Central European suppliers win big with Mercedes' new C class

Jason Stein | Jens Meiners | Automotive News Europe

Stuttgart, Germany - Mercedes-Benz is shifting a sizeable portion of its sourcing for the next C class to eastern Europe, joining other automakers in an industrywide search for quality parts at a lower price.

Mercedes will more than double its purchasing of components for the next lower-premium C class from eastern Europe, a company insider said. Sourcing from non-traditional markets will rise by 50 percent.

“We are talking about the complete supply chain [from eastern Europe],” the source said. “If the quality is there on the new C class, it is logical to bring those components to Germany.”

Mercedes sold 286,400 units of the C class and its derivatives in 2005, accounting for a third of total unit sales. Mercedes has historically relied on western European suppliers for the majority of components on the C class.

Cost is a major driver

Industry analysts estimate that labour costs in eastern Europe can be up to 50 percent lower than in western Europe.

Mercedes will source 28.5 percent of C class production material from eastern Europe, compared with 17 percent for the current model. Overall sourcing from markets outside western Europe and North America will rise to 45 percent from 30 percent. Most of those products will be electronic components, including CD changers.

In an interview with Automotive News Europe, Frank Deiss, vice president and head of material purchasing at Mercedes Car Group, declined to comment on the C class. But Deiss said emerging markets will play a larger role in Mercedes' purchasing in the future.

“We don't take enough advantage of emerging markets,” Deiss said.

Mercedes also plans to increase its purchasing from China and India over the next few years, Deiss said.

At the moment, Mercedes' purchases less than 10 percent of its parts from the Asia-Pacific region.

“I'm not satisfied at all with our activity in Southeast Asia,” said Deiss. “I'm also not satisfied in China.”

Mercedes already is using Chinese suppliers for production of the E class at a DaimlerChrysler factory near Beijing. But Deiss said he will consider using these suppliers for deliveries to Germany as well.

John Lawson, an analyst at Citigroup's London office, said quality is also a concern.

“Mercedes,” said Lawson, “can't afford any glitches on that side.”

From Automotive News Europe (A Crain publication)