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By Christian Hetzner and Balazs Koranyi
FRANKFURT/BUDAPEST, June 18 (Reuters) - Daimler <DAIGn.DE>
will invest 800 million euros ($1.2 billion) and create up to
2,500 jobs at a new plant in Hungary as the carmaker expands its
range of Mercedes-Benz compacts to four models from two.
In addition to choosing the site for its first plant in
eastern Europe, the carmaker also said on Wednesday it would
earmark 600 million euros for its Rastatt site in Germany, where
it manufactures A-Class and B-Class compacts.
The new plant will come as a shot in the arm for Hungary's
ailing economy, which has seen foreign investment drop due to an
unpredictable tax regime and stiff competition from Slovakia,
which has attracted billions of dollars of auto investments.
Hungarian Prime Minister Ferenc Gyurcsany said the deal was
the country's biggest initial greenfield investment and it beat
off Poland and Romania for the plant, which would be operational
in 2011 and eventually produce 100,000 cars a year.
"In the last phase of negotiations it was not competition
about subsidies, it was competition about quality (as) every
country offered the maximum subsidies allowed by the EU," he
told a news conference in Budapest.
The carmaker would not give details on the two new models,
but speculation has made the rounds that Mercedes could eye a
small sports utility vehicle that would rival BMW's <BMWG.DE>
planned X1, and possibly a coupe.
Daimler said there would be a high level of technical
integration among the four compacts, which would also share a
modular system used by other Mercedes models like the new
generation four-cylinder diesel engine making its debut later
this year.
The carmaker expects to sign a memorandum of understanding
in the coming weeks regarding the new plant in Kecskemet, which
is roughly 80 kilometres southeast of Budapest.
POSITIVE FOR AILING HUNGARY
Hungary has a long-established Audi <NSUG.DE> <VOWG.DE>
plant and better motorway and rail links to western Europe than
many of its ex-communist peers.
But its tax regime has been criticised by many foreign
investors and the economy grew just 1.3 percent in 2007, the
slowest in the 27-member European Union, due to big tax
increases aimed at slashing the country's budget deficit.
Surging wage growth has taken some of the gloss off other
former communist countries' competitiveness, however. Polish
wages grew 13.9 percent in the first quarter of this year on an
annualised basis while Romanian wages rose 19.6 percent,
according the EU statistics agency Eurostat.
Hungarian wages rose 10.1 percent in the same period.
As well as providing jobs, the new investment will help
reduce Hungary's dependence on markets to finance its current
account and budget deficits.
"This is an important signal that despite all of its
problems, Hungary can still attract major investments. Of
course, it remains to be seen what incentives the government is
providing for this," said Citibank economist Eszter Gargyan.
"The impact on the current account is unclear. It all
depends the time period of investment. If it's done over several
years, the impact on the financing side will be moderate," she
said.
(Writing by David Chance; Editing by Quentin Bryar)
