No room at Mercedes US plant to manufacture C-Class because of SUV demand – 40 000 vehicle production might move to East London plant.
In a move that speaks volumes about the evolution of Mercedes-Benz and US consumers, the luxury automaker is considering booting its best-selling sedan out of US production, say sources familiar with the situation, to make way for the vehicles Americans want most – light trucks, according to a report in Automotive News.
Where and when the C-Class will move are unclear and Mercedes executives have declined to comment on the plan, which forecasters believe will come as early as next year.
The shift is a telling move
Mercedes spent nearly five years moving the C-Class into production at its sole US factory, in Vance, Alabama. It announced the decision during the global economic downturn in 2009, braving a backlash from German union officials who decried losing such a cornerstone of German factory output to the non-union Alabama plant.
It required considerable time and money to retool the US assembly line and find local suppliers to finally launch the American C-Class in 2014. At the time, Mercedes estimated the move was creating 1 000 US jobs.
Now, just five years later, the sedan appears headed out of America – a casualty of shifting US consumer trends. According to industry forecaster LMC Automotive, C-Class sedan production in Vance will end in the fourth quarter of 2020.
Mercedes Benz began production of the C-Class at its Tuscaloosa Plant in Alabama, US in 2009
That scenario represents a new reality for a company that was long defined by luxury sedans and coupes and was once hesitant to sell a single light truck. It’s a different Mercedes. The company expects SUVs and crossovers to represent about 60 per cent of its sales in the US next year. Its American factory is already feeling the pinch of that reality.
Where the future is
The 560 000m² Alabama plant is operating at 93 per cent capacity, and is preparing to introduce more SUVs and crossover volume. Alabama is the global production source of Mercedes’ flagship GLS SUV, and GLE and GLE Coupe crossovers. Global GLS sales have been forecast to increase 30 per cent over the next four years, while GLE crossover sales are expected to grow 28 per cent during that time.
“The SUV has really expanded from a consumer standpoint,” said Jeff Schuster, president of global forecasting at LMC. “That’s where the volume is. That’s where the future is.”
The C-Class sedan remains Mercedes’ second-best selling model line in the US but it is losing momentum to SUVs and crossovers. In 2015 US sales recorded were 81 886, which was a 31% share of US production. This figure has steadily been dropping and it is forecast that in 2019 it will be 43 240 and 19% share of Mercedes production. In 2018 the figures were 46 986 and 20%.
Mercedes-Benz USA CEO Dietmar Exler declined to comment when asked about the possible C-Class production move. Daimler’s incoming chairman, Ola Källenius, also declined to comment when asked. In a statement Daimler said, “We do not comment on speculation.” But the statement added: “The Mercedes-Benz Cars production network reacts flexibly on market demands and plant capacities.”
Exler provided a more reflective outlook, telling Automotive News that SUVs are ‘the perfect vehicle for the United States’.
“Americans like their space,” he said. “They like the convenience of SUVs. The US demographically will stay as a suburban country.”
In addition to Alabama, the C-Class is made in Bremen, Germany; East London, South Africa; and Beijing. C-Class production from the US could head to the Mercedes South Africa plant, which produces C-Class sedans for export to right and left-hand drive markets. The plant has 25 per cent production capacity available, according to LMC data.
The Mercedes campus in Alabama, US
Meanwhile, the Alabama factory is amid a $1 billion expansion as it preps to launch electric vehicles. Mercedes predicts its EQ sub brand of EVs could account for 15 to 25 per cent of its global sales by 2025. Those plans represent even more competition for the US factory’s production capacity.
The decision facing the Mercedes US plant is symptomatic of the seismic shift in consumer tastes away from sedans. That shift is especially pronounced in the luxury segment, where consumers want it all – comfort, performance and roominess.
Crossovers and SUVs accounted for 64 per cent of new luxury vehicle sales in the US last year, according to the Automotive News Data Center. That share is up 14 percentage points from 2015.
“That’s leading to a lot of tough decisions in the industry on the car side of the business,” Schuster said. “This is one of them.”
In hindsight, Mercedes’ 2009 decision to bring sedan production to Alabama might seem to be a mistake. But at the time of that announcement, America was loyal to sedans. And about the time the C-Class launched, light trucks accounted for just more than half of the passenger vehicle market, 53 per cent in 2014 and 57 per cent in 2015. Today, light trucks account for 70 per cent.
“That’s how fast the market has swung in the other direction,” said Ron Harbour, a manufacturing consultant with Oliver Wyman. “The market has really caught a lot of people flat-footed.”
LMC forecasts US C-Class deliveries to nosedive 47 per cent this year from 2015. Sales will continue to slip 13 per cent more until the C-Class redesign in 2021.
As sales slide, so has the C class’ share of production in Alabama – down to 20 per cent last year from 31 per cent in 2015, LMC said. Compounding that changing equation: The Alabama C-Class is strapped with an aging design from 2014.
Supply and demand
“The sedan-to-light trucks transition illustrates the need for automakers to be nimble with their production strategies so they can adjust to market conditions. What it’s really revealing is who’s good at flexibility and capital efficiency,” said Harbour.
“Honda, for instance, has standardised vehicle architecture and assembly processes across its models to make factory moves easier. That allows Honda to move production between plants faster and for less money,” added Harbour.
Honda manufacturing veteran Chuck Ernst, retired senior vice president of the automaker’s production unit in Lincoln, Alabama was tasked with making vehicle moves similar to the scenario facing Mercedes.
At about the time Mercedes was deciding to move its C-Class from Germany to Alabama, Honda found that rising gasoline prices were deflating sales of its Alabama-built Odyssey minivan and Pilot crossover. And just as Mercedes brought over the C-Class from Germany, Ernst and the Honda team introduced the big-volume Accord from Honda’s plant in Marysville, Ohio, to Alabama.
“If you need volume to keep the business viable within a facility the best thing you can do is swap out what’s not selling with what is selling,” said Ernst.