Mercedes Bets on Gull-Wing Maker AMG to Boost Performance

As Mercedes-Benz falls further behind rivals Bayerische Motoren Werke AG (BMW) and Audi, it’s looking to a unit that makes sports cars and souped-up versions of its staid sedans to squeeze it back into the fast lane.

Mercedes’ AMG division, which developed the $189,600 SLS gull-wing supercar introduced in 2010, will add three smaller models in coming years, expanding its lineup to more than two dozen cars. To bolster interest in the new offerings, Mercedes plans to increase AMG showrooms 30 percent by 2017.

“AMG gives Mercedes a sporty edge,” AMG chief Ola Kaellenius said in an interview at the unit’s headquarters near Stuttgart, Germany. “We want to be the driving force in the performance segment, a technological spearhead.”

Mercedes has slipped deeper into third place in the luxury- car race. That has cast doubt on a 2011 pledge by Dieter Zetsche, chief executive officer of Mercedes’ parent Daimler AG (DAI), to regain the No. 1 spot by the end of the decade.

“AMG can help Daimler catch up,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. The unit “allows Daimler to make more out of its technological potential and has a radiating effect on Mercedes.”

Photographer: Peter Foley/Bloomberg

Mercedes-AMG head Ola Kaellenius said, “AMG gives Mercedes a sporty edge.” Close

Mercedes-AMG head Ola Kaellenius said, “AMG gives Mercedes a sporty edge.”

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Photographer: Peter Foley/Bloomberg

Mercedes-AMG head Ola Kaellenius said, “AMG gives Mercedes a sporty edge.”

Improving Margins

AMG can also boost profitability at Mercedes, which last week indefinitely postponed its target to increase operating earnings to 10 percent of sales by 2013. With a margin of 15 percent to 20 percent, according to estimates from Bankhaus Metzler, the unit’s yields are about triple those at Mercedes.

“The charm of the performance brands lies in the fact that they can reach very high margins with comparably little effort by exchanging the engine and making tweaks to the suspension and design,” said Thomas Schiller, a Munich-based automotive partner at consulting firm Deloitte.

Founded as a motor-sports company in 1967 by racing enthusiasts Hans Werner Aufrecht and Erhard Melcher, AMG occupies the top of the Mercedes range. Since taking full control of the company in 2005, Daimler has pushed its expansion, filling a hole left by the decision last year to shut down the ultra-luxury Maybach brand.

Aside from the SLS, AMG’s 22-car lineup consists of high- performance versions of Mercedes models. Equipped with hand- crafted engines bearing the signature of the technician who assembled them, the cars typically cost about 50 percent more than the standard versions of the same model do. The cheapest, the C63 AMG, starts at $59,800 in the U.S. versus $35,350 for a regular C-Class sedan.

M Unit

The push at AMG will put Mercedes ahead of its biggest rivals in such cars. BMW’s M unit, which offers similar upgrades to its cars, has seven vehicles in its lineup. The Quattro division of Volkswagen AG (VOW)’s Audi sells 10 models.

The 571-horsepower SLS, which competes with the likes of the Porsche 911 Turbo, Aston Martin DB9 and Audi R8, was the first car developed by AMG. The unit has since added a roadster and a GT3 racing edition to the SLS lineup. An electric-powered version will be added next year and more AMG-specific models may be on the way.

AMG plans to boost sales from about 20,000 vehicles in 2011 to “significantly” more than 30,000 within five years, Kaellenius said. To move the metal, AMG will increase its dealer network to 350 outlets in five years, from 270 now. After opening the first standalone AMG dealership in Beijing this year, the company is also planning dedicated shops in Hong Kong, Luxembourg and Paris.

Performance Drivers

The effort to widen its appeal to less well-heeled performance drivers will start in 2013 with the A45, the first of three compact models planned. The AMG version of the Mercedes A-Class hatchback will sport a turbo-powered four-cylinder engine that strives to pack more horsepower per cubic inch than any engine made, according to Kaellenius. While the price hasn’t been finalized, it will be “significantly below” current offerings, the former Formula One engineer said.

Like other AMG models, the car will feature a sports-tuned transmission and suspension. The brand also offers edgy exterior styling such as spoilers and interior options like a dashboard clock from Swiss watchmaker IWC Schaffhausen.

While AMG accounts for less than 2 percent of Mercedes annual sales, it adds an edge to its parent as it tries to shed its image as Grandpa’s luxury brand, said Frank Biller, an analyst with Landesbank Baden-Wuerttemberg in Stuttgart.

“AMG addresses customers other than the traditional Mercedes buyers who are looking more for comfort and safety,” Biller said. “It complements the Mercedes portfolio.”

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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