Daimler said it would build a new four-door Mercedes coupe, one of three new compact models it is launching in a bid to win back its premium car crown, at a plant in Hungary.
Daimler is rolling out three new compact models by 2015 on top of its A and B series, part of its effort to beat rivals BMW and Audi and regain the top spot in the premium auto segment by the end of the decade.
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The new CLA model, which will be manufactured exclusively in Hungary at a plant in the central Hungarian town Kecskemet, will be available from April 2013 and is the second Mercedes model to be made in the central European country after the B series.
"It has hardly been 10 months since we opened this factory and back then we said once the first CLA rolls off the assembly line, paprika would no longer be Hungary's coolest export product," Daimler Chief Executive Dieter Zetsche told a news conference through an interpreter.
"The CLA can help Mercedes Benz become the number one player in the premium segment by 2020 at the latest with a strong factory in Kecskemet," he said.
Zetsche arrived at the news conference with Hungarian Prime Minister Viktor Orban in a shiny grey new CLA model.
The ceremony offered Orban a rare occasion to celebrate in an otherwise dismal economy, which is struggling to emerge from its second recession in four years. Data showed earlier on Friday that retail sales fell over 4 percent in November.
"When I was a child, there were Trabants, Skodas, Wartburgs and Moskvitches rolling in the streets ... and I learned to drive on a Polski Fiat," Orban said, listing signature cars of the former communist bloc.
"Had anyone told me then that one day we would be making Mercedes cars in Hungary, I would have thought they had one screw loose," he said, citing the factory as proof that Hungary was capable of success even in times of economic distress.
Mercedes launched serial production of the B series in Kecskemet last year after an 800 million euro investment, one of the largest of its kind in Hungary in recent years.
Mercedes rolled out over 40,000 B series vehicles from its first plant in the region last year, giving Hungary's 100 billion euro economy a boost.
However, that still failed to stop the country from slipping back into recession. The government expects growth of less than one percent this year.
The carmaker added 500 new jobs at the plant, bringing its total workforce to over 3,000, to accommodate the new model.
Orban's government is pinning hopes of a recovery on car makers such as Mercedes and Audi boosting output at their Hungarian plants as domestic demand is stifled by austerity measures to keep the deficit under control.
Frank Klein, head of Mercedes Benz cars in Hungary said cooperation between Daimler and the Hungarian government would grow further, saying he expected to unveil "positive news" in the coming months, without elaborating.
(Reporting by Gergely Szakacs; Editing by Helen Massy-Beresford)