By on May 19, 2022

Mercedes-Benz has said it will cut back its entry-level offers to better prioritize premium vehicles with loftier margins. While this strategy has become relatively uncommon throughout the industry, even among some mainstream brands, Mercedes has historically been synonymous with high-end luxury cars. One wonders why it bothered chasing volume to begin with, especially since it doesn’t seem to have panned out for the company.

While executives had previously hinted at its revised strategy in interviews, Mercedes officially unveiled its plan to investors on Thursday. The German brand will focus investments on top-of-the-heap models like the S-Class at the expense of entry-level products that have failed to garner juicy profits. 

“What has always been the core of our brand is now also the core of our strategy: the luxury segment. We are further sharpening the focus of our business model and product portfolio in order to maximise [sic] the potential of Mercedes-Benz even in challenging conditions. At the heart of that is our goal to build the world’s most desirable cars,” stated Ola Källenius, Chairman of the Board of Management of Mercedes-Benz Group.

The company is basically taking into account today’s supply chain constraints (e.g. chip shortages, bottlenecks, increasing cost), realizing that volume-focused models with lower MSRPs won’t net it the same kind of profits as a few six-figure G 550. We only need this year’s financial metrics to see that plan in action. In the first quarter of 2022, Mercedes sold 10 percent fewer vehicles than the same period in 2021 (which was already a lean year). However, its profits were up by a whopping 20 percent within the same timeframe.

From MB:

Mercedes-Benz will recalibrate its product portfolio, allocating more than 75 [percent] of its investments to develop products for the most profitable market segments. As part of this sharpened strategy, Mercedes-Benz aims to grow the sales share of its Top-End vehicles by around 60 [percent] by 2026 versus 2019 and intends to achieve higher quality growth and a further significant increase in profitability and resilience, striving for an operating margin target of approximately 14 [percent] by mid of the decade in favourable [sic] market conditions. This greater focus on the top end of the market should enable the company to deliver a strong financial result even under more challenging market conditions. The company’s strategic decision to become fully electric by 2030 – wherever market conditions allow – and the ambition to become CO2-neutral by 2039 are integral elements to enhance the connection between luxury and sustainability.

In 2021, the Mercedes-Benz S-Class reported an increase of 40 percent. Meanwhile, the high-performance AMG and uber-luxury Maybach arms set records of their own. Mercedes believes that the market for premium vehicles will remain strong, whereas entry-level products will not.

To account for this, it’s going to rejigger its product portfolio and development team to focus on Mercedes-AMG, Mercedes-Maybach, “Top-End” models from Mercedes-EQ, the S-Class, the G-Class, and the GLS. There will also be some room carved out for limited-edition models and exclusive collaboration vehicles, though the company did not get into specifics.

Meanwhile, its more humble products, such as the A-Class, will be seeing fewer variants. We may even witness some models being removed from the lineup in the coming years. Customers that decide to order from Mercedes will soon notice that sweeping equipment packages will replace some individual options. The company said that reducing complexity will allow it to offer compressive packages based upon regional trends while saving itself a lot of trouble during production. It also allows the brand to charge more in most cases, broadening profit margins.

However, this will require some tweaking at the factory. Executives have explained that they’re not interested in chasing volume, but that they’ll still need to retool some facilities to optimize new production routines. Though your author would argue that there’s nothing luxurious about nixing built-to-order vehicles.

Markus Schäfer, head of development at Daimler, was quoted as saying by Automotive News, that the transition toward reduced complexity will dramatically change logistics in just about every market it currently occupies. But he remained confident that it would ultimately benefit Mercedes’ bottom line.

“The willingness to pay is there,” he said. “Many, many customers are ready to pay the extra price for luxury.”

[Image: Franz12/Shutterstock]

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34 Comments on “Mercedes to Focus on Premium Luxury Vehicles Again...”


  • avatar
    ajla

    So internet commenters were right?

  • avatar
    pmirp1

    Sadly even Mercedes S class is nothing special now. No knobs, no buttons, just big LCDs. They should look at Bentley and Rolls for what luxury is all about.

  • avatar
    ToolGuy

    Dear Mercedes-Benz,

    Good job taking my advice (finally). You didn’t have to wait two decades, but we won’t dwell on the past.

    Send me a nicely-equipped Kia and we’ll call it even.

    Regards,
    Tool

    • 0 avatar
      tomLU86

      Due to supply chain issues, like every other company, they cannot meet their production targets.

      Since they are forced to build fewer cars, and can sell EVERY one, they might as well build the moneymakers.

