Mercedes details turnaround to spur China growth
Mercedes-Benz will launch approximately 20 new or upgraded car models in China over the next two years, part of a broader turnaround effort to reverse the brand's recent struggles in the market.
Unveiling details of the strategy in Beijing this week, Hubertus Troska, Mercedes parent Daimler's new China chief, said the company would spend 2 billion euros (16.3 billion yuan) over the next two years to boost Mercedes' China sales by a third to more than 300,000 cars a year by 2015.
The plan, a key component of Mercedes' broader "2020 initiative," includes expanding manufacturing capacity and its sales network in a country where car density is still relatively low.
"There is a lot of room for development," Troska said at the news briefing. "We are very confident this market is going to grow significantly in the next years. We are seeing it this year and we firmly believe it will continue."
If the sales target is achieved it would make China the brand's biggest global market. Last year, Mercedes sold slightly more than 200,000 cars in China, currently its No. 3 market behind Germany and the United States.
Troska's turnaround initiative will begin with the China launch of the redesigned E-class sedan Friday at an auto show in the southwestern city of Chengdu. That will be followed by the China launch of the overhauled flagship S-class sedan during the third quarter of this year, as well as a more affordable GLA compact SUV next year.
Struggling in China
Mercedes has struggled in China since the start of 2012, when overall demand for luxury cars began weakening amid an economic slowdown.
Mercedes fared worse than most because of a dearth of new or redesigned models and what industry insiders and Mercedes dealers described as a short-sighted volume grab that hurt profits.
Last year, Mercedes' sales rose just 4 percent to 206,150 cars. By contrast, Audi sales rose 32 percent to 407,738 units, and BMW's volume increased 41 percent to 313,638 cars, according to consulting firm LMC Automotive.
While BMW and Audi posted impressive gains, dealers and analysts say they boosted sales through heavy discounts and other costly incentives.
With China's economy still slowing compared with the breakneck pace of expansion over the past 15 years, there remains some doubt whether Mercedes can increase sales by a third by 2015.
But Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight, said he believed the objective was "doable," partly due to the array of "strong new products they are planning to put in play over the next year."
Aside from the slew of new products, Troska aims to make Mercedes cars more affordable by producing significantly more of what it sells in China. Seven out of 10 cars it sells in China will be made in the country by 2015 -- up from around half now -- a move that would allow the company to avoid high import tariffs.
The primary lever to boost China production is the new GLA SUV that the German carmaker plans to assemble at its factory complex in Beijing, which is jointly run with state-owned auto group Beijing Automotive Group.
German precision, made in China
Daimler says that its customers no longer believe a car carrying the Mercedes badge must be German-made.
"The quality of vehicles and engines you get out of our Chinese production is to the same identical levels of quality ... as our cars being produced in Germany," Troska said.
It isn't clear whether the move to cut prices by boosting local production is in any way a response to a wave of Chinese government investigations into possible anti-competitive violations in the way that global companies, including carmakers, price their products in China.
Mercedes says it hopes to respond more quickly to changing consumer preferences, which often lead to swings in demand for different types of vehicles, by producing more cars locally.
Cutting prices "is not a bad idea given China's economic growth slowdown," said Jeff Chung, a Hong Kong-based auto-sector analyst for Japanese brokerage Daiwa Securities.
Nonetheless, demand for luxury cars in China is likely to reach 2.7 million vehicles a year by 2020, displacing the United States as the world's biggest luxury car market.
As the economy slows, "even wealthy consumers are likely to shift to more affordable luxury cars, most of which are produced locally in China rather than being imported," Chung said.
That's how Audi, the No. 1 luxury brand by volume in China, stays ahead of its German rivals that together dominate China's premium market. Audi produces more than nine out of 10 cars it sells in China, according to Chung.
The plan, a key component of Mercedes' broader "2020 initiative," includes expanding manufacturing capacity and its sales network in a country where car density is still relatively low.
"There is a lot of room for development," Troska said at the news briefing. "We are very confident this market is going to grow significantly in the next years. We are seeing it this year and we firmly believe it will continue."
If the sales target is achieved it would make China the brand's biggest global market. Last year, Mercedes sold slightly more than 200,000 cars in China, currently its No. 3 market behind Germany and the United States.
Troska's turnaround initiative will begin with the China launch of the redesigned E-class sedan Friday at an auto show in the southwestern city of Chengdu. That will be followed by the China launch of the overhauled flagship S-class sedan during the third quarter of this year, as well as a more affordable GLA compact SUV next year.
Struggling in China
Mercedes has struggled in China since the start of 2012, when overall demand for luxury cars began weakening amid an economic slowdown.
Mercedes fared worse than most because of a dearth of new or redesigned models and what industry insiders and Mercedes dealers described as a short-sighted volume grab that hurt profits.
Last year, Mercedes' sales rose just 4 percent to 206,150 cars. By contrast, Audi sales rose 32 percent to 407,738 units, and BMW's volume increased 41 percent to 313,638 cars, according to consulting firm LMC Automotive.
While BMW and Audi posted impressive gains, dealers and analysts say they boosted sales through heavy discounts and other costly incentives.
With China's economy still slowing compared with the breakneck pace of expansion over the past 15 years, there remains some doubt whether Mercedes can increase sales by a third by 2015.
But Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight, said he believed the objective was "doable," partly due to the array of "strong new products they are planning to put in play over the next year."
Aside from the slew of new products, Troska aims to make Mercedes cars more affordable by producing significantly more of what it sells in China. Seven out of 10 cars it sells in China will be made in the country by 2015 -- up from around half now -- a move that would allow the company to avoid high import tariffs.
The primary lever to boost China production is the new GLA SUV that the German carmaker plans to assemble at its factory complex in Beijing, which is jointly run with state-owned auto group Beijing Automotive Group.
German precision, made in China
Daimler says that its customers no longer believe a car carrying the Mercedes badge must be German-made.
"The quality of vehicles and engines you get out of our Chinese production is to the same identical levels of quality ... as our cars being produced in Germany," Troska said.
It isn't clear whether the move to cut prices by boosting local production is in any way a response to a wave of Chinese government investigations into possible anti-competitive violations in the way that global companies, including carmakers, price their products in China.
Mercedes says it hopes to respond more quickly to changing consumer preferences, which often lead to swings in demand for different types of vehicles, by producing more cars locally.
Cutting prices "is not a bad idea given China's economic growth slowdown," said Jeff Chung, a Hong Kong-based auto-sector analyst for Japanese brokerage Daiwa Securities.
Nonetheless, demand for luxury cars in China is likely to reach 2.7 million vehicles a year by 2020, displacing the United States as the world's biggest luxury car market.
As the economy slows, "even wealthy consumers are likely to shift to more affordable luxury cars, most of which are produced locally in China rather than being imported," Chung said.
That's how Audi, the No. 1 luxury brand by volume in China, stays ahead of its German rivals that together dominate China's premium market. Audi produces more than nine out of 10 cars it sells in China, according to Chung.
