German auto giant Daimler ended several months of suspense Wednesday with a decision to build a new auto factory for small Mercedes models in Hungary.
Daimler said it would invest about 800 million euros (1.2 billion dollars) in a plant in Kecskemet, 80 kilometres (50 miles) southeast of Budapest, dashing hopes in Poland and Romania that they might host the new site.
An existing German factory would also get 600 million euros in investment in a plan to boost output of smaller, cleaner Mercedes brand cars, a statement said.
The group aimed “to sustainably boost its competitiveness, as well as to access new markets and create additional production capacities.”
Hungarian Prime Minister Ferenc Gyurcsany welcomed the news, hailing it as the biggest investment in the country's history.
A final agreement between the German auto giant and Hungarian authorities that would create up to 2,500 jobs was expected in the coming weeks.
In the southwestern Polish city of Ujazd, Mayor Tadeusz Kauch said: “We were very surprised by this choice.
“The Hungarian offer came at the last minute. We thought we might lose the bid to Romania but not to Hungary which has higher labour costs.”
Meanwhile, Daimler will also invest in a site in the German city of Rastatt which already produces Mercedes class A and B cars, its statement said.
“Mercedes-Benz will have an even stronger presence in the compact-car segment in the future, with a product line-up of four instead of today's two vehicles,” it added.
“We are planning a new plant in Hungary to boost our competitiveness and to gain access to the potential of the Eastern European markets,” Daimler chairman Dieter Zetsche said in the statement.
The German group had said in February that it might build a new factory to raise output of a new generation of smaller and cleaner Mercedes models.
Proposed stricter European Union emission levels and climbing oil prices have prompted auto manufacturers to focus on such vehicles.
But Daimler's decision also underscored a commitment to German production sites, where trade unions have voiced concern over the threat of relocation.
Rastatt would manufacture a new generation of high-end Mercedes compacts, Daimler director Rainer Schmueckle said in the statement.
Rastatt's production capacity of 280,000 cars a year would be supplemented by that of the Hungarian plant, a Daimler spokesman told AFP.
Current staff levels at the German plant of around 6,000 “should remain roughly the same,” he said.
Erich Klemm, head of Daimler's works committee, stressed that “a new assembly plant must not be created at the expense of Rastatt workers.”
