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

Germany to supply arms to Kurdish fighters
Berlin, Aug 20 (IANS) Germany is prepared to supply weapons to Kurds in northern Iraq,announced Foreign Minister Frank-Walter Steinmeier Defence Minister Ursula von der Leyen jointly announced Wednesday Wednesday after...
Read more on Politics Balla
 
PTI agrees for talks with Pakistani government (Third Lead)
Islamabad, Aug 20 (IANS) The Pakistan Tehreek-i-Insaf (PTI) has agreed to talks with the government over alleged rigging of the 2013 general elections, a media report said. Senior PTI leader Shah Mehmood Qureshi told...
Read more on Politics Balla
 
Black Friday 2014 is Less than 100 Days Away
Black Friday 2014 is less than 100 days away. When is Black Friday 2014? Black Friday 2014 is on November 28th. Of course the Black Friday sales start already weeks before the actual Black Friday. Which means the first...
Read more on Black Friday Countdown
 
47 arrested in US town after fresh riots
Washington, Aug 20 (IANS/EFE) Forty-seven people were arrested overnight in Ferguson in the US state of Missouri after protestors hurled bottles at police in fresh outbreak of violence over the shooting death of an...
Read more on Politics Balla
 
Is your deodorant making your armpits smell worse?
New York, Aug 20 (IANS) Deodorants and antiperspirants are being more widely used and advertised than ever before, but did you know that they may actually make you smell worse in the long run? According to a study,...
Read more on Celebrity Balla
 
Indian found dead in Oman
Muscat, Aug 20 (IANS) An Indian national was found dead in his room in Oman, media reported. The victim, 26, who has been identified by his friends as Siby, an automobile spare parts shop salesman from Kerala, was...
Read more on Politics Balla
 
Investments pouring in from Singapore: Bengal minister
Singapore, Aug 20 (IANS) Camping here to woo investors, West Bengal Finance Minister Amit Mitra Wednesday said many companies have signed joint ventures and letters of intent promising to pump in at least Rs.1,200...
Read more on Politics Balla
 
ISAF soldier killed in Afghanistan
Kabul, Aug 20 (IANS) A soldier of the NATO-led International Security Assistance Force (ISAF) was killed in Afghanistan Wednesday. "An International Security Assistance Force service member died of wounds as a result...
Read more on Politics Balla
 
111-year-old Japanese officially declared world's oldest man
Tokyo, Aug 20 (IANS/EFE) Sakari Momoi, a 111-year-old Japanese citizen, was Wednesday officially recognised in Tokyo as the oldest man in the world by the Guinness World Records award committee. Momoi bags the title...
Read more on Politics Balla
 
Is your college going kid more active on weekends?
New York, Aug 20 (IANS) Parents always suspect that their college going kids prefer weekends to weekdays. Now there is proof that college graduates are more active on weekends compared to non-college goers. A study...
Read more on Apple Balla