Daimler Attaches Strings to Proposed Russia Plant

ST. PETERSBURG – Daimler demands additional concessions from the Russian government as it plans to build a Mercedes car-assembly plant in the St. Petersburg region.

A spokesman for Denis Manturov, Minister of Industry and Trade, says the government likely will meet the German automaker’s requirements because of the recession and lack of new foreign investors.

Sources close to the St. Petersburg regional government say Daimler has asked Gov. Georgy Poltavchenko to provide a 125-acre (50 ha) site in the city’s Pushkinsky District for the plant , along with associated infrastructure investment, without compensation from the automaker.

Maxim Meyksin, chairman of the St. Petersburg Committee on Industrial Policy and Innovations, says Daimler also seeks government guarantees on return of investment, including compensation for construction costs if the project is loss-making. And the automaker has called for additional tax benefits and breaks.

Manturov’s spokesman says in addition to St. Petersburg, Daimler still is considering building the plant in or near Moscow.

Regardless of where the facility is built, a recently adopted government policy will allow Daimler to import parts into Russia duty-free. This is because the automaker operates a joint manufacturing venture with KamAZ , one of Russia’s largest truck makers.

In addition to its heavy-truck-manufacturing JV with KamAZ, Daimler has a similar agreement with truck maker GAZ for the production of midsize commercial vehicles.

No other foreign automakers have sought such far-reaching stipulations from the Russian government for establishing a production facility in the country. The concessions granted to Daimler would comply with federal law banning the granting of benefits to foreign investors to the detriment of state security interests.

Russian Mercedes sales fell 26.2% year-on-year in July and were down 6.8% for the year’s first seven months, one of the smallest declines among light-vehicle manufacturers in the country, according to WardsAuto data. Overall LV sales were down 27.5% in July and were off 35.3% year-to-date.