Setting a course for the future: The "Long-Term Production Structure" of 1978

Setting a course for the future: The "Long-Term Production Structure" of 1978
February 2009
  • Bremen becomes site of second assembly plant for
    Mercedes-Benz passenger cars
  • Clear line drawn between passenger car and commercial vehicle production
  • New products require new production capacities
Trucks and cars differ fundamentally in many ways. They are so different that it is completely natural today to manufacture them in separate facilities and not in one common plant. This strict separation exists at Daimler AG since 1978: The Long-Term Production Structure, as it was dubbed internally at the company, determined in March 1979 that trucks would be manufactured solely in Wörth and Düsseldorf and passenger cars in Sindelfingen and Bremen. Though a few things have changed since then – the Rastatt production facility was added, for example – in outline this division still applies today.
The new capacity planning became necessary because the Group made a great leap forward in the late 1960s and early 1970s: from 1965 to 1973 Group sales almost tripled from DM 4.9 billion to DM 13.8 billion. In that period commercial vehicle production alone rose more than threefold from 73,000 to 216,000 units to make Daimler-Benz the world's biggest truck maker. And in the area of passenger cars, too, a number of things happened in the 1970s. The Mercedes-Benz 190, a compact car, was in the pipeline; the brand's first estate came out; and the first oil crisis showed the motor vehicle manufacturer in 1973 that flexibility can permanently secure employment.
The range diversifies
The medium-term planning of car manufacturer Daimler-Benz at the beginning of the 1970s provided for raising car output from 340,000 units in 1972 to 360,000 units in 1976. But conditions in Sindelfingen were getting too cramped for that. Though the plant had been designed for expansion, for the Board of Management it was nevertheless questionable whether in the long run Sindelfingen could handle further capacity increases – not for lack of space, but because the plant was not supposed to exceed a certain scale that would strain the region's infrastructure. Skilled manpower was hard to come by in the Stuttgart region at the time.
The Board of Management was agreed that the decision to expand capacities had to be made in good time. The main issue to be settled was where such a new "satellite plant" should be built. Possibilities for further production sites were the commercial vehicle plants Bremen, Harburg and Kassel, but capacities existing elsewhere, for example at Klöckner-Humboldt-Deutz (KHD) in Ulm or NSU in Neckarsulm, also were taken into consideration.
A solution for the longer term was a necessity also because the Board of Management thought aloud on more than one occasion about a more compact Mercedes-Benz to put the brand on a broader basis.
The company finally went ahead with the idea for a small member of the model family not least of all because in 1975, as a consequence of the first oil crisis in 1973/74, the American Congress adopted stringent fleet-average fuel economy laws to reduce energy consumption. As matters stood then, the larger models from Daimler-Benz were unable to comply quickly enough with these strict rules governing the corporate average fuel economy of the imported model range.
The first oil crisis in the modern world began in autumn 1973 when out of political considerations the Organization of the Petroleum Exporting Countries (OPEC) announced it would curb output by around five percent. The intention of the OPEC countries was to put pressure on the oil-dependent West to dissociate itself from Israel in the so-called Yom Kippur War, the fourth Arab-Israeli war in the course of the Middle East conflict.
On 17 October 1973 the oil price rose from about three US dollars per barrel (159 litres) to more than $5 – a 70 percent increase. During the next year the world oil price rose to more than $12 per barrel. In the Federal Republic of Germany the DM 17 billion increase in the cost of oil imports intensified the economic crisis, leading to a marked rise in short-time work, unemployment, social expenditures and business bankruptcies.
Despite the crisis, Group management thought in long-range terms and deemed it imperative to undertake a limited expansion of capacity. On the other hand, the Board decided to keep the risk as small as possible at first and raise capacity in Sindelfingen to 30,000 cars per month for 1977.
Tourism and Transport
In the debate over the enlargement of the model range in the early 1970s another idea was developed: the addition of a high-quality estate model, which suggested itself because of the sharp competition particularly in the sector of lower-priced medium-size cars. The five-door "all-purpose saloon" with folding rear seats for "Tourism and Transport" or "Touring" (hence the letter T in the German model designation later) could be developed relatively quickly and appealed to new target groups.
