Mercedes opts to build new city cars in Germany

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MERCEDES-BENZ will build its small city car in Germany after considering cheaper rival options in Britain, France and the Czech Republic. It said it had succeeded in negotiating the DM200m ( pounds 79m) a year savings needed to make the Rastatt plant in Baden- Wurttemberg competitive with foreign locations.

Helmut Werner, head of Mercedes-Benz, described the choice of Rastatt for the A-series mini, which is to begin production in 1997, as 'a strong signal for Germany as an industrial base and showing the combativeness of our production sites'.

The odds in favour of Rastatt for the new Mercedes were high as the factory is new and under- utilised. But Mercedes played the foreign card to win company-wide concessions from the union. In 1995 and 1996, 1 per cent of the sectoral wage rise will be written off against voluntary supplementary payments. There will be a reduction of between one and three hours in the working week at all Mercedes plants, with an as yet unspecified cut in wages.

With an investment of DM500m, Mercedes plans to produce 200,000 A-cars a year, mainly for the European market. The company, which accounts for two- thirds of turnover at its parent Daimler-Benz and has been losing heavily in a depressed car market, reported a marked improvement since the introduction of its C- class model. Mercedes is the only German maker to have recorded more domestic registrations, at 16 per cent, between July and October than in the same quarter last year.

The A-car decision, a mould- breaking move by the luxury-class manufacturer into the competitive small-car market, came against unprecedented losses in the group. Describing 1993 as the most difficult year since the war, Edzard Reuter, Daimler's chairman, confirmed a nine-month net loss of DM2.1bn under US accounting procedures, adopted as a result of Daimler's listing on the New York stock exchange in October.

Under German accounting methods, which allow the use of hidden reserves to boost results, the group made a nine-month net loss of DM181m. A better indication of Daimler's performance under German rules was a nine- month loss of DM2.3bn. The company has put most of its restructuring charges - nearly DM3bn for 1993 - into the first three quarters of this year, enabling Mr Reuter to forecast improved earnings from now on.

Daimler confirmed yesterday that its major shareholder, Deutsche Bank, will sell 3.2 per cent of its 28.1 per cent stake, worth DM1bn, in the US early next year.