Seen It ALL?

Mercedes-Benz test drives "Made in Brazil" sedans in the United States.

THE SHORTEST ROUTE BETWEEN GERMAN QUALITY AND U.S. consumers may eventually pass through Brazil.

Citing a spike in demand and available plant capacity, Mercedes-Benz, the luxury subsidiary of Daimler-Chrysler, is assembling 7,000 C-Class models a year at its plant in Juiz de Fora, Brazil, in the state of Minas Gerais, 180 kilometers from Rio de Janeiro, for sale in the United States.

In fact, the first shipments have hit the U.S. East Coast already.

"Mercedes-Benz looked at existing capacity worldwide and decided on producing the C-Class at their Juiz de Fora site in Brazil," says Jeffrey Fisher, spokesman for Mercedes-Benz USA. Initial demand for the C-Class model in the United States, was very, very encouraging, Fisher added, so Mercedes-Benz decided to increase production of the model, albeit in another country.

The German automaker sold 22,800 C-Class models worldwide in January of this year, a 106% increase over the same period last year, according to Stephan Ori, spokesman for DaimlerChrysler AG in Stuttgart. Ori didn't pinpoint the countries in which the cars were sold or how many were sold in those markets.

However, Mercedes-Benz had already pumped an additional US$20 million into the $820 million Brazilian plant last year for assembly of the C-Class models. Mercedes-Benz has 450 workers assembling the models from completely-knocked-down (CKD) units imported from Germany. The plant has an installed capacity of 70,000, but Mercedes made less than 25,000 subcompact sedans, so-called A-Class cars, last year. So the plant has more than enough capacity to roll out the model C240 with 170 horsepower and model C320 with 218 horsepower, retailing at approximately $30,000 and $38,000, respectively.

The number of cars exported from Brazil to the United States in the following years "will depend on market development," says Axel Weltzer, assistant director for production and logistics and C-Class project leader for DaimlerChrysler in Brazil.

Components arrive at the port of Rio de Janeiro and then are railed to Juiz de Fora using the railway system of MRS Logistica. Multi-Schenker, the customhouse broker in Brazil, ensures that the components are cleared through Brazilian Customs. Once assembled, the cars are taken by truck back to Rio de Janeiro. The components are exempt from the import tax and the Industrialized Product Tax assessed in Brazil because the components are installed in cars ultimately destined for export.

Jaxport rolls. A small number of units are being sent from the plant to the United States in the beginning to give MercedesBenz the chance to refine the shipping process. So far, 36 C-Class models have been discharged at the Port of Jacksonville, Florida with another shipment of 140 units expected in April.

Shipping line K- Line America Inc. has a multi-year contract with Mercedes-Benz to haul the C-Class models from Rio de Janeiro to the Port of

Jacksonville and the Port of Baltimore, according to Tsuyoshi Ono, manager of the Car Carrier Division for K Line America Inc.

The autos are discharged from K Line ships at the port of Jacksonville's Blount Island Terminal. Mercedes-Benz contracts with an outside auto carrier to haul the units from Blount Island to its own vehicle preparation center 16 miles south of Jacksonville.

The Port of Jacksonville, or Jaxport as it is known, is the gateway for the distribution of Mercedes-Benz cars throughout the southeastern United States. Richard Bruce, manager of terminal trade and customer relations for Jaxport, expects Jaxport to handle 600,000 units, including all models, by the end of this fiscal year, which ends September 30. Last year the port handled 538,408 units, a 5% gain over the previous year.

Imports account for 59% of the port's vehicle trade while exports account for 12%. Another 28% is attributed to autos that are either trucked or railed to Jacksonville for processing by Distribution Auto Services Inc., American Port Services Inc., formerly Hoebelman, and Southeast Toyota Distributors.

"Auto processors are an extension of the factory," explains Bruce. While cars are coming from Europe and Asia, Bruce says, the U.S. offices of the overseas auto manufacturers will find out what the dealer wants and match that demand with what is arriving from overseas. "The finalization of that car is done at the auto processors."

Before a car is shipped from the port, the auto processors will install everything from air conditioning to a sound system, based on the demands of the dealer. Such centers are key in the logistics of moving cars from overseas plants to U.S. dealers.

DaimlerChrysler's move to use Brazilian production for the U.S. market is essentially in line with the process of global consolidation that most auto manufacturers are experiencing, noted several industry observers. Capacity restraints at the company's plants in Germany, better economies of scale and lower production costs prompted DaimlerChrysler to shift production to Brazil.

DaimlerChrysler officials in Germany are rather vague on whether production costs in Brazil are lower than production costs in Europe due to a variety of factors, including wage rates and, to a lesser degree, a weak real, the current Brazilian currency.

This is the second plant outside of Germany that is producing C-Class cars for sale in other markets. The other one is located in East London, South Africa, and produces the right-hand version of the C-Class line, which are shipped to Australia. Both plants started producing cars for other countries within the past six months, "a logical step in DaimlerChrysler's global expansion plans."