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Mercedes makes America great again

sprinter
You want that before tomorrow? Source: Mercedes-Benz

Online shopping giant Amazon, which recently topped $1 trillion (€860 billion) in stock market value, is helping Daimler jump-start its expanded factory in Charleston, South Carolina – with an order of 20,000 Sprinter vans to be produced there.

The order makes Amazon the biggest customer of the vans worldwide, as the US company seeks to grow its delivery service with a partnership program for small delivery businesses. These partners will lease the vehicles for “last mile deliveries” as Amazon reduces its dependence on United Parcel Service, FedEx and the US Postal Service.

Plans for the factory have been in the works for three years, but the timing is serendipitous with the Trump administration demanding tighter conditions for the North American Free Trade Agreement (NAFTA) area.

A booming van market

With the US president threatening to impose a 25-percent punitive tariff on auto imports from Europe, producing the vehicles in the country is a smart move.

Though the Sprinter vans are already subject to the so-called “chicken tariff” – first introduced in the 1960s as a retaliatory measure for France and West Germany’s tariffs on US poultry – the carmaker was able to circumvent this 25 percent charge by shipping vans from German factories in two parts and doing the final assembly in the US. Now, the vans will come straight off the US assembly line.

The German carmaker tripled the size of the Charleston plant for van production to 900,000 square meters (9.7 million square feet), investing $500 million (€430 million) and creating 1,300 new jobs. Daimler, however, emphasized that the new US jobs do not come at the expense of jobs in Germany.

“The US is already the second-largest market for our Sprinter,” Volker Mornhinweg, head of Mercedes-Benz Vans, said at the official opening on Wednesday. “With the new, ultra-modern local production facility, we will be able to supply our customers in North America even faster and more flexibly in the future.”

Mercedes aims to significantly increase its market share from the current 10 percent with the new factory. In addition to Amazon, tradesmen, contractors and even the New York Police Department are Sprinter customers. The Mercedes van is also part of a new trend toward mini-RVs as outdoor fans adapt them for camping.

Tougher NAFTA terms

As talks continue for a revision of NAFTA, the impact on German producers in North America remains up in the air. The initial accord with Mexico states 40 to 45 percent of vehicle production must be paid $16 an hour to qualify for tariff-free trade in the zone. The local component requirement will be raised to 75 percent from 62.5 percent.

The latter is a tough hurdle for German automakers since they do not produce any engines in North America; also because their supply chains include many European and Asian components.

But it’s not over yet, said Joern Buss, a consultant at Oliver Wyman. Talks with Canada will continue and the US Congress still has its say on the agreement. Though Mr. Buss expects the final version will be along the lines of the initial accord between the US and Mexico, especially with regard to the local content requirement. That wouldn’t be a problem for the new plant.

Katharina Kort is a New York correspondent for Handelsblatt. Darrell Delamaide adapted this story into English for Handelsblatt Global. To contact the author: kort@handelsblatt.com

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