Mercedes pushes the capacity envelope

Company plans to build 1.1 million vehicles in 2005

Stuttgart, Germany. Although Mercedes Car Group sold just 366,500 cars through April, down 2.7 percent compared with a year ago, its production volume this year is expected to remain stable.

"It will be roughly at the same level as 2004," Heinz-Heinrich Weingarten, executive vice president for production at Mercedes Car Group, said in interview.

Last year, Mercedes built 1.1 million cars worldwide. "We utilized nearly 100 percent of our existing capacity," Weingarten said.

Among Mercedes' plants, the U.S. factory in Vance, Alabama, stands out.

"When it reaches full capacity, it will account for about 20 percent of the Mercedes Car Group's revenues," he said.

The M- and R-class models assembled in Alabama will be sold in all markets starting next year. The plant should reach its full capacity of 160,000 units a year in 2007 "at the earliest," Weingarten said.

That would mean two shifts operating 240 workdays a year, with 40-hour workweeks. A benefit from production in the U.S. is the lower cost of labor. Mercedes line workers in Germany earn $48 (about 38 euros) an hour on average compared with $27 an hour in Alabama.

Big investment

Vertical integration at the Vance plant "stands at 30 percent, on average, like all our factories, and thus slightly more than the industry average," Weingarten said.

In its launch phase, suppliers took on as much as 83 percent of the added value.

Mercedes has invested about $600 million to upgrade the Vance plant. It expects to pour about 2 billion euros into each of its three German factories -- Sindelfingen, Rastatt and Bremen -- between now and 2006.

While only Mercedes models will be built in Mercedes factories, the company plans to be more flexible when it comes to production in new markets. "In plants outside of Germany, where select complete knocked down vehicles are being assembled, Mercedes and Chrysler vehicles can be built in the same factory," Weingarten said.

He points to common assembly with Mitsubishi in South Africa as an example. The company is getting ready to assemble Chrysler vehicles in China. Worldwide, the Mercedes Car Group has six assembly plants and six CKD facilities.

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