The Corporation: STRATEGIES
IN ALABAMA, THE SOUL OF A NEW MERCEDES?
Creeping along to ensure quality, the U.S. plant will launch the carmaker's first sport-utility vehicle this fall
When German auto maker Mercedes-Benz began to hire workers for its brand-new, $300 million plant for sport-utility vehicles on the outskirts of Tuscaloosa, Ala., it left nothing to chance. More than 40,000 applied for the 650 well-paid jobs, and company executives subjected thousands of the better candidates to as many as 80 hours each of intensive assessment. "It was the most difficult hiring process I had ever been through," says 38-year-old Lynn Snow, from a tiny town nearby.
Mercedes was looking for a certain type of person--strong on team skills, concerned with continuous improvement, and impressed with the importance of producing only the best. Snow made the cut in March, 1996, and, like 160 fellow Alabamans, was shipped off to work in a Mercedes plant in Germany. There, she lived and worked side by side with German employees for a month; some others stayed for up to six months. And when it was time to come home, Mercedes sent along more than 70 German colleagues to act as trainers in Tuscaloosa.
Today, Snow works on the door line of the Alabama plant, and Mercedes trainers remain by her side, double-checking the vehicles as they roll off the line--to make sure that they meet the fabled Mercedes standards. Although Snow had doubts whether the Germans and the Americans would mesh well, today she counts herself among the converted. Echoing her bosses, Snow proudly proclaims: "We are determined to build a quality vehicle."
HIGH STAKES. Mercedes execs are about to find out before an even tougher audience if they've succeeded. This month, the luxury carmaker is taking the wraps off Tuscaloosa's own all-new M-Class sport-utility vehicle by letting dealers and press get behind the wheel. One thing is clear: Mercedes cannot afford bad reviews.
The stakes extend well beyond the M-Class. In Alabama, Mercedes is not simply building its first sport-utility vehicle. It's building its first SUV in its first foreign plant, with its first non-German workforce. Even though the auto maker took a big gamble relying on workers who have never built an automobile--let alone a Mercedes--it had little choice.
To keep growing, Mercedes executives know they must broaden their customer base to include younger, less affluent buyers. That means sportier, cheaper models--and an escape from the trap of high-priced labor at home. The M-Class is just the first in a series of new vehicles Merceds is launching, and the first of several foreign plants planned. "It was once sacrosanct to talk about our cars being `Made in Germany,"' says Jurgen E. Schrempp, chief executive of Mercedes' parent, Daimler Benz. "We have to change that to `Made by Mercedes,' and never mind where they are assembled."
Consumers won't be able to check out the M-Class until the fall, when it hits showrooms. But so far, dealers and the automotive press have been impressed. The vehicle wins high marks for its state-of-the-art four-wheel drive, independent front and rear suspension, and door-mounted side-impact airbags. Its sleek design--which overshadows the boxy rival SUVs that glut the market--has also won raves. Best of all, Mercedes promises a base price of $35,000. That's not cheap, but it's clearly in line with the popular, fully loaded Ford Explorer or Jeep Grand Cherokee--and they don't sport a luxury lineage.
Even the opposition has good things to say about the M-Class. "You see a Mercedes that's going to go for $40,000 or so--well, I'd be tempted to buy one," says Michael W. Lowe, owner of two Jeep dealerships in Georgia. "They've got that great brand name."
Still, great brand or no, the M-Class will have to prove it can measure up to the competition in performance and handling. "The only downside to hitting a new segment is if it's a bad product," says John Casesa, an analyst at Schroder Wertheim & Co.
To avoid launching a lemon, Mercedes has taken a slow and steady approach. Since the first SUV rolled off the line in mid-February, Mercedes has maintained a glacier-like production pace. With the German trainers double-checking production as it flows out of every work station in the body shop, paint shop, and assembly line, the plant is turning out just 10 vehicles daily. And it's operating only one shift; a second won't go to work until September. Although Andreas Renschler, the 38-year-old engineer-turned-executive who has guided the M-Class since its start in 1993, expects production to reach 100 units a day by July, it will be at least a year before it hits the anticipated 270 vehicles a day required to meet its 70,000 annual output. "Volume is not the priority here," insists Schrempp. "The priority is quality, quality, quality."
