Automotive body assembly systems contain multiple operations in multi-station processes. One of the most critical challenges for such manufacturing systems is dimensional quality, which is affected by the accumulation and propagation of variation caused by manufacturing imperfections. However, sheet metal part compliancy behavior makes the variation modeling method extremely intricate when both rigid (in-plane) and compliant (out-of-plane) variations are considered. This paper develops a more accurate variation propagation model to describe dimensional variation of sheet metal assembly in multi-station assembly system through involving both the variation types simultaneously as well as the impacts of assembly operations on each other. In this methodology, three sources of deviations—non-ideal parts, fixture errors, and assembly operations effects—are taken into account. The variation generated in every assembly operation (placing, clamping, fastening, and releasing steps) and the variation propagation through station-to-station interaction (repositioning) are analyzed by the transfer function mechanism. In the in-plane direction, the stream of variation analysis is adopted to obtain the rigid transfer function to describe the position and orientation relationships between part and assembly element errors. For the simulation of part deformation during the assembly process in the out-of-plane direction, the compliant transfer functions are extracted by variation response methodology. A nested state space model is used to integrate the overall assembly variation by updating part geometry after each assembly operation. The capability of proposed method is illustrated through a case study on an automotive body side assembly process.