Daimler Considering Production of Mercedes-Benz Cars in Russia

Apr 01, 2014 9:00 am ET

April 1 (Bloomberg) -- Daimler AG is examining whether to build Mercedes-Benz cars in Russia as part of a plan to widen the automaker’s global production capacity and assemble more vehicles near the markets where they’re purchased.

“We have been looking at the basic parameters and potential of local production of passenger cars in Russia, and have held various discussions,” Sebastian Wahle, a Daimler spokesman, said in an e-mailed statement. “These activities will be continued.”

The world’s third-largest maker of premium cars is seeking to expand production to meet 2020 growth targets, Wahle said, declining to provide a timeframe for any decision. Russian newspaper Vedomosti reported Mercedes’s interest earlier today.

Daimler Chief Executive Officer Dieter Zetsche has vowed to regain the top spot in global luxury sales after losing the No. 1 position to Bayerische Motoren Werke AG in 2005 and ceding second place to Volkswagen AG’s Audi in 2011. Mercedes announced plans last week to spend 1 billion euros ($ 1.38 billion) to more than double production at a Beijing plant.

In Russia, the car market was on the decline even before the country’s takeover of Crimea and massing of troops on Ukraine’s borders led to the biggest crisis between Russia and NATO countries since the end of the Cold War. Deliveries shrank 4 percent in January and February, following a 5.5 percent drop in 2013 to 2.78 million vehicles.

Global Expansion

Nonetheless, the market remains attractive because the country has far fewer cars per capita compared with Germany, Europe’s largest auto market, even after deliveries in Russia grew an average of 27 percent annually from 2010 through 2012. Russia has 142 million residents, while Germany, where 2.95 million cars were sold last year, has 80 million.

German luxury-car makers are all expanding factories to keep up with rising demand. BMW said March 28 that it would invest $1 billion to raise capacity 50 percent at a facility in South Carolina, while Audi AG is adding a new factory in Mexico. All three of the German premium automakers are building new plants in Brazil.

Daimler has a heavy trucks joint venture in Russia with OAO KamAZ which uses Mercedes-Benz cabs under a supply and licensing agreement. Daimler also provides engines and axles to KamAZ, in which Daimler currently controls a 15 percent stake. Daimler also builds an older version of the Sprinter van in the country.