By on October 7, 2020

Mercedes-Benz looks poised to retreat from high-volume compacts. During an online corporate strategy meeting held on Tuesday, Daimler CEO Ola Källenius indicated that the luxury subsidiary may have overextended itself.

“Maybe we went at a bit too far to cover each and every space into each and every segment. Compact particularly comes to mind,” he explained. “This is not where the main thrust should go, we should not become a competitor of the volume makers.”

But the company only has itself to blame for that. Around a quarter of the brand’s annual sales come from compact vehicles and they’ve been taking up a larger share of its product portfolio. Källenius seems to think Mercedes has done enough to broaden its appeal and need to refocus on higher-end vehicles with better margins. “Our [current] strategy is designed to avoid non-core activities,” he said, adding that funds will be prioritized for more profitable products.

“We’re not chasing volume, we’re targeting profitable growth.”

While that seems to indicate fewer A and B-Class vehicles (not to mention CLA and GLA models) moving forward, Källenius made it abundantly clear that many of the brand’s smaller vehicles were too new to consider taking off the table. He also said that those units likely played an important role in bringing new customers into the fold but that Mercedes had enough of them.

But there will be consolidation. Daimler has repeatedly indicated that Mercedes-Benz would be utilizing fewer platforms to underpin its products as a way to free up cash for its electrification program amid restructuring. For smaller vehicles, MMA (Mercedes-Benz Modular Architecture) will be the obligatory starting point and capable of supporting battery applications. According to Automotive News, Tuesday’s event included a slide presentation showing five silhouettes of cars using the platform. While none of them were identified by vehicle time or time frame, it’s technically less than what the brand currently offers. MMA is also supposed to underpin midsize models in addition to compact cars, which may require the elimination of several existing models.

“We have a great opportunity for horizontal growth, not adding more cars to the compact segment but finding more customer groups to come under the Mercedes master brand,” Kallenius said.

From Automotive News:

Daimler described the platform as ‘electric first’ with batteries fitted under the floor in a sandwich style structure similar to Volkswagen’s MEB electric platform. Unlike MEB, the Mercedes platform can accommodate an internal combustion engine in the front so it can be used or full-electric cars and versions with gasoline or diesel engines.

The platform will incorporate fast charging via an 800-volt electrical system and over-the-air updates.

Ultimately, the company said it was vying to achieve profit margins in the “mid to high single digits” by 2025 (regardless of market conditions) and doesn’t think compact vehicles are the way to get there. It’s doubling down on electrification and noted that China will play an important role as its market had grown more than 23 percent from July to September (vs 2019) while the North American market shrank. China is currently the brand’s largest customer by volume and is assumed to be more receptive to electrification than the United States.

Of course, shifting toward EVs also alleviates some of the regulatory pressures being exerted on Mercedes. It has spent billions of euros trying to adhere to stringent emission mandates and buying its way out of diesel-related scandals that have become all-too-familiar within the industry. There’s also a very real regulatory push in Europe and China that is effectively driving players to introduce electric vehicles just to fulfill government requirements. We’re not sure how environmentally sound that strategy actually is but it’s not surprising to see so many manufacturers take the bait, especially if they plan on selling globally.

[Image: Pixfly/Shutterstock]

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24 Comments on “Fancy Forward: Mercedes-Benz Can No Longer Cater to Plebs...”


  • avatar
    R Henry

    1) “We’re not chasing volume, we’re targeting profitable growth.”

    Ha! This tune will change as soon as BMW volumes climb and MB declines.

    2) “Maybe we went at a bit too far to cover each and every space into each and every segment. Compact particularly comes to mind,”

    –I think they said the same around 1990 or so…refering to how 190 buyers were not moving up the ladder.

    The story never changes…only the face of the exec who excretes it.

  • avatar
    James2

    My sister said that years ago, when her friend bought a C-class. She said if you’re going to buy a Mercedes you got to buy the big one.

  • avatar
    gasser

    Running a big car company is complicated. Does going downmarket make sense in terms of profits, not just in “volume”? I have often thought that the CLA, A class and now GLA and GLB cheapen the brand; but perhaps this doesn’t prevent the traditional Mercedes customer from still buying. Is the lower end truly an entry point for a future customer?? Does today’s CLA buyer/lessee return in 3 years and move upmarket to a C or E class??? Is a price dependent customer a long term loyal customer??
    As a current GLC lessee, I don’t see myself moving up or even returning to Mercedes at the end of my lease. Why? To me luxury is performance and the 4 cylinder turbo doesn’t provide that, as I thought it would. Second the entertainment/media system is an abomination, it pulls your attention, completely off the road to change stations. Yes, I know, the new MBUX is supposed to cure that, but I don’t trust them enough to invest thousands in their new model. If they were to retrofit it to mine, it MIGHT help cure a lot of disappointment. Third, I am disgusted to have to pay extra to move up in packages to get what is standard safety equipment on some of the cheapest Hondas and Toyotas. In the 80s Mercedes led safety with ABS, antiskid and air bags. Now they trail. I paid extra for BSM on my GLC, but still no rear cross traffic alert or automatic rear braking. The interiors of Hyundai, Mazda, Honda are not up to Mercedes levels, but their electronics and safety gear are years ahead.

