Daimler Bets That What's Good for Alabama is Good For Fuzhou

Last Updated Apr 19, 2010 8:30 AM EDT

The United States was a proving ground for Mercedes-Benz and the rest of the auto industry for the idea that "built by Mercedes-Benz" was more important to customers than "built in Germany." Now it's China's turn.

Starting in 1997, customers readily accepted Mercedes-Benz SUVs built in Tuscaloosa, Ala. Back then, Mercedes-Benz, a unit of Daimler (DAI), already had a factory in South Africa to get around high tariffs in that country. Otherwise, the idea of building cars overseas was a new one for the brand. Acceptance was an important concern for customers in other markets, too, because the Alabama plant exports all over the world.

BMW (BAMXY.PK) had already successfully started building cars in the United States, in Greer, S.C., so it wasn't an entirely new idea, but success wasn't a given.

Another German manufacturer, Volkswagen (VLKAF.PK), had such a terrible experience building cars in a converted Chrysler plant in Pennsylvania in the 1980s that it ultimately closed the UAW-represented plant. Customers back then went out of their way to avoid buying the U.S.-built models, because quality was so poor.

Lesson learned: start with a greenfield plant and all-new (and not incidentally, non-union) hires. Volkswagen is now building an all-new factory in Chattanooga, Tenn.

(By the way, before anybody complains, in my opinion the lousy quality VW produced in Pennsylvania was more a reflection on VW, and not so much on the union. VW says it has no official position one way or the other whether Tennessee workers at its new U.S. factory join the union. Yeah, right.)

Today, Mercedes-Benz has passenger-car plants in the United States, France, South Africa, Brazil, China, India, Vietnam and Indonesia. It is also building a new plant in Hungary, which is scheduled to go into operation in 2012.

In 2009, Germany was still the brand's biggest single market, accounting for 27 percent of passenger-car sales. The rest of Western Europe accounted for 30 percent; the United States, 19 percent; China, 6 percent; and Japan, 2 percent.

Meanwhile Daimler reported earlier this week that production began at a new joint-venture assembly line in China inside an existing factory, to build up to 40,000 commercial vans a year. The factory, in Fuzhou, China, was established in 2007, making it one of the company's newest factories worldwide.

Based on experience, Daimler can be pretty sure that Chinese customers won't try to shop around for a German-built vehicle.

Photo: Daimler