By Jorn Madslien Business reporter, BBC News

BMW chief Reithofer will reduce both costs and emissions

BMW Group chief Norbert Reithofer is likely to announce plans on Thursday to explore tactical alliances with parts suppliers, the BBC has learned.

The group is also planning to boost its production capacity in the US and use more locally-produced parts there.

BMW's share price has been slipping in recent months, so investors want it to find economies of scale and cut costs.

This would compensate for ballooning research and development (R&D) budgets, caused by its efforts to cut emissions.

See BMW's share price

BMW's boss told the BBC during a briefing earlier this month that he is confident of being able to cut average emissions by 25% by the end of 2008, in line with a voluntary industry agreement struck in 1998.

"We will make a big step in 2008," said Mr Reithofer, who is chairman of the BMW Group management board - a title equivalent to group chief executive.

Fuel economy

During the last five years, BMW has clocked up annual R&D costs of about 2,300 euros ($3,200; �1,600) per car, compared with 1,700 euros spent by Mercedes and 1,800 euros spent by Audi.

Much of the money has gone into the carmaker's Efficient Dynamics programme aimed at making engines more efficient, improve aerodynamics, reduce weight and capture energy during braking.

The programme has "reduced emissions by 19% across the (BMW Group's) range of cars", according to Lehman Brothers economist John Llewellyn, who this month published a report: The Business of Climate Change II.

In addition to making BMWs, the car maker manufactures Rolls-Royce and Mini in the UK. German media speculation suggests Mr Reithofer is eager to add a fourth marque to the line-up, and that this could form part of his strategy review, the first for the group since 2001.

Tactical partners

BMW is already working with arch-rival Mercedes to develop a petrol-electric hybrid engine for its executive saloons, namely the 7-series and the S-class.

It is also working with both General Motors and Mercedes' parent company Daimler to develop a different hybrid solution for other models.

BMW's efforts to cut emissions have pumped up its R&D budget

BMW has also worked with French mass-market manufacturer PSA Peugeot Citroen to develop a four-cylinder engine, in a partnership that has delivered economies of scale to BMW.

In return, PSA gained access to BMW's latest technology.

Looking ahead, BMW will explore tactical co-operation alliances with parts-makers and other suppliers.

"It is part of our strategic process," Mr Reithofer said.

"We have to make our production more efficient. The question is, do you have to do it yourself or is the supplier a better place to do it?"

Global production

Suppliers in North America are believed to be on BMW's radar as it prepares to raise the production capacity of its manufacturing plant in Spartanburg, South Carolina, from 140,000 to 200,000 cars per year.

"The planning phase is underway," Mr Reithofer said.

The car maker is also preparing to raise its production capacity in China to 41,000 cars per year.