Luring Michael Schumacher out of retirement to race for its Formula One team could help Mercedes appeal to younger buyers—but not if he loses to upstart rivals
By Alex Duff and Chris Reiter
(Bloomberg) — Mercedes-Benz scored a publicity coup by luring Michael Schumacher out of retirement to race for its new Formula One team. It might backfire if he can't keep up with drivers a generation younger.
At 41, the seven-time champion is the oldest driver in the series at a time when Mercedes needs to shake off an "old man's car" image, says Simon Empson, managing director of U.K. auto retail Web site Broadspeed.com. Schumacher, after three years of retirement, finished sixth at the season's opening race in Bahrain two days ago.
Daimler AG's Mercedes is seeking to recover from a 10 percent sales slide in 2009 and lower the average age of its customers. Some 38 percent of clients in its biggest market of Germany are older than 60, according to a Credit Suisse report in June, and it's targeting younger drivers with four new compact cars that will start being released next year. In championship betting on Web site Bwin.com, Schumacher is rated below four drivers led by Ferrari'sFernando Alonso, 28, and Red Bull's Sebastian Vettel, 22.
"If I was running Mercedes I would be more interested in hiring Vettel," said Jez Frampton, chief executive officer of New York-based brand consultant Interbrand. "He has a bigger future."
Germany's Vettel, whose team is backed by energy drink maker Red Bull GmbH, finished second last season and helped to lift television ratings on Germany's RTL television channel by 57 percent to 3.4 million, the highest since Schumacher's retirement in 2006. Schumacher's comeback hasn't led to the purchase of more commercials during races as companies weigh the effect of his return, said Cordelia Wagner, a spokeswoman for RTL's advertising unit.
Teams Pull Out
Mercedes, which also hired 24-year-old driver Nico Rosberg, is betting on Formula One as other carmakers exit and the company's unions complain about the spending.
Bayerische Motoren Werke AG, Toyota Motor Corp. and Honda Motor Co. quit in the last 18 months because of slumping car sales. Renault SA sold most of the stake in its team to Luxembourg fund Genii Capital.
Stuttgart, Germany-based Daimler said in November it would relinquish its 40 percent stake in the McLaren team to buy a 75.1 percent stake in last year's champion Brawn with Abu Dhabi's Aabar Investments PJSC. The move was objected to by Erich Klemm, Daimler's top union official, who described Formula One as a "circus" after leading protests against cost cuts.
Mercedes will cut spending on the series to 60 million euros ($82 million) in two years, partly by cutting 50 of the team's 400 staff in 2011, team spokesman Wolfgang Schattling said by telephone from Stuttgart, without disclosing its current outlay.
It is "indispensable" the team is successful to make the investment work, said Joachim Schmidt, Mercedes's executive vice president for sales and marketing in Stuttgart. Schumacher said he "can live very well" with his sixth-place finish in Bahrain, adding that Mercedes will make progress. Alonso won the race over Ferrari teammate Felipe Massa.
Schumacher is the oldest driver in Formula One since Nigel Mansell raced at age 42 in 1995. The series' oldest driver was Louis Chiron, who raced at 58 in 1958.
Schumacher "fits perfectly" with Mercedes's brand, said Florian Martens, a Daimler spokesman. People in their 30s who grew up idolizing the seven-time champion are now looking at making their first premium car purchase, Martens added.
'Coup of Decade'
Signing Schumacher is "the coup of the decade" in terms of publicity, said Mark Jenkins, a business strategy professor at Cranfield University in Bedfordshire, England. It's tying Mercedes to Schumacher's racing career, which began with the German carmaker and reached its peak with Ferrari.
"There is a history there and Mercedes has effectively captured the value of it," Jenkins said. "I can't see a strong downside."
In Germany, a 177,000-euro gull-wing SLS sports car that Schumacher is promoting in a television advertisement almost sold out in the country even before it goes on sale on March 27, according to Mercedes executive Schmidt. Daimler declined to provide sales figures.
Mercedes drivers are 55.6 years old on average in German- speaking Europe, compared with 45.6 years for BMW and 47 for Audi, according to a July 2009 study by Heidelberg, Germany- based research firm Sinus Sociovision.
"Younger customers are important because if they have a good experience with the brand they're likely to stick with it, while with older customers there reaches a point when they've purchased their last car," said Stefan Bratzel, director of the Automotive Center at the University of Applied Sciences in Bergisch Gladbach, Germany. "Mercedes doesn't have a good image with younger drivers. It's one of its biggest problems."
If Schumacher trails younger rivals it will set back its efforts to change that, Bratzel said.
"The Formula One involvement is a fine line," Bratzel said. "If Schumacher isn't successful, it doubles the damage."
To contact the reporters on this story: Alex Duff in Madrid at email@example.com. Chris Reiter in Berlin at firstname.lastname@example.org