Mercedes hires Valmet to build more A-Class cars

Tue Jul 24, 2012 6:50am EDT
 
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FRANKFURT (Reuters) - Daimler (DAIGn.DE: Quote) has awarded independent Finnish car manufacturer Valmet Automotive a contract to build more than 100,000 of its Mercedes-Benz A-Class compact cars from 2013 to 2016, the German automotive group said on Tuesday.

Daimler has received more than 40,000 orders for the A-Class, a volume model critical to its plans to close the gap with larger rivals BMW (BMWG.DE: Quote) and Audi (VOWG_p.DE: Quote), it said.

"Our new compacts are so popular with our customers that the Rastatt and Kecskemet plants are completely utilized. We signed Valmet as an experienced production specialist who will provide us with additional A-Class capacity as of 2013," Mercedes production chief Wolfgang Bernhard said in a statement.

Daimler said last week that it would invest a further 600 million euros ($727 million) by the end of next year in its Rastatt plant in Germany and add a third shift in October.

Bernstein analyst Max Warburton argues that it was Mercedes decision not to enter all market segments that has contributed primarily to its weak volume gains relative to BMW and Audi, forcing it to rely on higher sales of its existing models.

"Incremental models account for only 15 percent of Mercedes' growth over the past three years, versus BMW at over 90 percent and Audi at 115 percent," he wrote in a note earlier this month.

The need to outsource some production to third-party contractors such as Valmet highlights the significant split in the industry between the successful German premium brands and their mass-market European peers, which are suffering from too much spare capacity.

Whereas PSA Peugeot Citroen (PEUP.PA: Quote) and General Motors (GM.N: Quote) have each said that they aim to close a plant in Western Europe, BMW is in talks with Netherlands-based manufacturer NedCar to build premium Mini subcompacts in addition to two Mini models already built by Magna Steyr (MG.TO: Quote) in Graz, Austria.

Valmet Automotive, which also makes the Fisker Karma electric vehicle and is 60 percent owned by Finnish conglomerate Metso MEO1V.HE, said that the new contract with Daimler will allow it next year to call back 300 to 400 employees who had been laid off temporarily. It also hopes to be able to hire hundreds more new employees from 2014.

"We are very excited to manufacture for one of the world's most recognized automotive brands," Valmet President Ilpo Korhonen said.

(Reporting by Christiaan Hetzner; Editing by David Goodman)