In June, Mercedes finally received permission to assemble cars from kits in Beijing.
But it was a mixed blessing. In March, the Chinese government decreed that cars assembled from kits would be taxed at the same rate as imported cars. That rate next year will be 25 percent of the value of the car, up from 15 percent for kit cars previously.
The only way Mercedes can lower the tax rate is to buy parts locally - and that will take time. BMW, which opened its China plant in 2003, has a two-year head start over its archrival. About 20 percent of its parts are locally sourced, according to a supplier.
The tax bite is just another price DaimlerChrysler is paying for its cautious approach to China. In the world's fastest-growing automotive market, speed is a must despite the risks. Companies must grasp opportunities early, then trust in a local team to succeed.
Company and supplier sources say the centralized culture at DaimlerChrysler slows decision-making. And the company's operations in China have been troubled by friction between German and U.S. managers.
Sales numbers tell the story. DaimlerChrysler sold just 31,505 vehicles in China last year, all of them SUVs. In contrast, Chery Automobile Co. sold 86,567 and Geely Automobile Holdings Ltd. sold 96,693. Both are minor local automakers. Market leader Volkswagen AG sold 653,766.