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Daimler to invest 1 billion euros in Hungarian plant
July 29, 2016 / 8:20 AM / a year ago

Daimler to invest 1 billion euros in Hungarian plant

FRANKFURT/BUDAPEST (Reuters) - Daimler AG (DAIGn.DE) said on Friday it would build a new factory in Hungary to make Mercedes-Benz cars, giving a major boost to the local economy and raising the competitive pressure on the luxury automaker’s established plants in Germany.

The logo of Mercedes Benz is seen on top of a car factory against the background of an overcast sky in the central Hungarian town of Kecskemet, 90 km (56 miles) south of Budapest. REUTERS/Laszlo Balogh

Daimler will spend 1 billion euros (£844.2 million) by 2020 to expand its site at Kecskemet, central Hungary, where it will add 2,500 jobs, it said in a statement.

The new factory will be the first plant capable of producing both compact cars and larger limousines, Mercedes-Benz said, adding flexibility to the carmaker’s production network, which has depended mainly on Germany and China to produce limousines.

Mercedes-Benz is running its factories at full capacity and struggling to expand its existing production sites in Germany after a strategy shift to give cars a more upmarket appeal gained traction with customers.

Hungary, which relies on the auto industry for a third of its industrial output, is likely to see a 3 percent export boost and a 0.4 percent increase in economic output once the factory is at full capacity, Foreign Minister Peter Szijjarto said.

Szijjarto told a press conference the new plant would almost double the capacity of the current site to 330,000 vehicles compared with the 180,000 manufactured last year. Mercedes-Benz made 1.87 million cars in 2015.

A Daimler sign name is pictured during the company's annual news conference in Stuttgart, Germany, February 4, 2016. REUTERS/Michaela Rehle

Szijjarto put Daimler’s decision to expand in Hungary partly down to the country’s economic policy, adding the government had also offered incentives worth 12.9 billion forints (£34.9 million).

Other carmakers in Hungary include Mercedes-Benz rival Audi (NSUG.DE), which has invested more than 8 billion euros since 1993, Japan’s Suzuki (7269.T) and General Motors (GM.N).

    So far, Mercedes-Benz has had production lines making either rear-wheel drive models such as the E-Class or C-Class or front-wheel drive models, like the A-Class, B-Class or CLA. Kecskemet has only built smaller vehicles.

    A Mercedes-Benz spokesman said it was too early to say which rear-wheel drive models would be built at the new factory.

    German labour unions have sought guarantees to retain production of higher-margin models in their home plants.

    “The Mercedes-Benz product portfolio currently consists of 32 models,” Daimler said. “In the near future, the company will offer 40 models... (and) gradually electrify all Mercedes-Benz passenger car model series.”

    The company will be able to produce alternative power train systems in Hungary, it added.

    Reporting by Budapest and Frankfurt newsrooms; Writing by Marton Dunai; Editing by Jane Merriman and Mark Potter

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