Mercedes Plans a $300-Million Factory in U.S.

Signaling the growing attractiveness of the United States as a manufacturing location, German luxury car maker Mercedes-Benz A.G. said Monday that it will build a $300-million plant in this country to produce a new sport utility vehicle.

A site for the new factory has not yet been chosen, but Mercedes plans to start production of the $25,000-to-$30,000 vehicles by 1997. It marks the first time Mercedes will produce passenger vehicles in the United States.

The decision by Mercedes comes at a time when the European auto market--the second largest after the United States--is particularly weak and when German car makers are facing severe problems. A weak U.S. dollar and the high cost of labor have made it difficult for the Germans to export cars to the United States.

For Mercedes, the decision is part of a broader strategy to increase efficiency and expand its product offerings worldwide. It follows an earlier decision by competitor Bayerische Motoren Werke A.G. (BMW) to build a $300-million factory near Spartanburg, S.C.

“The enormous potential of the United States as a market, as a production location and as a base for exports has been clearly demonstrated,” Mercedes-Benz Chairman Werner Neifer said at a press conference.

The factory will produce 60,000 vehicles a year, with about two-thirds to be exported to Europe. About 5,000 of the 20,000 vehicles to be sold in the United States are expected to go to dealers in California.

“This could be a very important car for us in California,” said Juergen Hubbert, who is in charge of passenger cars for Mercedes.

The plant will employ 1,500 workers and support another 5,000 supplier jobs. Company officials said it would be two to three months before a site would be chosen.

Mercedes is mulling more than 30 proposals from locations throughout the United States, Hubbert said. Speculation has centered on North and South Carolina because Mercedes’ corporate parent, Daimler-Benz A.G., has three truck plants in North Carolina. The Southeast is less unionized and has lower costs than other U.S. areas, and the Carolinas have been particularly successful at luring other German companies.

“The Carolinas offer some big advantages,” said Helmut Werner, vice chairman of Mercedes. “But some of the other offers are very attractive.”

After the press conference, he told reporters that Nebraska and Texas also are in the running. He declined to identify other states that were seeking the facility.

The new plant would likely be built from scratch, Mercedes officials said, but they did not rule out the possibility of acquiring a facility abandoned by a U.S. auto maker.

As the Japanese have entered the luxury car market, Mercedes has seen its sales slide. Its worldwide sales dropped to 530,000 vehicles in 1992 from 580,000 in 1991. Worse, BMW outsold Mercedes for the first time ever.

Analysts said that Mercedes’ flagging sales left it little choice but to seek new, less-costly products. “They don’t have any choice,” said Mary Ann Keller, an industry analyst. “Their costs are outrageous.”

The company hopes to energize sales with new products in proven markets. The sport utility sector has been one of the hottest in the United States, with annual sales soaring from 240,000 vehicles in 1980 to 1.1 million in 1992. It is also growing rapidly in Europe.

Mercedes offered scant details of what would separate its four-wheel-drive sport utility vehicle from others, except that it would offer technological innovations that its competitors do not have.

The new vehicles would compete with the Jeep Grand Cherokee and Ford Explorer XL and Mitsubishi Montero SR. The vehicle would be far cheaper than the Range Rover, which sells for more than $40,000.

It will be offered in two-door and four-door models, in both manual and automatic transmissions. Gas and diesel models are planned with four- and six-cylinder engines built in Germany.

The company acknowledged that it would have to seek greater operating efficiencies to be profitable with a 60,000 annual production run. Typically, 200,000 vehicles annually are needed to break even.