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Low-Cost Labor Pulls Mercedes to US

DOES Mercedes-Benz know something that General Motors doesn't? In the 1980s, GM and its Big Three brethren raced to transplant their operations offshore, to places like Mexico, South Korea, and Taiwan, in search of lower costs. But Mercedes is reversing that migration. It will soon break ground on a new, $300-million United States assembly plant designed to build an all-new sport-utility vehicle.

The German automaker is the latest in a long list of foreign carmakers with American "transplant" assembly plants. The roster includes Toyota, Honda, and Nissan, as well as Mercedes' archrival, BMW AG.

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Only two years ago, Mercedes officials insisted they would never build an American assembly line. But the turnaround is a pragmatic decision. "We're having a tremendous cost problem in Germany," says Mercedes-Benz vice chairman Helmut Werner.

According to the trade publication, Automotive Industries, German manufacturing costs average $22.39 an hour, compared to $15.38 in the US. The German auto union, IG Mettall, has bargained the industry's cushiest contract, shaving the work-week to 35 hours with 30 days paid vacation. "When you add that up, that works out to an effective absentee rate of 25 percent," says John McElroy, editor of Automotive Industries.

Mercedes says it has not finalized the site. But insiders place the overwhelming odds either on North Carolina, where its Freightliner subsidiary operates several truck plants, or in South Carolina. That is a right-to-work state - one of the main reasons why BMW decided to build its plant in Spartanburg, S.C. BMW has said it hopes to keep the factory nonunion.

But focusing so much attention on labor costs is a mistake, warns James Womack, co-author of the authoritative study on automotive manufacturing: "The Machine That Changed The World." "If you start off by saying: `how can I cut wages?' you've asked the wrong question, and you'll come up with the wrong answer," he says, adding that the real question, is: "How effectively do you use all your people?"

Right now, industry experts say Mercedes' answer would have to be "badly." The company's traditional emphasis on engineering did not take into account the needs of the assembly plant, so its products are overly complicated to build. According to a study by Automotive Industries magazine, Mercedes needs 122 manhours of labor for each 300-series car it builds at its most efficient German plant, which is in Rastatt.

BMW, by comparison, will need no more than 53 manhours for each of the 300-series vehicles it will build in Spartanburg, S. C. Ford Motor Company's Wixom, Mich., plant - one of Ford's least efficient - needs an average of just 37 manhours to assemble such products as the Lincoln Continental and the Lincoln Mark VIII.

To take maximum advantage of lower American labor costs, Mercedes will have to drastically rethink the way it designs and engineers its products. That's "an opportunity" the company will get by stepping outside of Germany and starting a new product, insists Mr. Werner of Mercedes.

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Mercedes - and BMW - don't have to look far to find an example of what would happen if they don't do things differently. Nearly 20 years ago, Volkswagen AG built a transplant assembly plant in Westmoreland, Pa.

It was, Dr. Womack says, a "complete catastrophe... . Everything was wrong: horrible, frictional relationship with the union, bad quality, crummy productivity."

Ultimately, the factory failed, closing in 1988. VW continues to build cars in a Mexican plant, but quality problems have delayed the launch of several Mexican-made products by almost a year.

To better learn its lessons, Mercedes hopes to hire many of its top US manufacturing executives away from Japanese "transplant" assembly lines that dot the country.

Factories like the Honda assembly line in Marysville, Ohio, show that Japan's so-called "lean" manufacturing system can be transplanted to the US, improving quality, and, in tandem with the weak dollar, yielding perhaps the lowest production costs of any assembly plants in the industrialized world.

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