But there were also reservations about an estate model: the body shape was too suggestive of applications in the crafts and industry. But during the gestation of the
W 123 series, market research showed that there was a distinct demand for a sporty, luxurious car suitable for recreational purposes. The Board of Management did not close its ears to this argument and gave the go-ahead for the project in 1975. At the 1977 International Motor Show in Frankfurt/Main, Mercedes-Benz presented three new body variants for the 123 series in one go: the Coupé, the Saloon with long wheelbase, and for the first time in brand history a factory-built Estate.
Bremen moves centre stage
A new factory for the Estate would have been too expensive since an annual output of no more than 24,000 units was anticipated. So the Daimler-Benz Board of Management took more and more kindly to the idea of building the new member of the model family in Bremen. In addition, it allowed them to test whether the site was suitable for car production, and at the same time they could continue manufacturing light vans there by purchasing additional land. Werner Niefer, production chief at Daimler-Benz AG since 1976, reminded his colleagues that the Hanomag light van produced in Bremen was scheduled to be replaced by a new Daimler-Benz development in mid-1977 anyway, and that they should return production of the six-ton trucks to Wörth, since the Wörth factory was suffering from the weakening of the Middle East boom. So Bremen had unused capacities.
On the other hand, the issue of corporate image did cause some worry to the Board of Management: would the Estate pass for a "genuine" Mercedes-Benz if it did not come from Swabia, but North Germany? The doubts finally were dispelled: The Estate impressed solely with its advantages and persuaded the customers. The Bremen workforce came to Stuttgart to learn, one might say, Swabian thoroughness there. It was helpful that some of the skilled Bremen workers were holdovers from the Borgward days at the Bremen plant and definitely knew how to make cars. On
4 November 1976 the Frankfurter Allgemeine Zeitung reported that the Estate was to be built in Bremen; series production began there in April 1978.
From truck production to car production
Daimler-Benz had acquired the Bremen plant in 1969/70 upon taking over truck maker Hanomag-Henschel-Fahrzeugwerke GmbH (HHF) from Rheinische Stahlwerke AG, the Rheinstahl Group. Heavy van production in Bremen was discontinued in 1973. Only light van manufacture remained, but did not suffice to use the facilities to capacity. The situation worsened when the demand for light vans drastically declined in 1974 as a result of the oil crisis: a total of 34,662 vehicles were produced in Bremen in 1973, whereas in 1974 the total came to a mere 22,685. On top of that, competitors like Volkswagen could equip their vans in this class with car engines from large-scale production, which was far more cost-effective.
Since Daimler-Benz was unable either to agree with Volkswagen on cooperation in the production and sale of light vans, or to sell the plant, the obvious thing was to think about manufacturing cars in the Hanseatic city. However, the first impression was not particularly flattering for the Northerners – to the Board of Management the Ulm plant initially appeared more suitable than either Düsseldorf or Bremen.
This opinion changed during the following year. The stamping plant in Bremen, it was said, made for a tighter production link with the Sindelfingen parent plant than the so-called satellite plant originally planned for Ulm. And so the Board of Management agreed to have the possibilities and economic prerequisites for the gradual establishment of a car assembly facility at the Bremen plant examined.
Eight weeks later the results came in: If van production were to be discontinued in Bremen, it would be possible to build around 200 cars per day there without having to erect new buildings or buy additional land. The condition was that all parts be supplied in full. If land already under lease was used and a little more land purchased, the manufacturer could turn out 500 cars a day and think about an additional assembly facility and a paint shop.
The Long-Term Production Structure
At the end of the 1970s, the motor vehicle manufacturer, who meanwhile had become the world's biggest truck maker und was seriously considering rounding off its car model range at the lower end, was intent on giving a final and farsighted answer to the open questions about the topic of capacities.