      They are not heeding our advice–they presenting their production woes as “repositioning our products”. Very clever.

      But today’s S-class does nothing for me. A Lexus or Genesis is probably higher-quality All automakers do pretty much the same thing now. Long gone are the days when Mercedes was truly over-engineered.

  • avatar

    What the Standard of the World thinks about it? Dead Weight?

  • avatar
    rpm773

    Oh Gawd…please Merc dont leave us down here with the Kias and Hyundais. Whither shall we go, without the light from an LED-lit grille emblem of an A-class to guide our way?

  • avatar
    Art Vandelay

    Good. Back to the days when the poors see a Benz on the road they know what’s up!

    • 0 avatar
      RHD

      Mercedes are used for taxis in Germany. Silly Americans think a fancy taxi is something really special. Making a Cadillac by fancying up a Chevy leaves you with an overpriced Chevy.
      When Mercedes made its inroads to the US, it was expensive (being imported), better engineered and better constructed than American cars, and not brought in in large numbers. It became something special and exclusive, and somewhat mysterious for most Americans who couldn’t afford one.
      Now they make overpriced SUVs for soccer moms who convince Hubby to lease the newest version. They look like Hyundais and the quality has gone downhill.

      Smart money would buy a Lexus instead, and enjoy top engineering and build quality, and exceptional reliability.
      What “the poors” might think when a Mercedes goes buy doesn’t matter a hill of beans.

      • 0 avatar
        stuki

        “Smart money would buy a Lexus instead”

        But “Smart” don’t fall for nonsense as trivial as shacks creating value while sitting there decaying in the weather. Nor that putting the faces of long dead people on paper pieces does. Nor that some guy who was explicitly not guilty of killing OJs wife, was somehow still “responsible” for her death.. etc., etc.

        The only people falling for any such utterly trivial nonsense, are dumb people. And in societies so singularly moronic that people engaged in any of the above are somehow the ones “making” (Newspeak for “being handed stolen….”) money, those dumb people are the ones buying cars in Mercedes’ traditional core segment.

      • 0 avatar
        SoCalMikester

        they shared a mexican assembly line with nissan

      • 0 avatar
        bd2

        Over in Europe, Mercedes is also known for their commercial trucks (including sanitation trucks), vans and buses.

        Most Lexus models are tarted-up FWD Toyotas, so wouldn’t the smarter play be just to get the cheaper Toyota version? (Or better yet, get the Telluride or Palisade which are more premium than the Highlander).

  • avatar
    jkross22

    Pretty sure they never really focused on the lower end of the market… cars selling for less than 40k. The CLA/GLA were always jokes. When we’d get them as loaners, it was clear Merc didn’t give a rip about anything other than the logo. Terrible seating position, uncomfortable seats… I have no idea who would get in any of those and think to themselves, “Finally, a real Mercedes.”

    The GTI was always a much better vehicle for much less.

    • 0 avatar
      conundrum

      I agree. The two CLAs (FWD and AWD) I drove weren’t up to anything at all, my LGT slayed ’em at a canter. Road noise galore and coal black fake leather inside with a joke of a back seat and cheap feel. Plus a crappy engine, M170 series, that got replaced with the current M160 gooberplants. Of course they suckered Nissan into building the M170 engines at Smyrna for the C class assembled in Alabama and also stuck in the dreadful QX30, then introduced the M160 leaving Nissan high and dry with an engine line nobody wanted. Mercedes the honorable. The Mark 2 versions of A and B Klasse are supposed to be a lot better, but we also overlook in North America the absolute trash other models in the A and B class lines that Mercedes’ flogs in Europe and elsewhere to compete with BMW’s equally awful models we don’t get. Think on it — we got the good ones in North America! No diesels or crap little engines and really plastic interiors. And they’re still putrid, our models.

    • 0 avatar

      Definitely this. When I bought my C43, I was making sure I got all the top shelf benz parts/switches, etc. The service folks would usually give me an E class, or a GLS (massive !), something equal or better. I asked for an A class once for curiosity….”are you sure ?”. After a few days with an A, and stop/start I could not defeat in NYC, I realized a GTi, or an Accord Sport with the 2.0 would be a better car and you’d save 10k. I got the distinct impression the A class was where they sent engineers and designers who were unpopular. I’m not at all surprised that the tacky-ass lit up star in the grille is most frequently found on an A. The Nissan-Renault collaboration was interesting, but it wasn’t “A Benz”, and resulted in a gas fill on the driver’s side, always a giveaway of a RHD home market.

