Mercedes U.S. Forecasts 15th Straight Sales Increase

NEW YORK – Clinging to a small 1.4% increase in sales volume in a plummeting market is no small achievement for Mercedes-Benz USA so far this year.

But President and CEO Ernst Lieb tells the International Motor Press Assn. here he’s targeting another year of volume growth despite the dismal state of the U.S. auto industry.

Offering 55 models in 14 model lines that range in price from $32,425 to nearly $500,000 gives Mercedes a big portfolio to attract a wide customer base. But Lieb says current growth in the luxury segment comes from the bottom of the market.

Sales of the flagship S-Class have slipped dramatically in 2008. Lieb says there are signs some S-Class customers are moving down the price ladder, purchasing an E-Class instead. In addition, some customers are deferring new-car purchases and renewing existing leases for another 12 months instead.

However, sales of the highly profitable AMG models are holding their own.

“We are the largest AMG market in the world,” Lieb says.

Mercedes sold 9,000 AMG models in 2007 and Lieb predicts volumes will be similar this year.

Demand outstripping supply on entry C-Class in U.S.

Mercedes customers are willing to spend a huge premium for AMG models. For instance, the average transaction price of a C-Class is $36,000-$38,000. The AMG C63 is close to $60,000.

However, the conventional entry-level C-Class is proving to be a huge success. Growth is restricted only by supply, Lieb says, predicting future luxury-segment growth will be concentrated at the entry-level end of the sector.

But he says Mercedes has no immediate plans to offer anything lower in price than the C-Class, despite introduction of such cars as the BMW 1-Series and Audi A3 from its key rivals.

The A- and B-Class cars Mercedes offers elsewhere are not being considered for sale in the U.S., Lieb says. “We don’t think they would add value to our market here even though we sell B-Class vehicles in Canada.”

Lieb, in his present position for the past 18 months, has spent much of his career outside his native Stuttgart, Germany, including tackling an 18-year assignment for Mercedes in Canada, where he acquired Canadian citizenship. He also has headed Mercedes operations in Australia.

“This is the most competitive market in the world,” Lieb says of the U.S. “But if a company can make it here, it can probably make it anywhere in the world.”

He blames the current luxury-car sector malaise on the slowdown in the real estate and stock markets.

“When the stock market goes down it has an effect on the luxury segment,” he says.

The West and Southeast markets are in particularly bad shape, but Lieb says Mercedes is overcompensating for sales losses in those regions with improved results in the Northeast, which has displaced the West as the brand’s best-selling territory.

Meanwhile, the Mercedes chief has launched a massive overhaul of North American operations and the brand’s 335 dealers.

“We have done lots of reorganizing (of the headquarters staff),” he says. One-third of 1,200 employees at the Montvale, NJ, nerve center have been reassigned to new jobs in the past year.

“Our organization is now very focused,” Lieb says. “If I’m going to move our organization, I’ve got to get our employees convinced before I can go to my dealers. The goal is to create a new business model to drive retail improvement.”

Dealers are being asked to invest a total of $1.4 billion in facility improvements, with Mercedes contributing another $300 million toward the program.

Since the upgrade initiative was launched, more than half of the dealers have completely renovated their facilities or made progress towards launching their improvements.

“Our goal is to (renovate) 85% of the dealerships in the next three years,” Lieb says.

Mercedes already has responded to a major complaint from dealers, he says, shortening the time it takes to deliver service parts from warehouses.

“We’ve improved parts availability dramatically,” he says. “We have a 98% parts availability now.”

Mercedes also created a program that allows dealers to get parts from other dealers.

“Our dealers were willing to do this and are now enthusiastic about it,” Lieb says. “It’s an issue that no longer comes up in our dealer board meetings.”

But the future rides on how well Mercedes addresses customer concerns, the executive says, because the brand no longer can rely on selling cars as a symbol of success.

“We can’t just rely on status anymore,” Lieb says.

The customer buying experience now is the biggest factor in luxury-car sales, he says, adding 80% of Mercedes’ customers also are influenced by the service experience.

“We have to improve there,” Lieb says.