FRANKFURT -- Daimler must find a buyer willing to save its French factory that builds Smart cars because local laws make a closure all but impossible.
This puts the automaker in the uncomfortable position of being a distressed seller, unable to extract optimum concessions from potential buyers such as UK industrial group Ineos, which is in talks with Daimler to acquire the factory to build a Land Rover Defender rival.
“In France you generally are required to find a use for the plant after [its closure],” CEO Ola Kallenius told reporters during on earnings call on July 23. “The last resort would be a closure, but that is not our goal.”
Due to the country’s restrictive labor laws, Daimler must exhaust all options before shutting the site, where it has built the Smart ForTwo since 1997. More than 800 workers are employed in factory and a further 800 are employed on site by suppliers. Kallenius said he aimed to save "as many as possible."
Ineos has two other fallback options when looking for a locaion to build its Grenadier SUV – its original plan to open a factory in Bridgend, Wales, near a Ford engine plant earmarked for closure, or in Nissan's plant in Barcelona, Spain.
This might partly explain why Daimler took a dim view of the value of the assets in Hambach. In the second quarter it booked impairment charges of around 500 million euros for the plant, roughly the equivalent of the investment it made to overhaul the site’s infrastructure and construct a new body shop.
Spoiled by years of growth, premium carmakers including Mercedes-Benz have been complaining they were capacity constrained despite constantly expanding their production footprint.
Even when Daimler first announced plans to slash 1.4 billion euros in group-wide personnel costs in November, only non-assembly lines jobs affected.
The decision by Kallenius at the start of the month to explore a sale of Hambach is the first sign that the coronavirus pandemic could also putting an end to years of global growth in luxury-car sales.
"When we designed the transformation plan in autumn that we are now implementing, it didn’t consider the possibility of a recession triggered by a pandemic. That’s the reason why we are reviewing all of our costs including (fixed costs from) production capacity and labor," Kallenius said.
The plant was supposed to build compact electric cars such as the Mercedes-Benz EQB crossover after Daimler decided to build future Smart cars in China after 2022 in a joint venture with Zhejiang Geely Holding Group.
Daimler said in 2008 it planned to invest in Hambach to start producing a compact electric car for Mercedes. The work has largely been completed, the automaker confirmed. It includes a new body shop, a new paint shop and modernization.