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Economy

Mercedes-Benz Goes Pedal To The Metal In China

The top German luxury car brands are taking their longstanding showdown to Chinese showrooms. Mercedes, the best-known brand, has found itself playing catch-up behind BMW and Audi.

Lagging behind Audi and BMW, Mercedes is looking to make its move in China
Lagging behind Audi and BMW, Mercedes is looking to make its move in China
Zhang Yaodong

BEIJING - There has been a lot of activity lately in China amongst the top three German luxury car brands: Mercedes-Benz, BMW, and Audi. In particular, Mercedes is revving things up in China: establishing a design center, building an engine plant, and combining the sales channels of its China-made cars and its imported cars into one. Its production capability is to increase to 100,000 cars per year.

Indeed, it's about time that Mercedes speeds up. For the first half of this year, Mercedes' sales, although they increased by 59% in China, are nonetheless still 18,000 cars behind BMW, and 44,000 cars behind Audi. As for the global market, Mercedes has been caught by Audi, and its sales gap behind BMW has widened to 79,000 cars.

In a micro-blog survey about the sales of these three car brands over the past five years, almost all respondents ranked Mercedes last.

I have never figured out why Mercedes is being left behind on the performance front in the popular mindset. Objectively speaking, among these three major brands, Benz has 125 years of glorious history, is the best-known, and has the strongest premium offering. Not only does it have the most complete range of cars and the most available product range, it is certainly not the worst in technical terms among the three car manufacturers.

Mercedes' actual market performance is not really as bad as its ranking, since to buy some of its models the purchaser has to pay well above the list price. Nonetheless, sales of its C and E models, which should increase the brand's market share, have been outdistanced by competitors.

There are several reasons for the situation. First, Mercedes' parent company, the Daimler group, has committed a series of mistakes in its merger and acquisitions strategy over the past 15 years. As such, it wasted a lot of its potential. That Mercedes invented the automobile makes it arrogant, conservative and stubborn. When it finally came to the Chinese market, not only is it already late, the run-up period has also taken too long.

Now that Mercedes has finally realized its problem, it has started to change. It set up a 30 billion-RMB (4.6 billion-dollar) investment and 500,000 cars product capability plan, and is accelerating new product rollouts. The effects of these measures are expected to show in the next two to three years.

I'm firmly optimistic about Benz's prospects in China, as the strength of its brand combines with the introductions of new models on the market. Also, the Chinese state automative holding BAIC Group, which is in a crucial development period, relies heavily on Beijing Benz, and can create competitive advantages.

Nevertheless, Mercedes has to adjust in order to speed up. In particular, it needs to try much harder in eliminating the friction in its integration of imported cars with domestically made cars. Currently, some reports say that a joint venture will start within this year. Lei Shing Hong Ltd, which used to be Mercedes' major distributor in China, will substantially lose its share, whereas the BAIC Group's influence will grow. Thus Mercedes' sales in China will be the responsibility of just one company and will undoubtedly reduce the sales channel chaos.

This is only the first step. What is further required for Mercedes is for it to localize its R&D and its human resources. Not only are these related to its manufacturing and procurement, but also to its design issues. The limited sales of C and E class cars has much to do with the fact that Mercedes' configurations and features do not conform to the Chinese market's needs.

The Chinese luxury car market is dominated by the three German car manufacturers. For Mercedes to catch up with the other two, it needs to change even faster than its rivals.

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Photo - Mercedes-Benz F-Cell

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