Daimler AG (DAI)’s Mercedes-Benz is accelerating its dealer expansion in China and streamlining sales to fix past missteps that have contributed to a growing gap with Bayerische Motoren Werke AG and Audi AG.
“We spent a lot of time looking at what went wrong in the past,” Hubertus Troska, the newly appointed head of the German manufacturer’s Chinese operations, said at the Shanghai Motor Show. “Among the first things, I did was to go out, visit dealers and do some mystery shopping.”
Mercedes lost the global luxury-car sales lead to BMW in 2005 and ceded second place to Volkswagen AG (VOW)’s Audi brand in 2011. The Stuttgart, Germany-based manufacturer shifted Troska in December from running the Mercedes heavy-truck operation to overseeing a reorganization of business in China as part of Chief Executive Officer Dieter Zetsche’s plan to retake the top spot in the luxury-car industry.
Mercedes has been lagging further behind Munich-based BMW and Ingolstadt, Germany-based Audi in global sales in the past year, mainly because it underperformed in China. Deliveries by Mercedes in the country rose 1.5 percent in 2012, hampered by a 19 percent drop in December. That compares with Chinese sales growth exceeding 29 percent at BMW and Audi.
The difference has widened this year, with first-quarter Mercedes sales in China dropping 12 percent to 45,440 cars and sport-utility vehicles versus a 7.5 percent gain to 86,224 deliveries for BMW and a 14 percent jump to 102,810 at Audi.
“Daimler needs to catch up in China, structurally as well as from a volume point of view,” said Christoph Stuermer, a Frankfurt-based analyst at IHS Automotive. “They have significantly fewer showrooms in China than BMW and Audi, and the dealer organization is too slow in reacting to demand.”
Daimler will show its progress on April 24, when it’s scheduled to release first-quarter results. Earnings before interest and taxes are projected to tumble 51 percent to 1.05 billion euros based on the average of seven analyst estimates compiled by Bloomberg.
The German manufacturer earlier this month said it would update its 2013 targets with its quarterly report after many auto markets started the year weaker than expected. The company forecasts higher earnings in the second half than the first, lifted by new models such as the CLA four-door coupe.
To address its weakness in China, Daimler now intends to add 75 showrooms there this year, stepping up an earlier plan to add 50 sales outlets annually in the country, Troska said. Mercedes currently has about 260 dealerships in China, trailing the more than 300 at its two main competitors.
The executive also wants to “intensify” sales activities for existing models and plans to produce the GLA compact SUV in China to target younger drivers. Mercedes is also creating a single sales operation in China out of two entities that split responsibility for domestically produced and imported models.
With the new sales structure, “we have a better setup than before,” Troska said.
Zetsche’s global expansion strategy hinges on bringing out 13 new Mercedes models with no predecessor in the next eight years. That includes two variants of the flagship S-Class sedan on top of three versions of the model already on offer.
“It’s highly unlikely that Mercedes will overtake the competition” in the global luxury-car ranking, said Christian Ludwig, a Dusseldorf-based analyst with Bankhaus Lampe. “Audi and BMW are not lessening their efforts to grow. They also have good ideas, are adding new vehicles to the lineup, and plan to increase their number of outlets in China. And the competition is well ahead of Daimler in China.”
Mercedes is putting seven new or revamped models on sale in China this year, including the A-Class hatchback and a long- wheelbase version of the upscale E-Class sedan. The new generation S-Class, due to roll out in the second half of 2013, will also be crucial as China is the model’s biggest market.
Daimler operates joint-venture factories in China with Beijing Automotive Group Co., or BAIC, that build the Mercedes C- and E-Class cars and GLK sport-utility vehicle. A car-engine plant will open in Beijing next month.
The German company has agreed to buy a 12 percent stake in BAIC’s auto division, which is preparing for an initial public offering in Hong Kong by early 2014. The holding will enable Daimler to expand influence over its Chinese partner and potentially improve its own fortunes in the country.
“Last year, our business expanded only slightly, and we lost market share” Zetsche said at Daimler’s annual meeting in Berlin earlier this month. “We didn’t live up to our own expectations there last year.”