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Daimler's Mercedes-Benz to outline strategic plan for China

Mercedes-Benz A-class cars are displayed in a dealership of German car manufacturer Daimler in Paris, July 30, 2013. REUTERS/Christian Hartm
Mercedes-Benz A-class cars are displayed in a dealership of German car manufacturer Daimler in Paris, July 30, 2013. REUTERS/Christian Hartm

By Norihiko Shirouzu

BEIJING (Reuters) - Daimler AG's Mercedes-Benz will launch about 20 new or upgraded car models in China over the next two years, part of a broader turnaround effort aimed at reversing the brand's recent struggles in the world's biggest auto market.

The plan, a key component of Mercedes' broader "2020 initiative", aims to boost sales of Mercedes-Benz cars in China by a third to more than 300,000 cars a year by 2015, according to two individuals familiar with the matter.

Daimler's new China chief, Hubertus Troska, and his management team are expected to unveil details of the plan, which also includes expanding manufacturing capacity and the sales network, in Beijing and Chengdu this week.

If the sales target were achieved it would make China the brand's biggest market globally, said the sources, who spoke on condition of anonymity. Last year Mercedes-Benz 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 kick off with the China launch of a significantly redesigned E-class sedan on Friday at an auto show in the southwestern city of Chengdu.

That will be followed quickly by a China launch of the overhauled flagship S-class sedan during the third quarter of this year, as well as a more affordable small sport-utility vehicle (SUV) called the GLA next year.

STRUGGLING FOR TRACTION

Mercedes-Benz has struggled in China since the start of 2012, when overall demand for luxury cars began weakening amid an economic slowdown in the world's second-largest economy that affected luxury car brands in general.

Mercedes fared worse than most because of a dearth of new or redesigned models and what industry insiders and key operators of Mercedes-Benz dealers described as a short-sighted volume grab that hit the brand's profitability.

Mercedes-Benz's sales rose just 4 percent to 206,150 cars, last year. By contrast, sales of Audi cars rose 32 percent to 407,738 cars, while BMW's volume increased 41 percent to 313,638 cars, according to consulting firm LMC Automotive.

BMW and Audi posted impressive gains, but they were also accused by dealers and analysts of boosting 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 over whether Mercedes-Benz is going to be able to boost its 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-Benz cars more affordable by producing significantly more of what it sells in China.

The turnaround plan envisages 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 the high tariffs and taxes levied on imported cars.

The primary lever to boost in-China production is the new compact GLA SUV that the German carmaker plans to produce at its factory complex in Beijing, which is jointly run with state-owned auto group Beijing Automotive Group, the sources said.

The GLA, which is intended to be a more affordable luxury car, is due for a launch in China next year.

GERMAN PRECISION, MADE IN CHINA

"The days when Chinese consumers thought Mercedes is Mercedes only when they are made in Germany are long gone," a Mercedes-Benz official told Reuters. "If you can deliver German precision and quality in products you produce here, Chinese buyers have no problem at all with them and consider them genuine Mercedes."

It was not immediately clear whether the move to cut prices by boosting local production was in any way a response to a wave of Chinese government investigations into possible anti-competitive violations in the way that global companies, including car makers, price their products in China.

Mercedes-Benz 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 Volkswagen AG's Audi, the No. 1 luxury brand by volume in China, stays ahead of its German rivals that together dominate China's top-end market. Audi produces more than nine out of 10 cars it sells in China, according to Daiwa's Chung.

(Additional reporting by Samuel Shen in Shanghai; Editing by Alex Richardson)

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