ALABAMA Archives — Auto Trends Magazine

AM General to build the R-Class for Mercedes-Benz.

An earlier Mercedes-Benz R-Class model.

Mercedes-Benz has just one assembly plant in North America, but that Alabama facility is running at full capacity. There have been rumors over the past few years that Mercedes would either expand its plant or partner with another manufacturer to increase productivity, so on Tuesday the German automaker announced its plans.

Beginning this summer, new Mercedes R-Class models will drive off an AM General assembly line not far from South Bend, Indiana. The R-Class was introduced in 2005 and was distributed across the United States through 2012. Commencing in 2013, the R-Class has been shipped to China only where the new models are also destined.

Alabama Production Constraints

The shift to Indiana will free much needed space at Mercedes’ Tuscaloosa factory. Specifically, that plant will make room for other Mercedes-Benz models, including the GLE-Class and the GL-Class. Moreover, an all-new GLE Coupe is slated for the 2016 model year and will be assembled in Alabama as well.

Jason Hoff, CEO of Mercedes-Benz U.S. International, explained that Tuscaloosa “needs all available production capacities for this segment.” Like other luxury builders, Mercedes-Benz has been working diligently to keep up with utility vehicle demand.

Mercedes-Benz expects to assemble about 10,000 units of the long wheelbase version per year; it no longer builds the standard model. The company could have transferred production to China, but many of its suppliers are in the US. Besides, the migration to Indiana will be accomplished rapidly and the relationship with AM General will span several years.

UAW Organizing Quest

The shift of the R-Class to Indiana will also mean that those laborers will be working in a union environment. At the same time, Mercedes’ Tuscaloosa plant has been under the UAW’s scrutiny for years, as the union would like to organize those workers. All Daimler facilities except for Alabama are unionized. What pressure in shifting R-Class production to Indiana will have on union organizing in Alabama remains to be seen.

In a statement issued following Mercedes’ announcement, UAW Secretary-Treasurer Gary Casteel congratulated the company and employees “on this positive new development.” Casteel added, “Investing in the future with UAW Local 5 members in Indiana is a clear signal that Mercedes-Benz and Daimler value employee representation.” Furthermore, the union represents 7,000 Daimler workers in North America and most definitely would like to organize Tuscaloosa.

AM General and General Motors

Mercedes-Benz is not the first automaker AM General has hammered out a strategic partnership with — its most recent collaboration was with General Motors. That relationship was forged in 1998 when GM purchased the Hummer brand name from AM General, which was also building the military specification Humvee.

Only the pioneering Hummer H1 was assembled by AM General for GM, with its production terminated in 2006. Subsequent H2 and H3 models were based on existing GM platforms and built at GM facilities elsewhere. GM’s attempt to locate a buyer for Hummer after its bankruptcy and reorganization failed — the brand was dissolved in 2010 as dealers closed shop.

Competitors Need Capacity Too

As Mercedes-Benz shifts R-Class production away from Alabama and to a secondary facility, it may motivate those competitors with a limited manufacturing presence in North America to do likewise.

So far, BMW has been expanding its South Carolina plant to accommodate demand, while Audi has a plant under construction in Mexico. Furthermore, Lexus is shifting ES350 production from Japan to Kentucky, and Acura is now building its NSX super car in Ohio.

Finally, Volvo wants to shift some production to the United States, but its efforts seem focused on building a new plant in the Carolinas or Georgia. Other brands seem satisfied to work with what they have, importing vehicles from home country plants or wherever excess global capacity can be procured.

***Wikipedia photo courtesy of Rudolf Stricker***

Hyundai Kia Capacity Constraints

Sales for both brands have been held down in the past year as capacity constraints weigh in. Both manufacturers have just one North American plant with Hyundai’s based in Montgomery, Alabama, and Kia’s plant in Georgia. That West Point, Georgia, plant also builds the Hyundai Santa Fe, a model that Hyundai moved from Alabama soon after the plant opened.

Hyundai and Kia have been operating under an informal self-imposed capacity constraint as both US manufacturing plants operate at full tilt across three work shifts. Both companies also import cars from South Korea, but additional North American capacity is still needed.

Hyundai Accent five-door hatchback.

Kia Mexico Manufacturing

On June 2, 2014, Reuters reported that Kia Motors will build a new plant in Monterey, Mexico. That plant will build two small vehicles including perhaps the Kia Forte and Kia Rio. With a capacity of 300,000 units per year, it might also build a Hyundai product such as its compact Elantra. That would free up space for Hyundai to expand Sonata production, its popular midsize sedan that has been updated for 2015.

Hyundai and Kia had been rumored to be looking at new locations in the southern United States including the former GM plant near Shreveport, Louisiana, the future home to the three-wheeled Elio Motors trike. The Korean automakers, however, prefer to build its factories from the ground up instead of taking over existing facilities.

The Hyundai-Kia juggernaut has been increasing its global and US market share steadily for more than a decade. A new factory is planned in China and the Mexican factory, if built, would take approximately 21 months to complete. Thus, production would not begin before spring 2016 even if groundbreaking were held today. Likely, Hyundai and Kia will lose market share in 2016 without the expanded capacity notes Reuters.

Hyundai Kia Pricing Advantage

Producing cars in Mexico would enable the Korean automakers to gain some stability as higher labor costs and currency erosion has made it difficult to maintain a pricing advantage. Both brands have been known for pricing their vehicles about 5 percent below competitor’s prices and including more standard content. With competing manufacturers also turning to Mexico to find low-cost labor, that pricing advantage has been slipping away. Mexican built cars, incidentally, come by way of NAFTA and are included in North American build capacity.

The Kia brand has enjoyed strong growth in the past few years as it taps Hyundai platforms and powertrains to build new models of its own. For instance, the Kia Optima is based on the same platform underpinning the Hyundai Sonata and the Kia K900 is a derivative of the Hyundai Equus.

Turbocharged: Hyundai Sonata midsize sedan.

Auto Trends: Hyundai Kia Sales

Both Kia and Hyundai posted record US sales for May 2014.

Kia enjoyed a 14.8 percent year-over-year increase, selling 60,087 units. Its best-selling Optima sedan continues to lead with 16,843 unit sold for the month. Other strong sellers included its Soul multi purpose vehicle at 15,606 units and its Sorento crossover utility vehicle with 10,548 units sold.

Hyundai sales rose by 3.7 percent to 70,907 units. The company’s Elantra compact continues to lead, with 21,867 units sold followed by the Sonata at 20,404 models distributed. In third place was the Santa Fe crossover at 10,638 units. This CUV is also Hyundai’s fastest growing model.

Together, Hyundai and Kia are battling Nissan for sixth place in US sales. GM is on top followed by Ford, Toyota, Chrysler and Honda.

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ALABAMA

Mercedes-Benz Shifts R-Class Production to Indiana