'Mercedes Benz and BMW have decided to build new cars in the US, the land of weak unions'

Thanks to a grant from the Lion King, the Big Cat will keep assembling cars exclusively in Britain. Yet Jaguar's decision, heavily influenced by Michael Heseltine's help, goes against recent trends in the car industry. Cheap labour, a youthful workforce and easy access to big markets: these are the factors deciding where to locate car factories today.

It would therefore have been no surprise had Jaguar's owner, Ford, decided to build the new, medium-sized luxury car in Detroit rather than Birmingham. America, after all, is easily Jaguar's biggest market. Of all developed countries, its workers are among the cheapest.

Mercedes-Benz and BMW, Jaguar's main rivals, have already decided to build new cars in the land of weak unions, flexible workers and affluent consumers. Not only are the two prides of the German car industry heading Stateside; but they are heading to a part of the US not previously associated with car building: the Deep South.

BMW has already started production in Spartanburg, South Carolina, and work is proceeding on Mercedes' new factory in Tuscaloosa, Alabama; manufacture begins in two years. BMW's move may be bolder - it is to make a new roadster, the Z3, in Spartanburg at a time when the world roadster market is tiny.

It is Mercedes' move which is the more surprising. Alabama is poor - at least by America's bountiful standards. It has got higher-than-average illiteracy, it is still associated with race riots and the incarceration of Martin Luther King and the Montgomery bus boycott. And it is probably no coincidence that Alabama is the home of America's most famous fictional simpleton, Forrest Gump. The state also reintroduced chain gangs earlier this year. Not an obvious location for Europe's greatest car maker and keeper of the most prestigious motoring badge to build its first big factory outside Germany.

The new All-Activity Vehicle (AAV), a Land Rover Discovery-sized and priced off-roader, rolls off the line in two years. European sales will start in spring 1998. The vastness of the site - only about a quarter is being cleared for the AAV factory - suggests Mercedes has big plans for Tuscaloosa.

At the announcement that Alabama was Mercedes' favoured site, Helmut Werner, chief executive, said Tuscaloosa was "a cornerstone for how Mercedes will operate in future in worldwide markets". The implication is that before too much longer, Mercedes would be building more of its cars in Tuscaloosa, and possibly other yet-to-be-announced foreign sites. Germany is simply becoming too expensive, too unionised, too bureaucratic. The future, for car building if not car development, will most likely be in locations with well-educated (Tuscaloosa has a large University of Alabama campus) yet none-too-pricey workforces, backed by generous state or local government subsidies. Alabama gave Mercedes $253m to set up shop there.

As one German Mercedes manager at Tuscaloosa brusquely put it: "With a new greenfield site and with new young workers, you don't get any of the social baggage we have in Germany." It is precisely the same thinking that went into Nissan's decision to locate its European plant in Sunderland.

The average rate in manufacturing in Alabama is $7 an hour. Mercedes will pay its Tuscaloosa workers about $15 an hour, 30 per cent less than it pays in Germany (and that is not including the social "extras"). It is paying above the local odds because it wants good people. In its first wave of hiring, which will result in 1,500 being employed by the end of the decade, Mercedes received 63,000 applications.

Mercedes would do well to study the problems that have beset BMW since the company started production in South Carolina earlier this year. The workers may be cheap, bright and young, the factory is modern and large, but the quality of the cars so far - BMW 3-series models bound for the US market - has been poor.

This is ominous, since production is about to begin of the crucial new Z3 roadster, to be made exclusively in South Carolina and to be exported around the world. If Spartanburg makes a mess of that, there are no German factories to help out.

The problems not only include poorly assembled local parts, but a serious rift between German management and local bosses - particularly those the company headhunted from Honda in America. The cultural gulf between Honda-trained Americans and Germans brought up by BMW is said to be enormous.

In order to operate as "one team", Mercedes is not poaching from rival makers. Management consists mostly of experienced Germans, or of young Alabamians who will be trained by Mercedes. Senior local workers are being tutored in Germany to do things "the Mercedes way".

BMW's early problems show the difficulties involved in trying to export a European car-making culture to America. Volkswagen was the last high- profile failure at making cars there; Renault failed earlier. That the Japanese usually succeed is something about which Jaguar need not worry. This company will remain a European maker. Ford, aware of the possible cultural problems involved in making Jaguars in Detroit, must be very glad.

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