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China, Germany Discounts Could Jeopardise Mercedes Profits

China, Germany Discounts Could Jeopardise Mercedes Profits

U.S. Prices Holding Up Though.
New Naming System Might End Buyer Confusion.

Mercedes’ drive towards higher profits will be derailed if the prices of its new cars are undermined by discounting and there are signs that this is happening in China and Germany.

Prices in the U.S. though are stronger compared with its main competitors BMW and Audi.

Mercedes may get a bit of marginal help from its decision to rationalise the names of its model lineup, which some buyers find confusing.

Laura Lembke, analyst with Morgan Stanley, said Mercedes product renewal is entering a final phase with the MLC SUV, which competes with the BMW 6 series, S-class derivative Pullman as well as the GLC, formerly the GLK.

“Although we expect sustained top-line momentum, supported also by full availability of 2014 launches of the GLA, C-class and Smart, we would note that (Mercedes) has tougher (comparables) ahead and is likely to face further mix dilution from a revived Smart line-up,” Lembke said.

Pricing may well come under pressure.

Stocks at high levels
“Moreover, despite the vast array of new cars, latest industry data suggest pricing is not as firm as one might hope at this point in the product cycle. Of particular concern to us is China, where Mercedes is already offering up to 17 per cent and 11 per cent average discounts on the new C-class and S-class. Likewise, discount levels in Germany have not materially improved, while used car inventory also remains at elevated levels,” Lembke said.

”The bright spot is the U.S., where relative pricing is clearly better than peers. In light of current developments, we should therefore be cautious not to extrapolate Q3 2014 margins,” Lembke said.

Mercedes-Benz raised earnings before interest and tax (EBIT) by 29 per cent in the third quarter to €1.6 billion compared with the same period of 2013. Mercedes’ profit margin was 8.5 per cent in the third quarter, and the long-term target is 10 per cent.

Under the new naming system there will be five core models, A, B, C, E and S. All SUVs will have a GL in their name with the third letter indicating the size. For instance, the new GLK will become the GLC, and the ML becomes the GLE for E-class. Cars with coupe-like styling will be CL, as in CLA for A class.

The Mercedes-Maybach S600 will make its debut at the Los Angeles car show later in November. Mercedes dumped the Maybach brand in 2012 after it failed to make inroads in the market dominated by Rolls-Royce and Bentley. But Mercedes has now decided to revive Maybach as a sub-brand. The Mercedes-Maybach S600 will be powered by a 6.0 litre, V-12 twin-turbocharged gasoline engine producing 530 hp.

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