I live a hop, skip, and a jump -- or maybe just a hop on a good day -- from BMW's (OTC BB: BAMXF.PK) state-of-the-art U.S. manufacturing facility. For that reason alone, I'm acutely aware that, at a time when several of its competitors have been sputtering, the Munich-based company is zipping along like the proverbial well-oiled machine.

Sure, its shares have slid, along with the likes of Ford (NYSE: F) and General Motors (NYSE: GM), and even Toyota (NYSE: TM), Honda (NYSE: HMC), and Tata Motors (NYSE: TTM). But while Chrysler is planning to shut down production for a couple of weeks during the summer in a cost-saving effort, BMW is ramping up sales and has just announced a $750 million plant expansion near my Carolina hacienda.

The added capacity will permit the company to increase the plant's output by 50% by 2012. Most of the production from the South Carolina facilities involves turning out the company's successful X5 sport utility vehicle and its sporty Z4 roadster and coupe. A new X6 SUV coupe will be launched this year, and a hybrid version of the same vehicle is also slated for production.

Lowering expectations
Last week, J.D. Power & Associates chopped its forecast for U.S. auto sales in 2008. If accurate, its predicted 4.8% reduction for the year would represent the lowest level in 14 years. Meanwhile, BMW's sales hit a record of more than 1.5 million cars in 2007, and the company expects an even higher figure in 2008.

BMW's efforts toward growth and innovation extend to a variety of products and locations:

  • Its BMW Mini will begin rolling along Indian roads next year. At the same time, production of the X3 and the BMW 7 series could be initiated in that country.
  • BMW's efforts to be as green as possible could lead to the introduction of an electric car, a technology that management has decided is feasible. Beyond that, an effort to produce environmentally friendly cars for residents of large cities could result in the addition of a fourth brand within the BMW Group.
  • And BMW isn't neglecting its storied Rolls-Royce brand. Rolls' sales were up by 25% last year, and the company believes they'll climb still higher this year.

An international field
Of course, none of this is to imply that BMW is the only game in town when it comes to automotive success, even during these difficult times for the U.S. economy. My Foolish friends are too well-informed to buy that notion. Indeed, Toyota is cruising past Ford and General Motors en route to becoming the world's largest automobile manufacturer, while Honda and Tata both continue to roll.

Rather, my contention is that, to glom onto a word that statisticians frequently embrace, the world of automobile manufacturing is becoming progressively more "bifurcated." That simply means that those companies that stress innovation and quality are distinguishing themselves from those whose goal appears to be mere survival.

Widening gap
But from an investing perspective -- and while, as mentioned, BMW and Toyota haven't materially outstripped their less-successful peers during the past year -- I contend that we'll soon witness a widening of the valuation gap between the innovators and the survivors. Thus, I fail to understand why one would buy shares in Ford and totally forgo a dividend, when Toyota and Honda, for instance, yield more than 2%. And those companies' forward P/Es are not significantly higher than Ford's.

So, my advice to Fools who are driven to own shares of automotive companies is to focus on companies like BMW -- assuming you don't mind cavorting on European exchanges -- or perhaps Toyota. Before you know it, the inherent quality and innovativeness of those companies will likely come to the fore for their shareholders.

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BMW is a Motley Fool Stock Advisor recommendation, while Nissan and Tata Motors are both recommendations of the Motley Fool Global Gains newsletter. Try either market-beating service free for 30 days.

Fool contributor David Lee Smith is empty of any of the companies mentioned. He welcomes your questions or comments. The Fool has a finely tuned disclosure policy.