Mercedes Benz Adventurous Design Should Pay Off At The Bottom Line

Feb 12 2014, 12:16pm CST | by

It’s a virtuous circle for shareholders at Daimler’s Mercedes Benz, as attractive new cars boost sales while investment in more efficient manufacturing cuts costs.

And the imminent launch of the German luxury car maker’s new C-class is going to add more momentum.

While competitors like VW’s Audi produce ever more impressive but plain-vanilla looking vehicles and BMW design is patchy, Mercedes new cars and SUVs have been exciting buyers. Mercedes A and B class cars used to be worthy, utilitarian and dull, but the latest versions are certainly eye-catching. The slightly bigger CLA version of the A class, the new flagship S-class, compact SUV GLA, and soon to be launched new C-class all turn heads. And nobody ever doubted the excellence of the engineering under the skin of a Mercedes, except briefly perhaps during the “Elk test” crisis, when A class cars flipped over during testing in Sweden in 1997.

According to Commerzbank analyst Daniel Schwarz, this radical change in the looks of Mercedes is down to a new designer.

“Those products that were developed under Mercedes’ new design head Gordon Wagener – A, B, CLA, S-class – have much higher conquest rates than previous models and develop exceptionally well regarding volumes and pricing. If this continues for the new C-class, BMW’s 3-series will face tough competition in its third year of production,” Schwarz said.

The BMW 3-series is the leader in the small, luxury sedan sector, and the Mercedes C-class, Audi A4 and Cadillac ATS have been playing catchup.

Mercedes has belatedly followed Audi and BMW into modular production, and this should raise the total output based on these methods to 44 per cent, although this compares with Audi’s 85 per cent and BMW’s 77 per cent, Schwarz said.

“Modular” is shorthand for designing more common engineering systems in the manufacture of vehicles to increase economies of scale and cut costs. This also raises the risk of a hugely expensive recall as parts are often used much more widely than in the past.

“This should allow for sustainably lower variable cost that compensates for increased content,” Schwarz said, in a report reacting to news Daimler’s earnings before interest and taxes (EBIT) rose to the equivalent of $3.5 billion in 2013’s fourth quarter from $2.4 billion in the same period the previous year.

Macquarie Equities Research said it likes Daimler shares because of Mercedes’ strong product momentum and the C-class will be a key profit margin and volume driver in 2014 and 2015. Macquarie expects an operating profit margin of around eight per cent in 2014, with 10 per cent reached in 2015, bringing it firmly into line with Audi and BMW.

Max Warburton, analyst with Bernstein Research, pointed out that Mercedes lost billions on its tiny Smart car and previous A-class over 15 years, but the new small cars are what he calls a “big bet-the-house effort – and it is working”

Warburton believes he may have underestimated progress made by Mercedes.

“We concede that it (Mercedes) may well have more growth and earnings momentum in 2014, and perhaps beyond, than we’ve previously concluded,” he said.

Warburton likes the new C-class.

“Mercedes has been a perpetual laggard in this segment, unable to compete with BMW on volume, price or profit. The new car is an attempt to change that. The car features every possible technology, feature, material quality and styling possible. The car is almost literally a mini S-class,” Warburton said.

The Mercedes S-class is a top-of-range sedan, which competes with the BMW 7-series, Audi A8, and Lexus LS./>/>

Mercedes invited investment analysts to drive the new C-class at an event in Germany held to discuss the company’s financial performance.

Citi Research analyst Philip Watkins points out that Mercedes won’t have everything its own way, as the German luxury manufacturers pull out all the stops.

“New product rollouts from here for 2014 include the new BMW 2-series, X4, Mini and the new electric (plug-in hybrid) i8. For 2014 we continue to see Mercedes as offering the best product momentum of any European Auto, though we also believe that going into 2015 and 2016 this advantage tapers off as Audi revamps most of its product. By the end of 2016 we see Audi’s average fleet age at 2.4 years versus 2.9 years for Mercedes,” Watkins said.

