Daimler May Build Mercedes Cars in Russia

ST. PETERSBURG, Russia – Daimler is planning to build Mercedes-Benz cars in Russia through a local partner, according to an official of the Russian Ministry of Industry and Trade and company sources.

Russian business paper Vedomosti, citing Daimler sources, says the automaker already has begun the search for a local partner with excess capacity in place that could accommodate Mercedes light-vehicle assembly.

There is no word on which models would be produced or what volumes would be targeted, but analysts says the GLK and GLA are among likely candidates, because local demand for CUVs has been growing rapidly.

The E-Class sedan also is seen as having high potential for domestic production, because that model line is popular with Russian officials and business executives. Local Mercedes dealers say the GLK and E-Class together account for about a third of all Mercedes passenger-vehicle sales in the country.

Mercedes-Benz Rus General Director Ian Madea first revealed plans for local car assembly about a year ago, suggesting a long-term vision that would lead to full production through a local partner.

Industry analysts here say Daimler is in dire need of a Russian production base, given the government’s recent decision to ban the purchase by state bodies and agencies of any cars produced outside the Customs Union of Russia, Belarus and Kazakhstan.

Daimler’s main competitors, BMW and Audi, already assemble cars in Russia, with BMW working with Avtotor in Kaliningrad and Audis built at Volkswagen’s factory in Kaluga.

Avtotor also is considered one of the potential partners for Daimler, a source close to the Industry and Trade Ministry says. Avtotor President Valery Draganav says his company is open to negotiations with all global automakers.

Truck Builders Potential LV Partners Too

Currently, Daimler has two projects here, a truck-building cooperation with Kamaz in Naberezhnye Chelny in the Russian Republic of Tartastan and a contract-manufacturing deal with Nizhny Novgorod-based GAZ Group for production of Sprinter Classic light-commercial vehicles.

Both those partners also are candidates to build cars for Mercedes either through contract assembly or full joint ventures, with semi-knocked-down operations to start. Initial investment likely would total about $50 million.

An official with Kamaz, partially owned by Daimler, confirms his company may be interested as part of the “Cortege” project initiated by the Industry and Trade Ministry to promote local production of premium cars for top government officials. MITI Deputy Minister Alexey Rakhmanov says the program will be launched this year and could involve production of Mercedes cars.

MITI analysts say local output is needed to support the brand’s rapid growth, pointing to sales of 44,376 Mercedes passenger vehicles in Russia last year, up 19% from 2012.

In comparison, sales of BMW reached 42,071 units in 2013, a gain of 12% from the previous year, with 30,186 assembled by Avtotor. Audi deliveries totaled 36,150 units, up 8% from 2012.