A crucial part of Mercedes' revival has been the S class. Before the arrival of the latest generation of the flagship sedan Zetsche's future was not secure.
Automotive News Europe
November 7, 2016 06:01 CET
Outside the Airbus factory in Hamburg, Germany, the rain began to fall in sheets, hammering the roof so hard that the noise was drowning out a live performance by Grammy-winning singer Alicia Keys. Inside, Daimler officials were growing more nervous by the minute. According to the plan for that May evening in 2013, the hangar door would open and the next-generation Mercedes-Benz S class would be driven inside accompanied by music, lights and artificial fog. Stubborn Airbus personnel wanted to nix this for safety reasons even though hundreds of guests were waiting for the car's entrance. The emcee was told to stall as Daimler staff could only hope that the bad weather wouldn't turn the evening into a fiasco for CEO Dieter Zetsche.
"There was only one storm cloud over Hamburg at that time and it was hanging directly over the Airbus plant," remembered a veteran Daimler manager who was there that night. "I downed three glasses of Chardonnay when the rain started, knowing there was simply nothing we could do."
Once the world's undisputed champion among premium carmakers, Mercedes had already been outsold by BMW in 2005 and then, under Zetsche, by Audi six years later. Had the S class, the model that most symbolized Mercedes' claim to deliver "The best or nothing" failed to defend its leadership, the pressure on Zetsche would have been enormous. Analysts disappointed with the stock's performance had already called on him to relinquish his dual role as Daimler CEO and head of the group's core passenger car division. In addition, Zetsche emerged weakened rather than empowered after a contract extension only months earlier.
Yet just when it looked as though even the heavens were against Daimler, the storm clouds over the Airbus factory passed just as they did for Zetsche. Asked when management knew the company's growth plan would work, a former Mercedes board member said it all started with the S-class launch: "That was the turning point for Mercedes." Since then sales and profits at the group's car business, which includes Smart, have steadily been on the rise.
Today, Zetsche has Mercedes poised to overtake BMW and reclaim the title of world's top-selling premium brand, achieving his target four years ahead of schedule and spoiling the centennial celebration of its archrival in Munich in the process.
In September, Mercedes reported sales of more than 200,000 vehicles, setting a new all-time high for the month while also breaking its own records for sales in a quarter and for the first nine months of a year. Thanks to strong demand for new models such as the E class, third-quarter operating earnings at Daimler's car business surged 26 percent to a record 2.7 billion euros.
Mercedes has stormed back because of an aggressive product offensive that includes lucrative models such as the S-class Cabriolet, the flagship's first convertible in over 40 years. By expanding into new niches and segments with other hot-sellers such as the GLA compact crossover and saving 2 billion euros from cost cuts, Mercedes is on track to meet its 10 percent return on sales target.
When asked by Automotive News Europe to name key factors in Mercedes' turnaround Zetsche said: "Probably the three most important elements I think are design, product portfolio and gaining a better understanding of China."
Although Mercedes still enjoyed a thriving business in Europe and the U.S., its costly missteps in China meant that it became a distant third in global premium car sales to BMW and Audi. In late 2012, Zetsche took action. First he installed Hubertus Troska, a senior Daimler Trucks executive, as a new management board member responsible for China to create a reporting line that cut across all operations. He replaced the local sales chief and added hundreds of new sales points to close the gap with BMW and Audi. Then Mercedes acquired majority control of its import distributor from Chinese partner Lei Shing Hong and merged it with a second, separate sales channel for locally built cars.
"By bundling the two, we have one voice to our sales network and one strategy for the whole portfolio," explained a senior Mercedes sales executive at the time.
As the sales network upgrade was taking place, Mercedes development chief Thomas Weber was following through on a massive product offensive. In 2010, Mercedes sold 24 models – come 2020 that number is expected to reach 40.
"If you looked at the product range, they basically didn't have any derivatives of anything and now they have a precise sequence of new models that address a wide range of customer tastes," said a former non-executive director at the company. "The volume of products over the past two or three years has really been the key."
Major gaps in its portfolio were addressed. In 2014, the C class finally received a long-wheelbase version for chauffeur-driven customers in China. Dealers in the UK, Europe's second-largest market after Germany, were finally able to offer a midsize SUV to customers in the GLC, whose predecessor had not been engineered for right-hand drive.
And while Zetsche scrapped poorly performing Maybach as a stand-alone brand in 2012, he resurrected it as the name for a line of ultraluxury S-class cars that have been immensely successful alongside two entirely new derivatives including the cabrio version of Mercedes' most exclusive model line.
At the opposite end of the spectrum, Zetsche revamped the automaker's compact line, adding the GLA crossover to challenge the BMW X1 and Audi Q3 in a segment that has experienced constant global growth for years. The upgraded and expanded vehicle portfolio has earned praise from analysts such as Barclays Capital's Kristina Church. "It's being helped by some awesome product right now," Church said. "It's the best in the market and makes some of BMW's models look a little old."
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