Daimler AG (DAI) Chief Executive Officer Dieter Zetsche’s effort to reclaim the crown of world’s largest luxury-car maker is looking a lot like the 1980s.
Mercedes-Benz next week will start deliveries of the CLA, a four-door compact coupe that harkens back to the 190 -- a sedan introduced in 1982 that earned the nickname Baby Benz because it marked a shift away from catering to the wealthiest buyers.
The new model, with more horsepower at a lower price in the U.S. than competing models from Bayerische Motoren Werke AG (BMW) (BMW), is designed to broaden the brand’s appeal, especially outside the slumping European market.
The CLA and a planned small sport-utility vehicle use the same compact-car underpinnings as the A- and B-Class hatchbacks, cars that have thus far failed to help Mercedes close the sales and profit gap to BMW and Volkswagen AG (VOW3)’s Audi.
“We want to beat the competition -- on a permanent basis,” Zetsche said today at the company’s annual shareholders meeting in Berlin. “The course we have set is the right one. We will follow it -- undeterred by the ups and downs of the markets.”
Daimler plans to update its 2013 forecasts later this month after many car and truck markets started the year weaker than expected and Europe showed no signs of recovery, the company said today. The automaker didn’t reiterate an earlier target to match 2012’s operating profit this year.
Zetsche is under pressure from investors to show progress in his effort to regain the lead in luxury cars. Mercedes has fallen further behind BMW and Audi since the CEO vowed in 2011 to overtake his rivals by the end of the decade.
“They’ve been resting on their laurels in Stuttgart and until recently didn’t take the necessary strategic steps,” Ingo Speich, senior portfolio manager at Frankfurt-based Union Investment said at today’s meeting. “There’s a large gap between what Daimler claims and what they actually achieve.”
Mercedes lost the No. 1 position in luxury-car sales to BMW in 2005 and sank to third behind Audi in 2011. The company also posted the weakest profitability of the three last year, with car earnings at 7.1 percent of sales compared with BMW’s 10.9 percent margin and Audi’s 11 percent.
The gap to the competition has widened this year as the A- Class, which was rolled out in 2012 under the motto that “A stands for attack,” failed to offset declines in China. Zetsche merged two sales organizations in the country and appointed Hubertus Troska to Daimler’s management board to boost growth in the world’s largest car market.
Mercedes global sales gained 3.5 percent to 324,898 vehicles in the first quarter, while Audi’s deliveries climbed 6.8 percent and BMW’s 7 percent.
The struggle to keep pace is reflected in Daimler’s share performance. The market value of Daimler, based in Stuttgart, Germany, has dropped 33 percent to 45 billion euros ($59 billion) since 2007, compared with BMW’s 54 percent surge and VW’s 23 percent gain.
Still, the catch-up gained some traction in March, when Mercedes grew by 6.5 percent versus 3 percent for Audi and 4.4 percent for BMW. Daimler said today that earnings should pick up in the second half helped by the CLA and an updated E-Class.
The stock climbed 1.79 euros, or 4.4 percent, to 42.66 euros today in Frankfurt trading.
To create buzz when the CLA hits German showrooms next week, Mercedes’s dealership in Leipzig will host an art exhibition, while the Berlin store will install a go-cart track and stage a concert with German hip-hop singer Chima. In the U.S., where the car will go on sale in September, Mercedes ran a Super Bowl ad featuring swimsuit model Kate Upton.
“From a volume point of view, the extended compact car family will become our biggest model line,” said Joachim Schmidt, sales and marketing chief for Mercedes. “And the family will expand further in the next generation.”
The small-car push is based on a new front-wheel drive design that will serve as the basis for at least five models, including the CLA and the new SUV. The CLA is the first of those to have a trunk instead of a hatchback, key in attracting drivers in the U.S. and China, where sedans are more popular. The styling highlights design chief Gorden Wagener’s effort to give the brand an edgier look.
The shift to smaller cars is reminiscent of the Baby Benz in the 1980s. The C-Class, the successor to the 190, is now the brand’s best-selling line worldwide.
“Mercedes is thoroughly changing,” said Thomas Schiller, an automotive partner at consulting firm Deloitte in Munich. “Mercedes used to be the pinnacle of comfort and elegance, and it’s more and more moving toward sportiness and a youthful and modern design.”
Mercedes is undercutting BMW and Audi with the CLA in the U.S., where the Daimler unit is leading in luxury-car sales this year. The car will start at $29,900 for a 211-horsepower model. That compares with $32,550 for a 180-horsepower BMW 3-Series and $32,500 for Audi’s 211-horsepower A4.
Audi will counter Mercedes with a 25,000-euro sedan version of its A3 compact, which will debut at the Shanghai Auto Show next week. The new Audi will be equipped with a 140-horsepower gasoline engine that can accelerate the car to 100 kilometers (62 miles) per hour in 8.4 seconds.
Boosted by growth in compacts as well as an updated E-Class and a new generation of its S-Class flagship, Mercedes sales could rise by 7 percent to 1.45 million vehicles this year, researcher IHS Automotive estimates. The gain of 92,700 deliveries would outpace BMW’s 56,500-car increase as Audi’s sales sink slightly. The CLA will add almost 36,000 vehicles to sales, IHS predicts.
The automaker is bringing a total of 13 new models with no predecessor to market in the next eight years, Zetsche said.
AMG, Mercedes’s high-performance unit, will offer a version of the CLA boasting a 360-horsepower turbocharged engine that speeds it to 100 kph in as little as 4.6 seconds. Yet Mercedes hasn’t abandoned its traditional emphasis on safety, offering options like a radar-based collision prevention system.
“The new models offer Mercedes the opportunity to peel away customers from BMW and Audi and to regain lost ground,” said Thilo Mueller, managing director of MB Fund Advisory GmbH. His investment firm in Limburg, Germany, counts Daimler shares as the second-biggest holding of the 110 million euros ($144 million) it manages. “But Daimler is still acting lethargically compared to the dynamism at Audi and BMW. I wish they’d pick things up a bit.”
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