On 13 December 1977 the Board of Management decided to give fundamental consideration to the future production and programme structure at a meeting at the start of the new year, aimed at drawing up a "long-term production structure" (LPO). The term (in some documents it is also referred to as "longer-term production structure") was used from then on, for instance in documents discussing the options for the various models based on the parameters unit volume, types, commercial vehicle production and passenger car production by locations. The LPO served to reorganise the production duties of the German plants in an extensive way, transferring tasks in such a manner that steady employment could be ensured everywhere.
At the beginning of 1978 the Board of Management discussed how the LPO could do justice to the criteria balanced employment of capacities, improvement of flexibility versus changes in the market (and thus in the production programme), cost optimisation, as well as feasibility in technical respects (development and production) and with regard to manpower and economic efficiency, while observing a time window. Since vans also were being manufactured in Düsseldorf at the time, the Board decided to concentrate van production there and change Bremen into a pure car plant. Expansion of the Sindelfingen workforce was to be limited if possible, and truck assembly was to be concentrated at now just two locations.
The topic of a smaller Mercedes-Benz, which finally got the green light from the Board of Management in autumn 1978 after long and careful consideration of the cost, the benefits and the anticipated market acceptance, now fit nicely into the long-term production planning. If Bremen was not going to build trucks anymore, there was enough capacity there to produce at least a part of the new W 201 series, which later would be put on the market as the Mercedes-Benz 190. Moreover, Bremen with its proximity to the sea was an ideal German location for exporting the smaller Mercedes to America by ship. The then head of production and future chairman of the Board of Management, Werner Niefer, said in retrospect in an interview with Manager Magazin in 1983 that from the start he viewed the production of the Estate model in Bremen more or less as preparation for the planned production of the small Mercedes-Benz: "If we pass that test well, we can locate a second car facility there."
Looking back, one can hardly believe that the idea of a more compact Mercedes-Benz had a relatively hard time finding acceptance on the Board of Management. In the 190 model launched on 8 December 1982, the brand managed to field a very successful compact model. All in all, by the time production of the series ceased in 1993, around 1.9 million units were produced of this C-Class predecessor, regarded as the foundation stone of the car manufacturer's strategic model initiative in the 1990s.
The LPO eventually was adopted in March 1979 – a year in which production at Daimler-Benz reached 421,000 cars and 240,000 trucks. Daimler-Benz now had four assembly plants in Germany: Sindelfingen and Bremen for cars, Wörth and Düsseldorf for trucks. The manufacturer had more flexibility to respond to the fluctuations in demand, capacities were better utilised on the whole, expenses were saved, and steadiest possible employment was ensured at the German sites. In addition, Sindelfingen and Bremen were so tightly interlinked that well-balanced employment was guaranteed in the event of shifts in demand among the different car models.
LPO has proved a success for 30 years
Besides the four "LPO assembly plants", Sindelfingen and Bremen for cars, Wörth and Düsseldorf for trucks, today the Mercedes-Benz A- and B-Class are built in Rastatt, Mercedes-Benz minibuses in Dortmund, the Vario and Sprinter in Ludwigsfelde, and buses and coaches in Mannheim (part of the coordinated production system of EvoBus). The other domestic plants like Berlin, Hamburg, Gaggenau, Rastatt, Untertürkheim, Kassel, Mannheim and Ulm are important component suppliers. Since the start of production of the first Estate model in spring 1978, more than five million Mercedes-Benz cars now have been built in Bremen. Today the Mercedes-Benz
C-Class (Saloon and Estate), CLK (Coupé and Cabriolet), SLK, SL and GLK are manufactured in North Germany.


Sindelfingen plant: Production of the Mercedes-Benz compact class saloons 123 series (right) and 201 series, in 1982.Production of the 123 series at the Sindelfingen plant, 1974.Aerial view of the Daimler-Benz plant in Bremen, 1978.Bremen plant: Production of the Mercedes-Benz compact class saloon, 201 series, in 1984.Series production of the Mercedes-Benz estate models from the123 series began at the Bremen plant in April 1978.Aerial view of the Sindelfingen plant , 1972.Mercedes-Benz Bremen plant, aerial view from south (2006)