Mercedes axes cheaper models in bid for luxury brand status

Mercedes-Benz will axe three cheaper fashions and spend the overwhelming majority of its money on creating top-of-the-range automobiles in a bid to persuade buyers that it ranks alongside luxurious items teams similar to France’s LVMH.

The deal with dearer merchandise would assist Mercedes obtain revenue margins of between 13 and 15 per cent by the center of the last decade, chief government Ola Källenius stated, assuming market circumstances have been “favourable” on the time.

This may nonetheless depart Mercedes far behind LVMH’s 27 per cent working margin in 2021, and behind the 25 per cent achieved by luxurious auto chief Ferrari final 12 months, however nearer to German rival Porsche.

“If you want to drive your margins upwards, you need to trim the tree at the bottom, and you need to try to expand at the top,” Källenius stated forward of a Mercedes’ occasion on the French Riviera to showcase new fashions.

The group would scale back the variety of so-called compact automobiles it provided from seven to 4, he added, and “redefine the entry point of the Mercedes-Benz brand”. 

Whereas Källenius refused to call the fashions that will be phased out, folks near the corporate have advised that Mercedes will finally axe its A and B-class ranges. The most cost effective variations retail at €30,000.

Mercedes will focus as an alternative on the performance-focused AMG model, the off-road G-Class, and luxurious marque Maybach, all of which is able to provide electrical fashions within the subsequent few years, in addition to the electrical EQ vary and the just lately relaunched S-Class saloon.

Greater than 75 per cent of the group’s investments could be focused at creating these fashions, in addition to the E and C-Class ranges, Källenius stated.

Such a transfer would mark a reversal for Mercedes, which pioneered the Good automotive — one of many smallest automobiles available on the market — earlier than separating the model right into a three way partnership with China’s Geely in 2019.

It additionally comes because the automotive trade continues to put up file earnings, regardless of extreme provide constraints, with sturdy client demand serving to carmakers fetch increased costs for the few fashions out there.

This enabled Mercedes to realize a 16.4 per cent revenue margin on automotive gross sales within the first quarter of the 12 months, increased than the 13 to fifteen per cent focused by Källenius for the center of the last decade.

Mercedes-Benz chief executive Ola Källenius
Ola Källenius: ‘Scale still matters’ © Lennart Preiss/Getty Pictures

However the Mercedes boss stated a margin of above 16 per cent was not sustainable due to the “higher variable costs” within the “transformation” to electrical. He has pledged to promote solely electrical automobiles by 2030, “where market conditions allow”.

He additionally pledged that Mercedes, which doubled its earnings in 2021 as compared with pre-pandemic 2019, regardless of promoting 400,000 fewer automobiles, wouldn’t try and promote considerably fewer models total sooner or later.

Competitor Volkswagen stated final month that it could axe dozens of fashions by the top of the last decade and promote fewer, extra worthwhile automobiles.

“Scale still matters,” Källenius stated of Mercedes, which delivers roughly 2mn automobiles a 12 months, in contrast with luxurious rival Porsche’s 300,000 and Ferrari’s 11,000.

“We don’t want to shrink the company . . . but we want to grow the company in a financially sensible way.”

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