  • avatar
    cimarron typeR

    not a bad idea. Their cpo A class, C class cars will serve as entry level models for younger buyers and as their income rises (hopefully), they will get use to the lux dealership experience and re-up for a new model

  • avatar
    jkross22

    “Mercedes has done enough to broaden its appeal and need to refocus on higher-end vehicles with better margins.”

    It’s odd that they charge so much for their cheap vehicles, cheap out on the interior parts quality and not make money. Maybe they’re getting hosed on the supplier side.

    Merc’s not alone on this. Unless you spend upwards of $60k, BMWs feel like mid level Hondas for double the price. Lux brands have been skating on reputation for a long time and it’s catching up with them.

    • 0 avatar
      golden2husky

      Mercedes did this to themselves. They were determined in the aughts to gain market share, and they did so by compromising quality, reliability, materials, and design. When it came to building to a price point for the first time, they were horrible at it. No doubt one of the reasons they abandoned the “Engineered Like no Other Car in the World” tagline. Many MB models today are decidedly ho-hum. Yes, they have moved beyond door panels that looked like recycled soda bottles, but many of the vehicles themselves are still a mediocre facsimile of what they once were. Too bad because I find the idea of being able to have a high quality, high content automobile available in smaller sizes appealing. I never liked the idea that to get the best stuff you had to opt for all that bulk and unwanted size.

    • 0 avatar
      Mike-NB2

      jkross – I agree and this has been my experience as well. I had a CLA as an extended rental a couple of years ago and every time I was in it I was struck by the fact that a high trim Accord would be better in almost every aspect and would be at least $5-6K less in price. But what I was also acutely aware of was that people who did buy this car were likely willing to do so simply because of the three-pointed star in the grille. Wasn’t it the CLA that had an option to have the three-pointed star lighted to show it off?

    • 0 avatar
      tomLU86

      Mercedes has “cheapened” their low-end vehicles at the same time the mass market brands, have “luxed” up their mid to high end cars to some degree.

      Cars really have become commodities. By objective standards they are all very good, better than they were 20 years ago (not to mention 40! But 40 is a LONG time).

      Because they are interchangeable, they seem boring.

      However, driven by govt regulation, the incremental increases of the past 5-10 years don’t seem worth it to me. 10-speed autos vs 6? The (mostly) dreadful stop-start, which puts so much more wear on your starter and battery (and some owner will pay more to fix it than they will ever save in fuel. The ‘self-driving’ features…. not for me.

  • avatar
    dwford

    Who exactly was actually buying the sub $40k Mercedes models anyway? Seems like to get a real luxury car you had to option these things well over $40k. Watched a YouTube review of the GLB and basically to get a really luxury crossover you had to option it to $55k. No one is buying a $33k CLA.

    So selling cars in the $40-50k range isn’t profitable for Mercedes?

  • avatar
    dukeisduke

    So maybe Mercedes-Benz has finally seen the light, and will stop chasing every niche, cheapening the brand? With the democratization of luxury and features, Mercedes-Benz car aren’t as special as they used to be. When I see something like a GLC or GLE, I don’t see it as being better than a Hyundai or a Toyota.

    I think back to cars like the W116 or W123 series cars. They don’t build anything like that anymore.

  • avatar
    Land Ark

    Easy!

    When times are good, you can sell all the high end cars.

    When times are not-so-good you need product to sell to get you through.

    CLA was in response to lower sales during the recession. When it came out people were still in recovery/hold mode. MB wanted a volume car to make up the gap in luxury sales. Now, somehow, times are good and people are willing to spend tons of money on cars so why bother with the low profit volume cars?

    See you after the next recession, CLA!

  • avatar
    el scotto

    Mercedes has legitimate competition from Lexus, a lil bit of competition from Infiniti and now the Koreans are getting in the luxury game. Mercedes has jumped into the feeding frenzy of luxury crossovers. Lots of those being sold due to their badges. Then they said hey, we’ll go downmarket and sell front-wheel drive cars. A front-wheel drive Mercedes doesn’t equal a front-wheel drive Lexus; although I’m assiduously avoiding that battle. Mercedes is really just a mess outside the S class and the G wagon. Has “The Best or Nothing” been replaced with “The half-a$$ed is OK-fine with us”? Don’t get me started with AMG stripe packages.

    • 0 avatar
      Serpens

      A few things:

      1. Mercedes is a major player in many markets, and the U.S. is no longer calling the shots. Lexus and Infiniti are not their main concern. Their cross-town rivals BMW and VW (Audi)? Bingo
      2. Lexus really only plays at scale in the U.S. and their business is not doing as well it should either. That’s not what’s driving Mercedes strategy like in the 90’s/early 2000s.

    • 0 avatar
      28-Cars-Later

      I believe they were simply chasing volume because the upper tier markets only have so much demand and all companies need to grow or die.

