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Mercedes-Benz seeks continued growth in China after strong 2014

Daimler AG’s Mercedes-Benz unit is seeking continued growth in China in 2015 after a year-on-year sales increase of 28 percent last year, according to information released by the German luxury vehicle maker at an exclusive interview held in Beijing in January.

Nicholas Speeks, President & CEO of Beijing Mercedes-Benz Sales Service Co., Ltd. (BMBS), Li Hongpeng, Senior EVP at BMBS, Duan Jianjun, EVP responsible for sales and marketing at BMBS, and Zhou Ning, Director of Sales and Marketing at After-Sales BMBS, offered their perspectives at the interview.

“We achieved encouraging results in 2014. We sold 270,226 vehicles, excluding smart cars – up 28 percent from the previous year,” said Speeks. “We have confidence in the potential of the China market and will march forward with big strides to our goal of selling 300,000 vehicles in 2015.”

 

Growth in all segments in 2014

Sales of Mercedes-Benz vehicles have increased for 22 consecutive months since BMBS was established two years ago.

Sales of locally-made vehicles rose 29 percent in 2014, accounting for 55 percent of the company’s total sales in China.

The automaker’s all new sub-brand, Mercedes-Maybach, which made its world premiere in Guangzhou last year, bridges the gap between luxury and ultra-luxury vehicles.

Mercedes-Benz launched 11 all new models and variants of existing vehicles in 2014, including the CLA Sport Sedan, CLA 45 AMG 4MATIC, A 45 AMG 4MATIC, GLA SUV, GLA 45 AMG 4MATIC, All New Long Wheelbase C-Class Sedan and Sport Sedan, S 63 L AMG, S 63 AMG 4MATIC, S 320 L and S 600 L.

The German company opened 106 new dealerships in 53 cities in 2014, the largest network expansion it has conducted in China in a single year. It now has 447 dealerships in 214 cities nationwide, with 40 percent located in 3rd-tier cities and below. It also has training centers in Beijing, Shanghai, Guangzhou, Chengdu and Xi’an, after the largest opened in Shanghai last July.

The automaker started to cut prices of more than 10,000 parts and components by an average of 15 percent since September 2014, as part of its efforts to improve customer satisfaction with aftersales services.

“Price reductions on parts of Mercedes-Benz vehicles will not impact dealers’ long-term interests. Dealers know that they can get larger markets and more opportunities in the long-run,” said Li.

 

Fifteen new models to enter China

Mercedes-Benz plans to launch 15 new models in China in 2015 as it works towards goals of selling 300,000 vehicles and achieving double-digit growth in the coming year. These new arrivals will include the locally-made GLA SUV, additions to the All New C-Class range, the Mercedes-Maybach S 600 and S 400 4MATIC, the All New smart, and AMG GT. In particular, the Chinese-made GLA SUV is expected to hit the market in Q2.

 

“All automakers, especially premium vehicle makers, will gradually pay more attention to younger customers. Guiding younger potential customers to the luxury vehicle market is the shared task for both Mercedes-Benz and its dealers,” said Duan.

Beijing Benz Automotive Co., Ltd. (BBAC), a joint venture between BAIC Group and Daimler, will expand the output capacity of its engine plant in 2015. The plant has already exported key engine parts, such as cylinder blocks, cylinder covers and crankshafts, to Mercedes-Benz factories in Germany since May 2014.

The company has also invested more than RMB 865 million ($144 million) in vehicle R&D in China over the past years, including RMB 105 million in the Mercedes-Benz Beijing PV R&D Center. The workforce of the R&D center will reach about 500 people by the end of 2015. To date, BBAC has received a total of over €4 billion in investment over the past few years.

 

Relationship with dealers key to success

“We have established a long-term and trust-filled relationship with dealers,” said Speeks. “The secret to success is gaining trust from dealers and the market based on Mercedes-Benz’s long-term commitment to China. We aim to promote sales growth without sacrificing dealers’ interests, and we are definitely not willing to drive sales increases while keeping a huge inventory.”

According to Speeks, Mercedes-Benz will not make any decision against long-term development to achieve short-term sales goals.

Speeks added that the greatest achievement of Mercedes-Benz in 2014 was not the near 30-percent sales growth, but rather the mutual trust the company built with dealers.

“We learned how to balance the role of large dealer groups within our entire distribution network in 2013 and this helped us do a better job last year,” said Li. “We have 15 strategic dealers which cover 70 percent of our network and contribute over 70 percent of our total sales. We also worked with them to conduct strategic analysis of network development so as to achieve a balance between our goals as an OEM and dealer interests.”

Li said that Mercedes-Benz will continue to build sales outlets in emerging Chinese cities, no matter how big or small.

“We conducted an analysis of the strategic development of our distribution network between 2016 and 2020 based on current economic levels, market demands and consumption concepts and patterns,” said Li. “We cannot blindly pursue dealer expansion from a numeric standpoint, but should consider factors that may affect future consumption trends, such as e-commerce and other new business patterns. Mercedes-Benz will focus on the efficiency of dealerships, rather than the number.”

Li believes that investor confidence plays an important role in building a strong distribution network.

“It usually takes investors several years to reap profits in untapped markets and that is why we need foresight when making investment in these regions,” Li said. “We should make modest investment, and in addition to opening large 4S stores, we also need many different kinds of outlets, such as showrooms and aftersales service stations. Investment scale and return on investment should be reasonable.”

“I think the key to communication with dealers is showing them the whole picture of the market, rather than specific development policies or measures,” Speeks added.

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