German Luxury Carmakers Add Shifts, Cut Breaks to Meet Demand

Mercedes-Benz, Bayerische Motoren Werke AG and Audi AG are adding staff and cutting summer factory breaks to boost production as demand for luxury cars returns quicker than they had planned.

Daimler AG, the parent of Mercedes, has hired 1,800 temporary workers and added Saturday shifts at German assembly plants making the SLS gull-wing sports car, GLK sport-utility vehicle and E-Class convertible, spokeswoman Dominique Albrecht said. BMW has hired 5,000 temporary workers, while Volkswagen AG’s Audi is adding extra shifts, the automakers said.

German luxury-car makers have been riding surging demand in China and a rebound in the U.S. and Europe. BMW’s sales rose 11 percent in May, buoyed by deliveries of the 5-Series sedan and Z4 roadster. Mercedes’s sales climbed 17 percent as E-Class demand surged 84 percent, while Audi deliveries advanced 15 percent. BMW said the new 5-Series is sold out in all markets.

“The recovery in luxury-car demand has been a bit faster than expected as confidence returns,” said Colin Couchman, an analyst at IHS Global Insight in London. “The growth is sustainable, because these companies have continued to invest in new products and expand into new markets.”

The extra shifts are a turnaround from a year ago, when Daimler reduced hours for as many as 68,000 German employees to slash car production 23 percent. BMW, the world’s largest maker of luxury vehicles, cut shifts for as many as 24,000 workers as it lowered output 13 percent.

Restoring Profit

Daimler and BMW, which recorded losses in their car divisions last year, are both predicting the units will return to profit on higher sales. Audi, whose profit fell last year, is forecasting “above average” growth in results this year as it targets record sales, Chief Financial Officer Axel Strotbek said this week.

“We’re now seeing in the U.S. that SUVs and everything else that’s big and nice-looking is being sought after again,” Strotbek said at a June 22 briefing in Berlin.

Still, the rebound may be peaking, as growth slows in the U.S. and Europe and profits are diluted by a push into small cars, like Audi’s A1 subcompact and a doubling of compact Mercedes models. UBS AG analysts downgraded Daimler today to “neutral” from “buy,” citing valuation concerns.

Downgrade

“The stock is now pricing a return of Mercedes to historic peak margins,” UBS’s London-based Philippe Houchois wrote in a note to clients. Starting next year, Mercedes faces “low growth” in mature markets, while higher sales of the cheaper A- and B-Class models may offset demand for the renewed S-Class starting next year.

BMW, which has risen 30 percent this year before today, lost 83.5 cents, or 2 percent, to 40.53 euros in Frankfurt. Daimler, the second-largest luxury-car manufacturer, fell 3.8 percent to 41.78 euros, paring its gain this year to 12 percent. Volkswagen’s preferred shares dropped 2.4 percent to 75.36 euros, scaling back the gain this year to 15 percent.

Daimler, based in Stuttgart, has eliminated a three-week halt at engine factories in Berlin, Untertuerkheim and Hamburg, and hired 700 students to boost Mercedes production during summer vacation, Albrecht said. The company is discussing extra shifts at the plant that produces the A- and B-Class compacts.

“The demand for our products is developing very positively,” Albrecht said. The three German Mercedes assembly plants have run at full capacity in the second quarter and overall production is nearing pre-crisis levels, she said.

Challenging BMW

BMW, based in Munich, has hired 5,000 temporary workers after eliminating most non-permanent staff during the financial crisis, spokesman Mathias Schmidt said, confirming comments by personnel chief Harald Krueger in an interview published by Handelsblatt newspaper yesterday. The company is also in talks with unions about expanding working hours, Schmidt said.

Audi, which aims to overtake BMW as the luxury leader by 2015, is adding extra shifts at its factory in Neckarsulm in Germany because of demand for the A8 luxury sedan and R8 sports car, spokeswoman Antje Bauer said. The company plans to add 100 temporary workers to the plant next month to support the introduction of new models such as the A7 coupe and A6 sedan.

BMW, which also owns the Mini and Rolls-Royce car brands, has sold out of the revamped 5-Series in all markets, forcing customers to wait three to four months for deliveries, sales chief Ian Robertson said this week. The sports sedan went on sale in Europe in late March.

Fuel Efficiency

The sales rebound is key for high-end brands, which face mounting pressure from regulators to improve fuel efficiency and reduce carbon-dioxide emissions. The shift is forcing the manufacturers to invest in new technologies years before they have potential to add to profits.

BMW is building a $100 million factory near Seattle to produce lightweight carbon-fiber components for a line of electric-powered city cars due in 2013. Mercedes is setting up a unit to produce lithium-ion batteries for its vehicles by 2012. Overall, Daimler plans to boost spending to develop batteries and fuel-saving engines to about 1 billion euros this year from past investment budgets of 567 million euros annually, development chief Thomas Weber said in March.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net.

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