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Daimler Redoubling Efforts to Make up Lost Ground in China

German maker spending $2.7 billion to catch rivals.

by on Aug.29, 2013

Daimler's China chief, Hubertus Troska, recently laid out the company's plans to grow sales in China.

Daimler AG, in a bold effort to catch its German rivals Audi and BMW, plans to sink $2.7 billion in China, starting with a new plant.

The plant is scheduled for completion as early as 2014 and will help Daimler double China production to more than 200,000 units a year, according to Hubertus Troska, who was appointed last fall to reorganize the company’s China operations. Since then, he merged the company’s two distribution arms in China and set up a support unit to coordinate marketing, sales and training initiatives in the country.

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China is set to become Daimler’s largest market as soon as 2015, Troska said.

Daimler is planning to sell about 300,000 vehicles by the middle of the decade with the introduction of 20 new or upgraded models. However, Volkswagen’s Audi unit reached that milestone in 2011 and Bayerische Motoren Werke AG did so last year.

Mercedes’ weakness in China has been both acute and unexpected. The maker struggled even after slashing prices on key models such as the flagship S-Class sedan, according to analysts.

Daimler AG Chief Executive Officer Dieter Zetsche told the company’s shareholders last spring the automaker is confident it can make up the ground it has lost in recent months.

The German automaker also unveiled a new compact crossover vehicle at the Beijing Auto Show and plans to introduce Chinese customers to the new German-made E-Class this week. Mercedes-Benz all-new, technically advanced flagship, the S-Class, will also reach China later this year. Meanwhile, General Motors is boosting Cadillac production in China and Volkswagen also is rapidly expanding its manufacturing infrastructure across China.

Zetsche admitted during the shareholders meeting that Daimler management is keenly aware it has failed to keep pace with the growth in China. “Our sales had increased rapidly for five years in a row. During that period we posted the strongest average growth of all the premium brands there. Last year, our business expanded only slightly and we lost market share. We have to change this situation and we will.”

“The Chinese market in particular continues to offer enormous potential,” said Zetsche, who also serves as Mercedes’ global brand boss. “In fact, it is likely that China will account for one out of every three vehicles sold worldwide in 2020. In other words, any company that aims to be a global leader must also have a strong presence in China. It’s a fact that our business there developed positively for many years. It’s also a fact that we didn’t live up to our own expectations there last year.”

“We are also expanding our Chinese dealership network year by year,” he added.

Zetsche said Mercedes-Benz was preparing to expand production in China and plans to add compact models such as the CLA and GLA on which Daimler will become increasingly dependent to its portfolio of vehicles that are manufactured in China in the future.

“We know what we have to do. Our main aim now is to accelerate the pace. And that’s exactly what we’re doing,” he asserted. “This year alone we will launch seven new or updated Mercedes models in China.”

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Zetsche, however, did not offer any bold predictions about Daimler’s future in China.

“Although these developments are dynamic, it’s also clear that none of them alone will be able to change the situation in China overnight. Our strategy is therefore to keep moving in the right direction,” Zetsche said.

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“Daimler has begun a catching-up process and is taking the right steps now,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. “They didn’t prioritize the market as Volkswagen or BMW did a couple of years ago. Daimler is now correcting this mistake.”

“If we’re not more successful in China, our goal of global position number one will be very difficult to achieve,” Troska said. “There’s a recognition that we need to improve our performance in China vis-a-vis some of our competitors.”

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