DaimlerChrysler Investing $600 Million
in 2,000-Worker Alabama Project,
But Is It New or Expanded?

Everything's coming up bricks-and-mortar daises in DaimlerChrysler's (www.daimlerchrysler.com) once-controversial passage to Alabama.

"Our success would not have been possible without the great partnership we formed with the state of Alabama and without the strong work force that we have found here. Alabama has become an important home for Mercedes-Benz," DaimlerChrysler Chairman of the Board Juergen Hubbert told a press conference this week.

That would seem an understatement, considering the DaimlerChrysler blockbuster just announced at a location near Tuscaloosa, the site of automaker's first U.S. facility. The deal, in fact, qualifies as a rare real estate triple-triple:

• The project will add 2,000 new workers to the 1,900 employees now housed in DaimlerChrysler's Alabama plant;

• The project will increase production of the next-generation Mercedes-Benz M-Class sport utility vehicle from 80,000 units to roughly 160,000 units.

• The project will add 1.5 million sq. ft. (135,000 sq. m.) of space to the 1.2 million sq. ft. (108,000 sq. m.) now in place at the Alabama site (which includes a training institute and a visitor center in addition to the manufacturing facility).

DaimlerChrysler's US$600 million Alabama project also marks a 200 percent increase over the $300 million initially invested in the M-Class facility outside the tiny burg of Vance.

There was, however, no doubling of incentives. DaimlerChrysler received a much-debated incentive package valued at US$253 million when it committed to Alabama in 1993. Alabama's incentive package for the new expansion in Vance will total some $119.3 million, said Gov. Don Siegelman. The state will provide $64.9 million in site infrastructure improvements and $54.4 million in tax breaks, Siegelman noted.

Still, the announcement will likely stir debate in some corners, most of it in Motor City.

M-Class Success Stirs the Expansion Pot

Simple demand was a major driver in steering this automotive blockbuster.

Some 220,000 M-Class vehicles have been produced since the Alabama plant went online in early 1997. Currently, approximately 80,000 vehicles are built annually, with the lines working two shifts. Each day, 350 finished vehicles come off the line.

That hasn't been enough. The M-Class has been such a hit, in fact, that DaimlerChrysler has had to make the vehicles elsewhere. In 1999, it decided to supplement capacity at the Vance plant by building M-Class vehicles in Graz, Austria, primarily to meet European demand. DaimlerChrysler officials said that the Steyr-Daimler-Puch factory in Graz will produce "up to 25,000 vehicles a year for a limited period of time."

In 1999, the Tuscaloosa plant and the Graz facility combined to produce 91,200 M-Class vehicles - a very bullish number for a pricey vehicle only introduced in 1997.

Said Hubbert, "The worldwide demand for the M-Class has exceeded all expectations and shows that Mercedes-Benz made the right decision when it entered the sport utility market and came to the U.S. to build it,"

Props for Alabama Labor

DaimlerChrysler's new project also seems a strong vote of confidence for Alabama workers, whose abilities to adapt to auto-industry demands were questioned by some analysts back in 1993.

"This expansion is a direct result of the hard work and commitment of our team members, " said Bill Taylor, president and CEO of Mercedes-Benz U.S. International, the Tuscaloosa-based subsidiary that manufactures the M-Class.

"The M-Class may be the vehicle we are building," Taylor added, "but our greatest product is our people. And they're ready to handle the growth coming our way."

Said Helmut Petri, Mercedes-Benz head of worldwide production, "The Tuscaloosa plant has only been in operation three years, yet in that short time it has established itself as a world-class production site for Mercedes-Benz. It has become a learning field for our entire company and an example of best practices."

Siegelman, it almost goes without saying, also heaped praise on state workers.

"Today, thanks to the continued dedication and commitment to excellence that DaimlerChrysler and Alabama workers share, Alabama continues to stake its claim as a formidable force in the automotive industry and in the world of business," the governor said.

"The partnership between Mercedes and Alabama provides hope and dreams of a better quality of life to Alabama families," Siegelman added. "In 1993, Mercedes took a chance. In 2000, they take a stand that says we believe in Alabama, we believe in Alabama workers, and we want the world to know it."

The DaimlerChrysler announcement marked the second major auto score for Siegelman and the state. Just a little over a year ago Honda announced that it was building a $400 million, 1,500-employee plant in the city of Lincoln, some 35 miles (59.5 km.) east of Birmingham. (For more, see June 1999's "Top Incentives Deal.")

But . . . What Is It?

The DaimlerChrysler project's only apparent controversy revolves around what to call it. Whether the plant is new or expanded is expected to be a matter of some debate.

Last week, prior to the project's official announcement, some Alabama officials were reportedly calling the project a new plant. If the operation is considered new, say auto industry analysts, it would probably qualify for more state incentives.

On the other hand, most automakers want their projects in the South to be perceived as expansions in the North. Southern expansions, say analysts, are much more palatable to auto union leaders. Projects perceived as new plants, on the other hand, are likely to rile union leaders, who much prefer to keep new operations rooted in union strongholds.

The UAW to date has been unable to organize Vance workers. As of this writing, UAW officials had not commented on DaimlerChrysler's latest Alabama project.

The new assembly line will be housed in a separate plant. However, it will produce a vehicle very much like the M-Class and will work hand-in-hand with the existing plant.

But the M-Class that's produced at DaimlerChrysler's new Alabama operation will likely be a somewhat different breed of horsepower-driven cat. Industry analysts conjecture that the future M-Class will use underbodies like those utilized in cars, not the current underbellies resembling pickup truck equipment.

And that change will likely spur another semantic debate: Should such vehicles be treated as light trucks, with more lenient air pollution, safety and fuel economy standards? Or should they be treated as cars?

Stay tuned on those two wars of words.