Mercedes to Build Plant in Alabama : Rural Hamlet Beats Out Carolinas for $300-Million Facility

By DONALD W. NAUSS

Sept. 30, 1993 12 AM PT

TIMES STAFF WRITER

DETROIT —

In a surprise decision, Mercedes-Benz will announce today plans to build a $300-million assembly plant in rural Alabama, ending a two-year search for a U.S. site.

The factory will be built in the hamlet of Vance between Tuscaloosa and Birmingham. It will produce 60,000 sport utility vehicles a year, about two-thirds of which will be exported, when it begins operation in 1997. The facility will employ 1,500 people.

Mercedes officials privately confirmed the site selection after revealing that the company will hold a news conference this morning at the University of Alabama in Tuscaloosa.

“This is a tremendous boost for this area,” said James Albright, president of the Alabama AFL-CIO, noting that central Alabama has been hurt by the closing of paper, chemical and textile mills in recent years.

The German car maker’s decision to establish a new American plant illustrates the recent large gains in U.S. productivity. Japanese and European manufacturers are moving more operations here to insulate themselves from currency fluctuations and to take advantage of lower wages and production costs.

When Mercedes announced in April that it would assemble passenger vehicles in this country, Chairman Helmut Werner estimated that the company’s production costs would be 30% cheaper here compared to Germany.

Mercedes, the chief operating unit of the struggling Daimler-Benz conglomerate, follows in the footsteps of rival BMW, which is building a $350-million auto plant near Spartanburg, S.C.

Volkswagen’s German-based Audi division, Volvo of Sweden and Ford’s Britain-based Jaguar subsidiary reportedly are also considering U.S. production. Several Japanese manufacturers are considering expanding their U.S. manufacturing operations.

The choice of Alabama was unexpected because Mercedes was courted heavily by North and South Carolina, which have attracted hundreds of foreign manufacturers with lucrative incentives. Mercedes already has a heavy-truck plant in North Carolina. Locations near Durham, N.C., and Charleston, S.C., were thought to have the best shot at the new plant.

But Alabama state and local officials also dangled an attractive package of incentives, estimated to be worth more than $100 million.

“It was a team effort,” said Vance Mayor Mike Sanders, who also sits on the Tuscaloosa Industrial Development Council. The council was instrumental in luring Mercedes.

Tuscaloosa city and county governments agreed to spend $30 million to purchase and help develop the rolling, forested, 1,000-acre site in Vance, just off Interstate 59 about 20 miles east of Tuscaloosa. Birmingham officials kicked in $5 million. The property will be transferred to Mercedes for $100.

The Legislature, at the urging of Gov. Jim Folsom, also passed a law providing Mercedes with property, corporate and income tax abatements. The law allows Mercedes to keep 5% of workers’ pay and use it to pay down debt on the project. The workers get a state income tax credit for the deduction.

While Mercedes said it considered more than 100 locations in 30 states, the German officials focused much of their effort in the South, where manufacturing wages are low and union influence minimal.

Albright said legislation passed by the state requires that workers be paid a minimum of $8 to $10 an hour in the Mercedes plant. That compares to a statewide average manufacturing wage of $6.75 an hour.

But plants represented by the United Auto Workers union nationwide average about $17.50 an hour. Albright said there will be efforts to organize the plant, although most foreign auto makers have successfully resisted such efforts.

Mercedes officials have sidestepped questions about union representation.

“This is not decided by us, but by the people who will work for us,” Werner Niefer, president and chief executive, said in April.

The issue could be troublesome. The UAW has been waging a campaign against BMW, which has resisted unionization efforts at its Spartanburg facility. The union has charged that the luxury auto maker will pay substandard wages and notes that German auto workers make about $30 an hour.

Al Kinzer, president of BMW’s U.S. plant, said Tuesday that BMW will start its manufacturing workers at $12 an hour, moving up to $16 within two years. The workers will also be eligible for yearly attendance and performance bonuses.

The new plant is certain to change the way of life in Vance, a town of about 300 people. The residents’ livelihoods now revolve around cattle, cotton and soybeans. There are two sawmills and two topsoil producers.

“We hope it doesn’t change too much,” said Mayor Sanders, who is also a farmer. “But you know, you can take the boy out of the country, but you can’t take the country out of the boy.”

Mercedes’ decision to begin passenger vehicle production in the United States is part of a larger globalization strategy that it and several other auto makers are undertaking. Increasingly, auto makers are finding it advantageous to produce cars in the markets where they intend to sell most of them. This reduces trade tensions and eliminates adverse currency fluctuations.

The auto maker said the new plant will create 6,000 jobs at its suppliers. It plans to buy about 70% of its parts from U.S. vendors. However, the engines will be built in Germany.

Mercedes is not only building more plants outside Germany, where its labor costs are high and production processes outdated, but it is also moving beyond the luxury car market into new niches.

It chose Alabama to build its new sport utility vehicle, which will compete with the Ford Explorer and Jeep Grand Cherokee. The company said the vehicle will cost $25,000 to $30,000.

Sport utility vehicles are among the hottest-selling today. Sales jumped 19.6% to 1.1 million vehicles in 1992 and are up 25.4% to 654,357 in the first half of 1993.

Details regarding Mercedes’ sport utility vehicle have not been released, but company officials said it will be innovative. “We are not just going to copy what the competition has been doing,” said Werner.

Mercedes plans to export about two-thirds of the vehicles and sell about 25% of the remaining 20,000 in California.

Luring Mercedes

Several states sought to persuade Mercedes-Benz to build its first U.S. auto plant within their borders. Mercedes will announce today that it will build a $300-million plant in Vance, Ala. The plant is expected to begin operation in 1997 and will build 60,000 sports utility vehicles a year.

NEBRASKA: Governor offered help establishing training center and acquiring site outside Omaha.

TENNESSEE: Company toured old Clinch River breeder reactor site in Oak Ridge in July, but governor wouldn’t disclose if incentives were offered. Governor cited state’s high-tech training programs and fiber-optics network as advantages over the states.

NORTH CAROLINA: State offered $35-million training center, $20 million in land, $8 million in training programs, $15 million in roads, site prep, other infrastructure.

Long-term tax incentives would have been worth tens of millions.

SOUTH CAROLINA: State Ports Authority would have spent $33 million to buy and prepare site near Summerville and lease it for $1 a year.

Berkeley County offered 20-year property tax reduction. County and local officials offered $3 million for land next to site to entice parts suppliers.

ALABAMA: Tuscaloosa government offered $30 million to buy land, prepare site.

State to allow company to use money normally for income taxes to pay construction debt.

Exemption from most state and county property taxes for 10 years.

State training program for workers.

Source: State, local governments, Charlotte Observer

Sport Vehicles Roar Ahead

With its new plant in Alabama, Mercedes-Benz will enter the expanding sports utility vehicle market, now dominated by the Ford Explorer.

Vehicle Sales

Yearly sales except latest: As of Aug., 1993: 889,447

Market Share

Figures are year-to-date

Ford Explorer: 22.3%