Daimler's Billion-Dollar Bet on Hungary

The campaign by Daimler’s Mercedes-Benz brand to regain the global luxury sales crown it ceded to rival BMW in 2005 will ultimately be won or lost in dealer showrooms in China, the U.S., and Russia. And of course, Hungary. Daimler on March 29 began production at its €800 million ($1.07 billion) factory, located in Kecskemét, about 90 kilometers (56 miles) southeast of Budapest, that will make the Mercedes B-Class compact.

By heading so far east, Daimler Chief Executive Officer Dieter Zetsche is betting that Hungary’s rock-bottom wages will allow the automaker to wring more profit from its small-car, luxury lineup. “This could be the final big plant by a European carmaker in the region,” says Carol Thomas, an analyst with LMC Automotive. “The factory is coming quite a bit later than others in Europe, which is struggling with overcapacity. The growth and expansion have shifted to Asia and Latin America.”