Daimler Joins the Move to US

We have noted that the combination of the chronically weak dollar, strong productivity gains, and the threat of protectionism will likely encourage foreign companies to boost their productive capacity in the United States. A couple of Japanese auto producers have already made recent moves in this direction. Today, Germany's Daimler said it will shift some of the production of its best-selling Mercedes-Benz Class C model to its US facility.

Daimler officials were quoted on the news wires indicating that the shift was part of a larger effort to bring production closer to its main sales regions and reduce exposure to the variability of currencies. According to reports, Daimler estimates that producing its car in the US saves about 2000 euros per car.

In respect to its German work force, Daimler argues that because producing closer to its customers will save the company money in terms of costs and exchange rate management, it will help protect employment in Germany too, though of course German labor unions see it differently.

Mercedes-Benz has one plant in the US and it is in Alabama. It opened in 1997. It produced 152.5 k cars last year. It sold about 251k vehicles in the US last year, about a 1/5 of its total global sales. By the time the shift is complete, it will hire about 4000 US workers up from 2800 now.

Separately, it touches on another theme we have discussed before and that is the real competitive pressure Detroit feels is not coming from Tokyo and Seoul as much as Alabama, Tennessee and California.

It also illustrates another point about the behavior of multinational companies and foreign direct investment flows. Cheap labor may not be the key attactor. Most of the US foreign direct investment, for example, is located in other high wage economies. The size of the local/regional market seems to be an important determinant as well.