Can Mercedes Create A Whole New Niche?

It's launching the first true high-end crossover, aimed mostly at the U.S.

Take a German luxury sedan, meld it with a monster sport-utility vehicle and a versatile minivan, and what do you get? Mercedes-Benz (DCX ) managers hope the answer is a hit. The Grand Sport Tourer, a premium crossover due out in 2005, launches the R-Class, a new Mercedes line designed for maximum roominess and comfort. Mercedes, which will unveil the latest version of the GST in September at the Paris Auto Show, is promoting the car as a segment-buster, a pioneer at the upper end of the growing market for crossover vehicles. "We don't see any competition for the car," says Natanael Sijanta, product manager for the GST. "We put a lot of effort into maximum comfort. That's absolutely new."

Concept models of the near-17-foot GST, which is likely to start at around $66,000, already have created a stir. Designers give a thumbs-up to the edgy styling, including a forward-thrusting shoulder line, muscular wheel stance, and elegantly curved glass roof. But creating a new niche is risky, as Mercedes already discovered with the slow start of its super-mini Smart Car. And buyers have shunned crossovers that were launched without a clear marketing campaign to define the new vehicle concept and its appeal. Mercedes' sister company Chrysler Group (DCX ), for instance, last year had to offer $4,000 incentives and cheaper stripped-down models of its Pacifica crossover to get the new model moving off its lots. "The challenge to Mercedes will be to establish a definition for the car," says George C. Peterson, president of AutoPacific Inc. in Tustin, Cal. "The worst thing that could happen is that people see it as the most expensive minivan on the planet."

The Stuttgart auto maker insists the GST evolved out of consumer research showing demand for a car with the sporty styling of a sedan, the rugged traits of an SUV, and the spacious interior of a minivan. Mercedes limited the number of passenger seats to six, in three rows, to give passengers more leg and elbow room. The GST will have the technology and trappings of a high-end Mercedes, including an extra-smooth seven-gear transmission. It will be built on the same platform as the Mercedes M-Class SUV at its plant in Tuscaloosa, Ala.


Mercedes needs to win a big audience in the North American market, which is dominated by light trucks and large cars. The U.S. market is likely to represent more than 70% of GST sales, estimates market researcher Global Insight Inc., which expects worldwide sales to reach 72,600 -- roughly the same volume as Mercedes' top-of-the-line S-Class sedan -- in 2007.

One key obstacle to success could be the GST's styling, which is a mix of sleek European station wagon and minivan. The U.S. market for station wagons is a minuscule 250,000 vehicles a year, only 4% of the market, and to date buyers have been unwilling to pay a premium for minivans or crossovers. "The toughest job of all is to get the positioning right. Americans could say, 'It's not as cool as an SUV.' And Europeans could say, 'Hey, it's too expensive for a minivan,"' says Christoph Stürmer, senior market researcher at Global Insight in Frankfurt.

If Mercedes gets it right, the GST could lead a pivotal shift in the design of full-size luxury cars. Some experts believe the roomy crossover model line could eventually eclipse the traditional sedan. But the company will face just as much competition in the crossover segment as it does in luxury sedans. German rivals Audi and BMW both are developing their own crossover models. To make sure the GST sets the pace, Mercedes will need a turbocharged launch.

By Gail Edmondson in Frankfurt

    Before it's here, it's on the Bloomberg Terminal.