International Strategy and Investment analyst Arndt Ellinghorst is slightly less enamoured of Mercedes though.

“We still prefer BMW over Daimler. BMW to our mind has better cash generation, delivers higher margins in less volatile fashion and has a model cycle story which is at least as compelling as Daimler’s as the former renews SUVs while the latter launches small cars,” Ellinghorst said.

Source: Forbes Auto

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

IPad Air Giveaway 2014 is Online
IPad Air Giveaway 2014 is Online
Our sister site I4U News is giving away a brand new iPad Air or if you can wait an iPad Air 2. This is an $499 value.
 
 
Your Parent Or Kid Moved In: Are You Covered?
A record 57 million Americans now live in multigenerational family households — double the number in 1980, according to a new Pew Research Center study. And I bet many of them have the wrong homeowner’s or renters...
 
 
Pandora Looks to Challenge Terrestrial Radio's Dominance in Cars
Pandora Media is one of the largest Internet radio providers in the U.S. with more than 75 million active users. While the company’s active user count has increased at a robust pace historically, it is likely to slow...
 
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
 
 
 

Latest from the Network

Japan cannot counterbalance India's ties with China: Chinese daily
Beijing, Sep 2 (IANS) Contending that China was not interested in "geopolitical competition" and had "plenty of interests" in common with India, a leading Chinese daily known for its sharp views on India Tuesday hit...
Read more on Politics Balla
 
Reviving appetite for healthy food possible: Study
New York, Sep 2 (IANS) With measures such as behaviour change education it is possible to reverse the addictive power of unhealthy food while also increasing preference for healthy foods, says a new study. Scientists...
Read more on Celebrity Balla
 
Despite Modi's comments, India-China ties stable: Chinese daily
Beijing, Sep 2 (IANS) Though Indian Prime Minister Narendra Modi's comment in Tokyo Monday about there being an 18th century expansionist mindset in the world today has made international media hype as an allusion to...
Read more on Politics Balla
 
No work permit in Saudi Arabia for Ebola-hit country nationals
Riyadh, Sep 2 (IANS) Saudi Arabia has decided to stop issuing work permits to workers from Ebola-hit countries, including Guinea, Liberia and Sierra Leone, an official said Tuesday. The precautionary measure is part...
Read more on Business Balla
 
Return as India's envoys, Modi to India-bound Japanese youth
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday kicked-off a new initiative on training for Japanese youth started by Tata Consultancy Services (TCS) at its various facilities in India, asking them to return...
Read more on Politics Balla
 
OPEC daily basket price closes higher
Vienna, Sep 2 (IANS/WAM) The basket of 12 crude oils of the Organisation of Petroleum Exporting Countries (OPEC) stood at $100.08 a barrel Monday, compared to $99.99 last Friday, according to the OPEC Secretariat. The...
Read more on Business Balla
 
11 killed in China landslides
Beijing, Sep 2 (IANS) At least 11 people were killed and 27 others were missing Tuesday after heavy rains caused landslides in China's Chongqing province. According to officials, about 898,000 people in 16 counties in...
Read more on Politics Balla
 
India elect to field against England in 4th ODI
Birmingham, Sep 2 (IANS) India captain Mahendra Singh Dhoni won the toss and elected to bowl against England in the fourth One-Day International (ODI) of the five-match series being played at Edgbaston here Tuesday....
Read more on Sport Balla
 
India, Japan working as strategic partners: Modi
Tokyo, Sep 2 (IANS) India and Japan are now working as "special strategic and global" partners, Prime Minister Narendra Modi said Tuesday. "We are now working as special strategic and global partners," Modi told...
Read more on Politics Balla
 
Choose low-carb diet for weight loss, better heart
New York, Sep 2 (IANS) A low-carbohydrate diet is more effective for weight loss and reducing cardio-vascular risk factors than a low-fat diet, according to a new study. To compare the effects, researchers randomly...
Read more on Celebrity Balla