Global Insight Perspective | |
Significance | Mercedes has presented its new-generation C-Class, while DCX is preparing a restructuring plan for the Chrysler Group. |
Implications | The new C-Class has drawn much of its design and safety features from the S-Class, which should help it top its category. For the first time in a Mercedes sedan, the model variants differ from one another in terms of front views and interior trims. This is meant to differentiate the model from the E-Class, while maximising the profit potential of the model and increasing its appeal to a wider customer range. |
Outlook | Rumours that DCX could spin off its Chrysler division remain unfounded at this stage. Indeed, a restructuring plan likely to be presented at an extraordinary supervisory board meeting on 13 February will include new measures to intensify co-operation between the Chrysler Group and Mercedes Car Group in order to exploit further synergies and possibly try to enforce a similar cost-reduction plan to the CORE Efficiency programme at Mercedes. |
The C-Class is Mercedes’ best-selling model, and with over 2 million units produced, the previous generation (W203) was the company's most successful series since the model was first launched in 1993 as a replacement for the 190. In short, Mercedes has a lot riding on the new-generation Mercedes C-Class (W204), which will be launched in Europe in March. Meanwhile, DaimlerChrysler (DCX) is reportedly planning an extraordinary supervisory board meeting in February to discuss problems at Chrysler and possibly propose a restructuring plan for the once again beleaguered U.S. unit. However, DCX is largely expected to make changes to the division's mid-term development strategy rather than come up with drastic short-term restructuring measures.
Superior Safety, Comfort and Agility
The new Mercedes C-Class has been designed, engineered and will be manufactured with special attention to the problems that plagued the previous-generation model. Quality and reliability are the main considerations, and Mercedes has put the new model through 24 million kilometres of testing, the biggest test and development programme in Mercedes-Benz’s history, in order to achieve the best possible results in this area. Mercedes knows that in order to be successful, the new-generation C-Class has to satisfy existing customers while also capturing new sales in high-volume premium markets such as the United States and Europe.
In addition, Mercedes has endeavoured to differentiate the model from its most direct sibling—the Mercedes E-Class—and provide it with the necessary attributes to command high sales even though it is no longer the brand's entry-level model. Since 1998, the Mercedes A-Class has filled this role. As a result, the new C-Class is offered as two distinctive versions with different design—the luxury line (Elegance and Classic versions) and the sports line (AvantGarde versions). The two lines can be easily distinguished as they boast different front grilles and interior trims. In a statement, Mercedes explained, ”With this design variety, the new C-Class can be tailored even more specifically to what typically are very heterogeneous customer demands in this segment. Depending on the line, the new C-Class sets an individual tone in terms of comfort or agility.”
As usual, Mercedes has sought to maintain its trademark excellence in the area of safety and comfort. The standard equipment includes seven airbags, seatbelt tensioners and belt force limiters, as well as active head restraints. In addition, the new C-Class—like the S-Class and M-Class—is equipped with the PRE-SAFE anticipatory occupant protection system and adaptive brake system. As far as comfort is concerned, the new-generation C-Class is 55 millimetres (mm) longer than its predecessor, while the body width has increased by 42 mm to 1,770 mm, and the wheelbase by 45 mm to 2,760 mm, which allows more interior space. An entirely redesigned instrumentation and control panel also helps to improve interior ergonomics and enhance driver and passenger comfort.
A total of four modified engines, three gasoline (petrol) and one diesel, are available for the new C-Class. With an impressive increase in performance of up to 13%, these engines also make a powerful contribution to the dynamic character of the vehicle. Mercedes-Benz engineers have paid particular attention to refining the four-cylinder engines, whose output and fuel economy have been significantly improved. The C 220 CDI, for example, now consumes up to 0.3% less fuel per 100 kilometres. The advanced V6 engines in the C-Class programme remain unchanged.
Improved Costs Too
Another key element of the new C-Class programme is an improvement in the production cost of the model without undermining its quality. Back in July 2004, when Mercedes first sought to improve its overall cost structure in Germany, it threatened to relocate production of the new C-Class abroad and cut up to 6,000 jobs at the Sindelfingen plant. A consensus was reached with employees, however, which ensured that annual production costs would be reduced by 500 million euro (US$647 million) and that the new C-Class would be produced at the German plants in Sindelfingen and Bremen, but also in South Africa. Further efforts were made on the cost side with the implementation of the CORE efficiency programme in February 2005. ”The new C-Class will for sure be more profitable than the predecessor...We made significant progress on the cost side”, Dieter Zetsche, head of DCX, was quoted as saying by Dow Jones.
Outlook and Implications
Following the successful start made by the S-Class, which greatly inspired the new C-Class design and safety features, Mercedes will bank on its new sedan to spur further growth in 2007 and hopefully help it regain its title as the world's largest premium car manufacturer. For the past two years, BMW has profited from a lapse in concentration at DCX, which was busy fixing Chrysler, to nudge past Mercedes in global sales terms. In 2006, the BMW Group, comprising the BMW, Mini and Rolls-Royce brands, delivered a total of 1,373,926 units worldwide, which represented a 3.5% year-on-year (y/y) rise. Most of the gains came from the core BMW brand, whose global sales jumped 5.2% to 1.19 million thanks essentially to robust sales of its key 3-Series line. Meanwhile, the Mercedes Car Group, composed of the Mercedes, Smart and Maybach brands, sold a total of 1,260,600 units in 2006. Last year was the best ever sales year for the core Mercedes-Benz brand, whose sales advanced 6.5% y/y to a record 1,148,500 units (including Maybach sales).
With Mercedes' sales rising again and the arrival of the new C-Class expected to sustain this momentum in 2007, DCX can pride itself on having successfully restructured its traditional cash and growth engine, and it appears very close to achieving its target of a 7% return on sales. However, as has been the case too often since the creation of DCX in 1998, the company is struggling to synchronise its two main car divisions in a growth pattern. Some will rightly argue that this is the advantage of the union of Daimler-Benz and Chrysler—one division can support the other when in a difficult patch. Yet, as Chrysler is again going through a difficult period, the company has said that it will hold an extraordinary supervisory board meeting, possibly just before the carmaker publishes its full-year financial results on 14 February, to elaborate a restructuring plan for the division.
Chrysler issued two profit warnings in the second half of 2006 as customers’ attention shifted towards more economical and fuel-efficient vehicles when fuel prices began to rise in the United States. Chrysler has been struggling to clear inventories while competitors have stepped up incentives. The division finally said that it expects an operating loss of around 1 billion euro in 2006 compared to a 1.5-billion-euro operating profit in 2005. The likelihood of DCX deciding to spin off the Chrysler division is remote. In fact, the restructuring plan for Chrysler is very likely to include new measures to intensify co-operation between the Chrysler Group and Mercedes Car Group in order to exploit further synergies and possibly try to enforce a similar cost-reduction plan to the CORE Efficiency programme at Mercedes. Earlier, Chrysler Chief Executive Tom LaSorda said in an interview with the Wall Street Journal that he plans to cut costs per vehicle by US$1,000, and is considering closing a production plant.