DaimlerChrysler is apparently considering building its new C-class range in more efficient plants in Germany and South Africa rather than the present base at Sindelfingen. The trend towards building cars in cheaper locations worldwide is not about to be reversed, despite the outcry such decisions provoke. In the long term DaimlerChrysler may have little choice but to move out of Germany.
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According to the company, the fate of the Sindelfingen factory depends on whether staff there can agree to cost cutting measures to save €500 million a year by 2008. The company insists that if the savings are not achieved, the new sedan range will be built elsewhere with the loss of 6,000 posts.
Workers at the plant have agreed to forgo contractual pay increases in 2006, which will save €180 million. However, they have resisted further cuts proposed by the company, with an estimated 30,000 employees downing tools in protest on July 15.
If the switch does go ahead the auto giant would only be following an industry wide trend towards shifting production of vehicles and parts to lower cost zones and more efficient factories. Key destinations for vehicle manufacturers include China and eastern Europe, both of which boast the advantage of relatively low labour costs compared to western Europe.
DaimlerChrysler, on the other hand, has indicated that the C-class can be produced more cheaply both in South Africa and at its factory in Bremen in northern Germany. This is in fact a subtle change to the ‘low production cost’ model, in that the company is seemingly suggesting that it is not inherently too expensive to produce cars in Germany; rather that workers in Stuttgart must become more efficient. Yet in the long term, if DaimlerChrysler does retain a manufacturing presence in Germany, only the most cost effective operations are likely to survive.
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By GlobalDataGiven the intense competition between rival players in the auto manufacturing sector, companies will continue to seek to reduce production costs as far as possible to stay ahead. DaimlerChrysler will be anxious to avoid the political fallout of mass closures and job losses in its German homeland, but looking to the future it seems inevitable that the bulk of production will be undertaken wherever in the world is cheapest.
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