Mercedes-Benz broke ground Wednesday on a $500 million addition to its commercial van factory in South Carolina in a bid to beat competitors by building the next-generation Sprinter stateside and sidestep a steep tariff.
The ceremony marked a major step toward the German automaker’s vision for aggressive growth in the U.S., the Sprinter van’s second-largest market. The half-billion dollar investment will expand the Ladson, S.C., plant, where Mercedes currently assembles the Sprinter, as well as its new smaller Metris commercial van, after components shipped from Europe arrive at the Port of Charleston.
Moving the Sprinter’s production to North Charleston will pump U.S. sales by allowing Mercedes to build more vans, deliver them faster, and cut costs. A 25% tariff on imports including pickup trucks and commercial vans, known as the “chicken tax,” has kept the Sprinter at a competitive disadvantage against the segment-leading Ford Transit and other large commercial vans.
The chicken tax, imposed by President Lyndon B. Johnson after France and West Germany put a tariff on American-imported chicken, hampers automakers that build trucks overseas for the U.S. market. To avoid the double-digit tax, they dissemble the trucks before shipping them overseas and put them back together at an assembly plant in the U.S.
“This is something that is still a huge burden for us,” Bernie Glaser, vice president of Mercedes-Benz Vans USA, said at the groundbreaking ceremony. “The logistics process is a nightmare.”
Mercedes executives said they expect the South Carolina plant to start producing the next-generation Sprinter by the end of the decade. The automaker has long been one of the region’s largest employers, and the new investment will create up to 1,300 jobs at the plant and 400 positions with local suppliers.
“What I want you to know is what we’ve said from the very beginning: we’ve got your back,” Gov. Nikki Haley told Mercedes executives and factory workers.
Sen. Lindsey Graham (R-S.C.) applauded Mercedes’ strategy to avoid the tariff and said that it would boost Sprinter van sales throughout North America. “Wouldn’t it be nice if you could have a world where you can trade between Germany and South Carolina without all that mess?” he said.
Despite the chicken tax, the Sprinter van has seen annual sales growth since it made its U.S. debut in 2010. Last year, the Sprinter outpaced the large van segment’s 10% growth for its best-ever U.S. performance, rising 19.1% to 25,850 units. Meanwhile, the Transit sold 117,577 units – more than four times as many as the Sprinter – in 2015.
Sales for the four-cylinder Metris have been slow since it launched in October. Clocking in at a diminutive 6-foot, 5-inches, the Metris can fit in garages and navigate city streets while hauling cargo. It also comes as an eight-passenger version. Mercedes sold 2,673 Metrises through June, far fewer than its four rivals in the mid-size commercial van market: the Ford Transit Connect, Chevrolet City Express, Ram ProMaster City, and Nissan NV200.
Still, Mercedes is poised to sell more Sprinter and Metris vans this year, according to executives. For the first half of 2016, Sprinter sales rose 1.5% to 12,212 units. “I think we’re on track to set another record, with six consecutive years of growth,” Glaser said.