As U.S. demand for Sprinter grows, Mercedes-Benz Vans readies its North Charleston manufacturing site

Volker Mornhinweg, head of Mercedes-Benz Vans, talks with South Carolina Gov. Nikki Haley after unveiling the cornerstone during a groundbreaking ceremony for the companies new Palmetto Commerce Parkway van production facility Wednesday. (Brad Nettles/Staff) 7/27/16

The reason Mercedes-Benz Vans decided to build a Sprinter manufacturing plant in North Charleston is simple: The U.S. market can’t seem to get enough of the tall, boxy commercial vehicles.

“Production follows the market,” Bobby Hitt, the state’s Commerce Secretary, said Wednesday as Mercedes-Benz Vans broke ground on a $500 million facility at Palmetto Commerce Park. “Companies want to produce where they sell.”

Mercedes-Benz Vans sold 28,600 Sprinters to U.S. customers in 2015 — it’s fifth consecutive year of record growth and an 11 percent increase over 2014 totals. Sales are up 16.5 percent so far this year. By the time the North Charleston plant starts producing vans at the end of this decade, the company expects to be selling at least 40,000 vehicles per year throughout North America.

That growth rate gave Mercedes-Benz Vans the confidence to invest in a manufacturing site here after more than a decade of re-assembling German-made vehicles at the North Charleston location.

“We saw five years in a row we have growth, and we see that customers are really key to have these kinds of products,” said Volker Mornhinweg, who runs Mercedes-Benz Vans from its Dusseldorf headquarters. “In the future, we see appropriate growth in North American markets, and that gave us the clear belief that now the time is mature.”

Wednesday’s groundbreaking kicks off an expected three-year construction schedule — beginning with a body shop and a paint facility, followed by the manufacturing lines — with a footprint that would cover 75 football fields. The facility will create about 1,300 jobs and is expected to draw another 400 jobs to the region through suppliers that set up shop near the plant. For example, van upfitting companies Auto Truck Group and Knapheide Manufacturing Co. will locate production sites in the region.

“Today, we are writing automotive history in North Charleston,” Mornhinweg said during a ceremony that also included Gov. Nikki Haley, U.S. Senator Lindsey Graham and other political and business leaders. “The groundbreaking also marks an important milestone for our growth strategy: Mercedes-Benz Vans goes global.”

The company hasn’t always been so bullish on the U.S. market.

Since 2006, the North Charleston facility has received partially assembled vans sent from Germany to the Port of Charleston. The Palmetto Commerce Park site then puts the vans back together for sale in the U.S.

The process is designed to avoid a 25 percent tariff that would normally be charged on ready-to-drive vehicles Germany sends to this country. The tariff is known as the “chicken tax” because President Lyndon Johnson imposed it in 1963 in retaliation for Germany’s high import fees on U.S.-produced chicken.

Mornhinweg said the chicken tax has been a “huge burden” on Mercedes-Benz Vans. “The logistics are a nightmare,” he said.

But the process did give Mercedes-Benz Vans a chance to test U.S. demand with minimal investment. Within a decade, the U.S. became the second-largest market worldwide, behind Germany, for the Sprinter vans.

“We expect further growth in the U.S.,” Mornhinweg said, adding that recent years have shown a North Charleston manufacturing plant “is only logical — we can respond quicker to our customers and market needs.”

“It makes a lot of sense from a business perspective,” he said.

Company officials also said they will benefit from easy access to the Port of Charleston and the North American Free Trade Agreement, which will allow Mercedes-Benz Vans to export its vehicles from the U.S. to Mexico and Canada without tariffs.

South Carolina will provide worker training through its ReadySC program affiliated with the state’s technical colleges and Mercedes-Benz Vans will be able to claim state tax credits for the jobs it creates.

Michael Balke, who will move from Germany to the Charleston area in September to run the local facility, said construction is on schedule and the company will start taking applications for production workers by the middle of next year. About 200 people already work at the plant reassembling Sprinters shipped from Germany.

“We have already begun to recruit and train a core team of employees in administration,” Balke said. “We have also hired the first technical specialists.”

Mercedes-Benz Vans launched the first Sprinter in 1995 and the company has sold more than three million vans worldwide in 20-plus years. The company’s total van sales worldwide accelerated 9 percent in 2015 to a record 321,000 vehicles, including 194,200 Sprinters. Revenue surged 15 percent to $12.85 billion.