OM in the News: Mercedes Heads South

Mercedes is moving down south, writes The Wall Street Journal (Jan. 7, 2015), uprooting its USA’s headquarters from its longtime perch in New Jersey with plans to relocate it to an Atlanta suburb. Wooed by lower costs, proximity to a Mercedes-Benz factory, and government incentives, the car maker turned down a significant incentive package from New Jersey to keep its U.S. headquarters in Montvale, where it had been running operations since 1972. Mercedes is joining several other auto makers to have moved operations and corporate headquarters to the South to take advantage of low union membership in right-to-work states, low corporate taxes, and easy access to well-maintained highways, rail lines, ports and airports.

“We think the infrastructure in the States has changed,” said CEO Dieter Zetsche. “The South is much more relevant than it used to be.”  A site selection consultant added that New Jersey has the country’s most appealing incentives policy, but it was outweighed by the cost-savings and convenience of moving to the U.S. South. He said that the move would reduce Mercedes’ costs, including real estate, energy and property taxes, by about 20%.

Mercedes has a plant in Alabama, which builds about half the vehicles it sells in the U.S. and is expected to reach an annual output of 300,000 vehicles next year.  Last April, Toyota said it would relocate its U.S. operations to a new campus in Plano, Texas. South Korea’s Kia Motors opened a plant near Columbus, Ga. in 2010. A year later, Volkswagen opened a plant in Chattanooga, Tenn. Other operations include BMW’s plant in South Carolina and Hyundai Motor’s plant in Alabama.

Mercedes’ decision to move as many as 1,000 jobs from the state is another body blow for New Jersey’s labor markets. Recently billboards pleaded “Bergen County (hearts) Mercedes-Benz #Please stay.”

Classroom discussion questions:

1. Why are location decisions such as this so important to the state and to the company?

2. Why did Mercedes decide to relocate?