December 2, 2009
BIRMINGHAM, Ala. - Finance, marketing and retail experts in the University of Alabama at Birmingham (UAB) School of Business say the decision by German car manufacturer Mercedes-Benz to move some production of a popular sedan to Alabama will likely save the company millions of dollars in production and labor costs while helping to boost the state's bottom line with new taxes and improved employment.
On Dec. 2, Mercedes-Benz owner Daimler AG announced that its assembly plant in Vance would begin production of its next generation C-class sedan starting in 2014, a move that will create as many as 1,000 new jobs.
Why the move benefits Daimler AG and Mercedes-Benz
Andreas Rauterkus, Ph.D., assistant professor in the UAB Department of Accounting and Finance, says a weak U.S. dollar has made European exports to North America, like Mercedes vehicles, very expensive for companies.
"The company cannot pass the cost of exchange-rate risk on to the consumer without pricing itself out of the market, so the company is circumventing that problem by moving some production to Alabama," Rauterkus says. "By moving 20 percent of the worldwide production of the C-class to Alabama, which is roughly the percentage of C-class vehicles sold in North America, the company avoids taking a revenue hit on those sales - made in dollars - in this country."
"Lower taxes and lower employee-benefit costs are just two examples of ways the company will save on labor through this move, and that does not factor in any possible incentives the state of Alabama provided Daimler to move the production to the plant in Vance," he says.
Why the move benefits Alabama
Bob Robicheaux, Ph.D., professor and chair in the UAB Department of Marketing, Industrial Distribution and Economics, says the new jobs created by the Mercedes-Benz production shift will create jobs well beyond the automaker's Vance plant, and that will help increase tax revenues to the state.
"I'd point to the multiplier impact that this decision has on the state," Robicheaux says. "This expansion will not only expand employment at Mercedes, it also will increase employment among the tier-one and tier-two supplier companies that have operations in Alabama.
"Growing the operations of these industrial parts distributors further increases Alabama's profile as a manufacturing hub and could help lure additional companies or even industries to the state," he says. "The message that this is sending to the world will remind everyone and reinforce the message that Alabama is a great state for business."
About the UAB School of Business
Known for its innovative and interdisciplinary approach to education at both the graduate and undergraduate levels, the University of Alabama at Birmingham (UAB) is an internationally renowned research university and academic medical center. Capitalizing on the campus' location in the heart of Alabama's largest city and business center, the UAB School of Business offers unparalleled student access to internships as well as part- and full-time employment opportunities with the state's most significant companies.