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Daimler chief eyes China growth as trade tensions rise

·2 min read

FRANKFURT, Oct 20 (Reuters) - Daimler's Chief Executive said China will remain Mercedes-Benz's biggest growth market in the next decade and the German carmaker will adjust production locations to capture shifts in demand as global trade tensions continue to rise.

The remarks by Ola Kaellenius come against a backdrop of increasingly strained relations between the United States, China and Europe after almost a decade of growth that has helped Mercedes to emerge as the world’s biggest-selling luxury car brand.

"The situation has become much rougher, with a tendency toward rougher talks, right up to and including trade conflicts," Kaellenius told the Frankfurt-based ICFW Journalists association late on Monday.

"We need to look at our production footprint and where it makes sense, shift our production," he said during the video call meeting.

"Last year we sold around 700,000 passenger cars in China. The next biggest market is the U.S. with between 320,000 and 330,000 cars."

Thanks in large part to a strong rebound in demand from China, Daimler and German rival BMW both pre-released forecast-beating third-quarter results.

"In the next 10 years we also expect the biggest growth in China," Kallenius added, explaining that the luxury carmaker will follow the market.

But with international trade tensions on the rise, the outlook for global sales remains uncertain.

Britain's Brexit negotiations could end without tariff-free trade with the European Union and serves as an example of how things can go wrong, the Swedish executive explained.

"I am hoping for last-minute common sense," Kallenius said in response to a question about his expectations on the outcome of Brexit talks.

If Britain and the European Union fail to clinch a deal, World Trade Organization (WTO) rules would apply, resulting in tariffs.

"In the event of a so-called hard Brexit, we would not open factories, because this would not be worth it, given our sales numbers," Kaellenius said, referring to sales in Britain. "We would have to learn to live with WTO rules."

Increasingly fragmented global markets make it harder to build cars at a profit because it reduces economies of scale in production, he said.

Mercedes-Benz, for example, only builds its top-of-the line S-Class model in Germany. With global sales of only 100,000 vehicles, it hardly makes business sense to build new production lines in the United States and China to build these cars locally, he said.

However, tensions between United States and the rest of the world are likely to remain, regardless of whether the Republicans or Democrats win the U.S. election next month.

"What the two (presidential) candidates are saying is that they have an interest in improving the trade balance, and we need to be ready for that," Kaellenius said. (Reporting by Edward Taylor Editing by David Goodman)