German Throwdown: BMW vs. Mercedes-Benz

They make some of the world’s best cars but in a head-to-head comparison which models should you buy?

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At cursory glance, first quarter numbers from German auto rivals BMW and Mercedes-Benz couldn't differ more dramatically were they coming at the crescendo of a Wagnerian opera. Sales and market share bounded at BMW, while Mercedes-Benz appeared once again the black sheep of parent DaimlerChrysler (DCX), the only one of five divisions losing money.

BMW -- now the world's largest premium carmaker -- beat analyst expectations, reporting pretax profits had jumped 57.7%, to $1.64 billion. Granted, those numbers got a boost from the one-time sale of shares in British aircraft-engine manufacturer Rolls-Royce. But vehicle deliveries are up 14%, and auto division profits are up 7.2%, to $960 million.

At Mercedes-Benz, meanwhile, things weren't as gloomy as they have been in recent quarters. Revenues increased by a healthy 19%, but operating losses were an ungainly $823 million. Moreover, Mercedes is still saddled with the trouble-ridden Smart division and suffering ongoing costs associated with staff reductions.


  A closer look, though, reveals Mercedes forcefully pushing back against BMW and others. Unit sales rose 16%, buoyed from a vastly improved model mix. Mercedes launched new M-Class, R-Class, and S-Class models. What's more, the luxury super-SUV, the GL-Class, goes on sale this May in the U.S. And reception of upcoming clean BlueTec diesel technology, showcased at the Detroit and Geneva auto shows, has been positive (see BW Online, 4/3/06, "Green Diesel? Mercedes Takes on Japan").

With Japanese auto makers making a renewed push towards the luxury markets, BMW and Mercedes are facing a common foe, despite diverging financial portraits. A revamped Infiniti G35 is gunning for BMW's stalwart 3-Series, and Lexus has finally come up with a serious ultra-luxury sedan, the LS460.

In response to such increased competition, Milton Pedraza, the CEO of independent research firm The Luxury Institute in Manhattan, counsels both brands to resist the temptation to move downmarket. "The high-end market is going to come to them," he says, "All they need to do is be pure-bred, true to their DNA. Luxury brands get the strongest brand effect by staying in their sweet spots."


  Pedraza, whose firm collects data on wealthy individuals' buying habits and perceptions, notes that both Mercedes-Benz and BMW still rate among the top three most highly prized auto brands. And both companies topped the list of most-recognized luxury brand names, with nearly identical scores, for consumers with a net-worth of $5 million or more.

BusinessWeek Online set out to compare current offerings from both manufacturers to determine where things stand -- on the lot -- between the two luxury giants.

Both carmakers pride themselves on state-of-the-art safety features, and most models (even sporty roadsters) do well in government crash tests. In the past, Mercedes models enjoyed a marginal advantage over BMWs. Fittingly, Mercedes boasts a storied history of safety innovation, rivaling even Volvo for milestones. It invented crumple zones, a now nearly ubiquitous auto feature, in the early 1950s. Among many other firsts, it made anti-lock breaks standard and introduced airbags to North America.


  If Mercedes vehicles enjoy a slight safety lead, particularly in side-impact tests, BMW trounces its rival in total cost of ownership. TCO is generally calculated as estimated depreciation plus maintenance, financing, tax, insurance, fuel, and repair costs over a five-year period. The figure gives a more accurate picture of a luxury vehicle's cost than does the lower, more attractive sticker price.

Of the vehicles BusinessWeek Online compared, all the Mercedes models had a higher five-year TCO. On average, comparable BMWs were about 6% less costly to own long-term. Particularly expensive Mercedes include both convertibles, the CLK and SLK, which are between 12% and 15% more expensive to own.

Reliability is a grey area, particularly for Mercedes. Consumer Reports has slowly been taking its "recommended" badge away from Mercedes cars, to the point of suggesting buyers stay away from both new and used models in 2006. But that may be a slight exaggeration. DaimlerChrysler has been reinvesting heavily, and the 2006 S-Class is raking up quality awards left and right.


  Moreover, residual value continues to be strong. Last year, three Mercedes made Edmund's Top 10 luxury cars with the best residual values, the CLK topping the list. In the end, TCO may be the best indicator of a luxury vehicle's ultimate financial burden.

Along with top-line factors, myriad minor issues can affect the decision between a model from one manufacturer or the other, from Mercedes' current quality woes to BMW's mind-bogglingly complicated iDrive dash-control system.

Ultimately, it's hard to loose when choosing between a BMW and a Mercedes-Benz. It's no accident both companies have garnered fanatically supportive customers and are among the most highly regarded brands on earth.

Take a look at a current model comparison, complete with BusinessWeek Online's segment picks.

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