EGALITARIAN. But ensuring that its fledgling workforce in Tuscaloosa can turn out a Mercedes-quality product has required more than just going slow. "In Germany, we don't say we build a car. We say we build a Mercedes," explains Sven Schoolman, a 31-year-old trainer from a plant in Sindelfingen. "We had to teach that." And the lessons had to be taught in a way that would appeal to American workers.
That meant going egalitarian. So company execs abandoned the strict hierarchy of the typical Mercedes production line in Germany. For Tuscaloosa, they borrowed heavily from Japanese rivals, hiring away several key managers from Toyota and Nissan plants in the U.S. They designed a plant in which the workers can unilaterally stop the assembly line to correct manufacturing problems. The plant has much less automation than typical German factories: Robots are used only to put in windshields. And everyone works in teams, which meet each morning to discuss problems with the trainers. "From the first day we went into the plant, they talked about teamwork," says Joseph McCarthy, a 38-year-worker on the trim line. "There's always somebody to help you."
Renschler has also worked hard to build a casual, cooperative atmosphere. No one sits in an office except him, and the de rigueur uniforms, even for Renschler himself, are polo shirts with names embroidered on the pocket. The collegiality extends beyond the plant, with Renschler often taking small groups of workers out for dinner or a beer after work. "The most important thing is to bring together the two cultures," he says. "You have to generate a kind of ownership of the plant."
Still, getting there has not always been easy. The state of Alabama badly wanted to win the plant--and coughed up $250 million in tax benefits and other aid to get it--but local residents at first worried about its impact. "There were some mixed emotions from some people when Mercedes came," says Snow. "Were there going to be lots of outsiders? Would everything change?"
Mercedes' enthusiasm helped dissipate many of those fears, while the rest have been dimmed by the rapid buildup of economic benefits. Indeed, the introduction of Mercedes has begun to transform the university town. As many as nine different auto-parts suppliers are moving to the area. Together, they've brought with them $225 million in additional investment and 1,200 new jobs. As at Mercedes, many of these factory jobs are well paid--offering more than a 50% premium on the average $8 to $10 an hour local manufacturers had paid.
GERMAN LESSONS. Those benefits have been widely felt. Tuscaloosa County's unemployment rate dropped by nearly one percentage point in one year alone, while nearby Birmingham--itself once a city of steel mills--has also profited. "We didn't pay all that money just to get Mercedes," says Neal Wade, president of the Economic Development Partnership of Alabama.
Locals, too, have warmed to the visitors. Now, Tuscaloosa schoolkids are taking German classes so they can baby-sit with the Mercedes trainers' children. German-language stations are included on local cable TV. And Tuscaloosa's traditional annual city festival has become Weindorf, an outdoor party featuring German food, beer, and music, all courtesy of Mercedes.
The celebrations are apt to grow bigger still: With the imminent introduction of the M-Class, Mercedes is talking about the next stage. Schrempp argues that there is considerable room to expand in Tuscaloosa and to extend the SUV lineup. The first year's production will have V-6 engines, but Mercedes is already planning to add a V-8 version by 1998. And another Mercedes exec hints that a super-luxury model selling for more than $50,000 is a real possibility.
Still, some analysts question whether Mercedes has moved too slowly into a crowded field. While the SUV market in the U.S. has been climbing steadily in recent years, many suspect that it is close to peaking at its current level of more than 2 million units a year.
Dealers, however, share none of this pessimism. Many concede they are already unofficially booking orders. Says Garth L. Blumenthal, general manager of Fletcher Jones Motor Cars Inc., a huge Mercedes dealership in Newport Beach, Calif.: "Our customers have been asking for a Mercedes-Benz sport-utility vehicle for the past 10 years." Mercedes and its Tuscaloosa workers have to hope that they aren't tired of waiting.By Bill Vlasic in Tuscaloosa, Ala.