    • 0 avatar
      FreedMike

      “The GTI was always a much better vehicle for much less.”

      Probably explains why Audi had no problem selling the A3 – it’s a GTI under the sheetmetal (well, at least the AWD version was), so it’s a hoot to drive.

      But the new model is down 20 hp. Derp…

  • avatar
    Da Coyote

    Traded in my not to end of warranty E a few years back due to almost daily electrical problems. It’ll be fun watching when that laughable company tries to flog more electric vehicles. EE is not a friend of the Germans any more.

  • avatar
    FreedMike

    Not surprising, but I’d also say their entry-level efforts would have gone better had the product not been such crap. The CLA was bad enough, but the A-class was even worse – it was basically a FWD compact with a Mercedes badge, and to add insult to injury, it wasn’t good to drive, and was made in a Mexican Nissan plant. Mercedes figured entry-lux buyers would be too dumb to notice, I guess.

    It’ll be interesting to see if BMW follows suit and mercy-kills the 2-Gran-Whatever.

  • avatar
    dukeisduke

    Finally, Peter De Lorenzo over at The Autoextremist is vindicated. He’s been complaining for years about Mercedes-Benz chasing every niche.

  • avatar
    Lorenzo

    Why the (sic) with every example of British spelling? The Germans who speak English are most familiar with British English. We’d all be using the same British spelling, except Teddy Roosevelt hated it, and spearheaded American spelling as simpler and more logical, and Teddy’s idea caught on. British spelling isn’t wrong, it just… IS.

    • 0 avatar
      sumgai1986

      Because ‘MURICA

    • 0 avatar
      Lou_BC

      How much should one labour over the differences between our British and American neighbours spelling of words? Does it negatively colour or flavour our conversations? Do we manoeuvre for faux intellectual superiority or just find humour in the conversation. Some are fearful of giving an inch and losing a mile…..I’m sure there are metrics more worthy of debate.

      LOL

  • avatar
    sckid213

    Good. It’s unbelievable how bad the entry-level Merc 4-banger sounds in all states. Idle, cruise or WOT. Truly agrarian.

  • avatar
    BEPLA

    “Though your author would argue that there’s nothing luxurious about nixing built-to-order vehicles.” Did the folks at Mercedes-Benz say they were eliminating built-to-order cars? No, they did not – they said they were consolidating options into packages – to which one can still add individual options. Once again, the author gets his facts wrong for the sake of making a snarky remark.

  • avatar
    Good ole dayz

    The W123 diesel was peak Mercedes. Truly a tank; a vehicle that’s still viable to use as an everyday driver some 35-40 years on.

    Mercedes has been going downhill since then.

    Recognizing that the Carbon Cult is (for now) calling the shots, especially in the EU, and so Mercedes is succumbing the the “all EV by 2030” edicts … it’ll mark the end of Mercedes. Devolution from the storied, masculine SSK to soulless, feminine appliances more apropos for a video game.

    (Albeit there may still be the ghost of Mercedes producing EV’s for the elite that can afford them, and have their driver handle recharging every couple of hours; that is, if the grid is up and there are no blackouts at that present moment.)

    • 0 avatar
      ToolGuy

      “The W123 diesel was peak Mercedes.”

      I sincerely hope you are right, because the only Mercedes ever titled in my name was… a W123 diesel.

      (Also the only diesel vehicle I have ever owned.)

      ToolDude – not as stupid as he looks™

  • avatar
    j lu

    “Though your author would argue that there’s nothing luxurious about nixing built-to-order vehicles.”
    Absolutely correct. Luxury and exclusivity demand personalizing a vehicle not paying for bloated option packages, many of which contain items and features not wanted or used. The manufacturers make their profit by loading packages onto customers who really want one or two features but have to pay for several more unwanted features. Mercedes, as are most manufacturers, is now purely profit driven, almost to the detriment of the cars they make. They are in business to make money but that’s probably not the approach a “luxury” vehicle manufacturer should boast about. Then again, perhaps customers these days really don’t care anymore and just willy-nilly hand over small fortunes for these option loaded cars that often vary only by color. And as we all know, many folks want their car/house/TV/food/coffee/any products…instantly. Few want to wait.

  • avatar
    Funky D

    So will the “premium” Mercedes herald the return of the bank-vault build quality, the near-eternal longevity of the powertrains, the revival of the Teutonic driving experience, and the end of all the overpriced, breakable plastic parts in the engine bay?

    I doubt it.

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