Mercedes to hive off GLC production to Valmet in Finland in 2017, moving the A-Class to Rastatt, Germany.

Mercedes-Benz will shift some production of its newest SUV, the GLC, to Finnish contract manufacturer Valmet Automotive starting in 2017. It is part of an expansion that could eventually include building new factories.

Mercedes is relying on a "three-pillar system" of its own factories, joint ventures and contract manufacturers, production chief Markus Schaefer said, leaving open the option of building new plants.

"We'll expand our global production capacity when we need it, as part of our strategy to become the No. 1 luxury carmaker," he said.

Mercedes is making room for more production of the GLC, which is currently produced at its plant in Bremen, Germany, as SUVs continue to surge in popularity, Schaefer said in an interview this week at Mercedes' biggest factory in Sindelfingen, Germany, where the company makes cars including its top-of-the-line S class.

Mercedes this year also contracted out production of the R-class SUV to U.S. contract manufacturer AM General focus its U.S. factory on SUVs.

The expansion is part of the Daimler premium-car division's plan to surpass BMW Group and become the world's top-selling luxury carmaker. Its sales have grown nearly three times as quickly as BMW's this year, and its C-class lineup and strong demand in China for the GLK, which is the GLC's predecessor, have put it in position to overtake Audi for the No. 2 spot in global volume.

To free up capacity for the GLC at Valmet's factory, its production of the compact Mercedes A class will be shifted to Mercedes' plant in Rastatt, Germany, Schaefer said.

Valmet, based in Uusikaupunki, Finland, started producing A-class compact hatchbacks for Mercedes in 2013. The contract between the two was for more than 100,000 units of the A class from 2013 until 2016. Mercedes expects a similar output for the GLC, the automaker said in a release today.

A Mercedes spokesman told Automotive News Europe that the automaker needs more capacity for the GLC in part because for the first time the model will be offered with right-hand drive. The GLK was not available in the UK, which is Europe's second-largest market after Germany for vehicle sales.

Bremen is currently running at full capacity in three shifts, which is the same at Mercedes' other car plants in Germany.

Daimler remains in talks for a manufacturing plant in Russia, and a final decision will depend on a market recovery, Schaefer said. The German carmaker already holds a stake in Russian truckmaker Kamaz and produces the Sprinter van in a joint venture with GAZ Group.

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