  • avatar
    ThomasSchiffer

    My sons are 18 and 16 years of age, and they are interestingly enough interested in the smaller Mercedes’ cars. The larger models do not interest them at all. My oldest likes the new CLA-Klasse while his younger brother fancies the new A-Klasse. There is zero interest in say an S-Klasse or even a C-Klasse, which my youngest described as downright ‘boring’. They find the smaller Mercedes’ cars edgier and more youthful than the somewhat staid and conservatively styled larger Daimler products.

    My point? There appear to be two types of buyers for premium cars. The traditional ones which by default like the larger and more imposing cars which fit the typical description of luxury, and then there are the newer, younger buyers which find the smaller products more interesting for whatever reason (sensibility and so forth). I consider myself a traditional buyer of premium products because I will by default go for the larger cars; the smaller cars do not interest me that much. However, I can see the appeal of a CLA- or A-Klasse for a younger buyer.

    My conclusion would be that Daimler needs a health mix of smaller entry-level and of course larger premium products. But I do not want to be the one who has to make the decision on which cars specifically to eliminate.

    • 0 avatar
      el scotto

      @ TomasSchiffer, may I ask if your sons are interested in American vehicles, say the odd Wrangler or Mustang?

      • 0 avatar
        ThomasSchiffer

        You will probably find this amusing but my oldest likes American cars from the 1960s and 1970s, particularly sedans such as large Cadillacs and Lincolns and the regular mainstream cars of that era. My oldest has stated that in his dream garage there needs to be space for an early 1970s Cadillac Coupe in a kind of gold yellow color. My youngest is not really interested in American cars, although he did say he liked the appearance of that Prowler Plymouth once which he called ‘geil’ (German slang for ‘cool’).

        Both of my sons have not inherited their father’s love for large SUVs, so I doubt a Wrangler would interest them.

        We have plenty of old and new Ford Mustangs on our streets, but my sons have never truly emotionally reacted to them. At best I will hear a ‘cool car’ remark from them, but then the interest fades away.

        • 0 avatar
          gasser

          Thomas, many thanks for your interesting comments over the years. As to your sons’ interests in the MBZ lower end, they are 16 and 18. Let’s see down the road when they are paying with their own dollars if their interest in A, CLA doesn’t shift to something with more value per dollar. At that age, my daughter’s favorite vehicle was an Escalade. Now that she pays for her own, she drives a Honda CR-V.

          • 0 avatar
            ThomasSchiffer

            Gasser,

            If they have a well-paying job and can afford it, then I see no problem with them owning a premium car.

            It is all about the willingness to pay and enjoy the product. I am well aware that servicing costs on these cars are generally higher than what you are charged at a mainstream brand, but for me personally it is worth it (I drive a 2007 Mercedes-Benz GL320 CDI 4Matic which is approaching 500,000 km) as the product stands out in many areas (intangible features) compared to non-premium brands.

            But the observation remains that my two youths find the smaller Mercedes’ cars more appealing than the larger ones. I think one can deduce that the smaller and cheaper Mercedes’ products appeal to younger buyers whereas the larger and more expensive models appeal to the older ‘old money’ crowd. This is a generalization, but there must be some truth to it.

  • avatar
    dukeisduke

    Their slogan used to be, “Engineered Like No Other Car In The World”. Now they’re engineered like pretty much every other car (Toyota, Hyundai, Kia, etc.) in the world. Their quality isn’t what it used to be, so instead they sell based on the three-pointed star, and tech features that are going to break at some point, usually for the second or third owner.

  • avatar
    28-Cars-Later

    Merc Brass: Maybe trying to compete in the prole segment hurts our image?

    LOLOLOL finally someone woke up.

  • avatar
    thornmark

    anyone can lease a MB but you have to rich to afford the maintenance and repairs when they go off lease – which is why MB resale value is terrible

    there was a time when MB’s were exceptional and that time has past

  • avatar

    Benz has already split (US Market) into two…upper benz starts at C class, and with options, you get the same ICE, switchgear, etc as S class or the sports cars. Lower Benz, CLA, and such are a lower tier of build. I’ve driven the whole line over various service appointments, the guys at the dealer like the C43 and will cater to my car geekery…only missing are S class and G wagon, they aren’t loaners. The top-est tier has some small improvement over the mass upper benz set of parts and such, but it’s really a tiny up-sell.

    Meanwhile, my ace of base Jetta S also has power windows with one touch, all controls on steering wheel, A/C, IRS and all wheel discs, and passable stereo. Backup cam, ABS, Traction Control. All the items you used to pay for are standard on the most base car VW sells…and no, while you can’t compare the 385 hp AWD to the 140 hp FWD, it does point to a commoditization of autos in general. The benz has more…but not different.

    The lower Benz cars are Honda equivalent, which is fine, but Benz clearly doesn’t want to play there in the USDM, it’s a different world than popping out 80k E classes and big trucks, and when the maid comes up in a dented secondhand CLA with tints it tarnishes the GLS truck in the driveway.

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