan. Magna engineered much of the body-stiffening that convertibles require. The process allowed Saab to bring the drop-top to production at least a year earlier than it could have going it alone. The $40,000 convertible, which started production this summer, is the first Saab built outside Scandinavia and should account for 20% of Saab's U.S. sales. Saab will also benefit from the 6% labor-cost advantage Austria has over Sweden.

Magna Chief Executive Belinda Stronach is confident that North American carmakers will be inspired to do more outsourcing. But she has yet to win big contracts from Detroit, where the Big Three now use just 82% of capacity, according to CSM Worldwide, and aren't looking for new reasons to shut plants and incur layoff costs. Still, the wage differentials can't have escaped their notice. Their assembly plants use labor that costs $25 an hour, not including benefits; nonunionized Magna's labor cost in Canada is more like $15. Marc Neeb, an executive vice president, suggests Magna would even support unionization at its factories to entice the Big Three. Unionized supplier workers in Canada make about the same as their nonunion counterparts.

Both GM and Ford have experimented with farming out assembly work but have had questionable experiences. For Lincoln's 2002 Blackwood, an out-of-character $50,000 pickup truck, Ford outsourced to Magna the engineering and production of the vehicle's entire bed. Partly because of foul-ups at Magna that slowed production, the Blackwood became Detroit's biggest flop in decades, and Ford ended production after building just 1,900 instead of the planned 18,000. Ford and Magna say they have resolved their differences.

GM halfway embraced outsourcing in 2000 with its Chevy SSR pickup-roadster, a limited-production vehicle. It was engineered and developed mainly by Michigan auto supplier ASC, though GM assembles it. But according to consultants, volume production started behind schedule and over budget (which GM and ASC deny). The SSR is going on sale this summer, priced at $42,000. But GM says it's not even discussing outsourcing production of any other vehicles.

Chrysler is taking the leap with its new Crossfire coupe. It dispatched production to German coach builder Karmann to get the car to market just two years after it created a sensation at the 2001 Detroit auto show. Karmann is using Mercedes powertrains and axles. But it seems that Magna's brand of labor outsourcing will remain mostly a European phenomenon--for now.