In a bid to raise its market share in China, Daimler will introduce a new sport utility vehicle (SUV) to its lineup of Mercedes Benz models produced in the country, while encouraging localisation.
IHS Automotive perspective | |
Significance | New models will enhance its lineup in China as Mercedes aims to increase market share. |
Implications | Locally produced premium German brands continue to compete against each other in China. |
Outlook | As competition increases, automakers are offering greater flexibility in ways to buy new cars, with an increase in auto finance. |
German automaker Daimler is strengthening its presence in China with an emphasis on responding to the demands of customers in the region. In a statement sent directly to IHS Automotive, the automaker stated that its Chinese joint-venture (JV), Beijing Benz Automotive Company (BBAC), will strengthen its local footprint with a new R&D centre located in the capital city.
Mercedes accelerates localisation
The new facility is the largest for any Daimler JV, and houses 700 engineering and other staff, helping the Mercedes brand to achieve higher levels of localisation. Hubertus Troska, member of the Board of Management of Daimler AG responsible for China, said, "Localisation is the key to future success in China." Frank Deiss, president and CEO of BBAC, added, "Local R&D plays a key role here as well, as it enables us to better understand the market and react more quickly and effectively to the needs of our customers."
|
The BBAC plant |
The new R&D centre has seen a total investment of CNY760 million (EUR91 million), and follows on from BBAC's aim to build in China for China. "Since localisation is the key to our sustainable growth and future success in China, we are continuously investing in our production, R&D, and people," said Troska. "BBAC and our joint investment of EUR4 billion (USD5.50 billion) through 2015 make clear at once: we have big plans in China."
BBAC plant to be largest globally
The BBAC plant is expected to become the largest global plant for Mercedes Benz cars. In November 2013, the BBAC plant added engine production, with 4-cylinder and 6-cylinder engines produced at the site for locally built Mercedes cars. The engine plant has capacity in its first phase to produce 250,000 engines per annum. By 2015, it will produce 200,000 Mercedes cars per annum.
The new agreement specifies that EUR1 billion of the EUR4-billion investment is to be solely for the expansion of local car and engine production capacity until 2015.The existing production capacity at BBAC for the C-Class, E-Class, and the GLK will be more than doubled to over 200,000 per annum in 2015, including the compact GLA, which will go into production at BBAC next year. This capacity will be increased further after that, in line with market demand, according to the automaker.
First prototype workshop outside Germany
|
The new R&D centre houses various test laboratories and benches for engines, emissions, climate and corrosion, an endurance analysis workshop, and a proving ground. Experts have the capacity to prepare offline try-outs for homologation, training, fitment tests, and, in the future, 'Nullseries' on-site in Mercedes-Benz's first prototype workshop outside Germany. In total, the new centre will be home to a cross-functional team of about 700 employees from R&D, quality management, and purchasing.
Outlook and implications
Mercedes Benz is targeting Chinese sales of over 300,000 in 2015. Of the volume of units sold in the country, locally produced models outweigh imports. Building on this, Daimler now envisages spending and investing more in locally producing a greater variety of Mercedes models for the Chinese market, in addition to certain consumers still deciding to purchase cars built in Germany and imported into China. The trend is also followed by the other leading premium German brands, Audi and BMW. By expanding to offer a greater variety of locally produced models at a cheaper price than models imported into the country, the brands gain higher penetration rates with greater volumes sold.
Building on the trends developing for different consumer groups within China's new-car market, premium brands are beginning to further dissect the market segments. The SUV segment continues to be a fast-growth sector, with faster growth rates in the B and D SUV segments, but greater volumes in the C SUV segment.
The automaker is now preparing local production of the GLA SUV for China. The model is classified as a C SUV by IHS Automotive, and therefore fits into the trend for larger volume sales. The model follows the successful launch of the GLK SUV in China, a D segment SUV, which began local production in China a few years ago.
Meanwhile, in the sedan market, long-wheel-base (LWB) sedans continue to find a certain following, while a different consumer subgroup appeals to smaller, sportier cars, prompting an increase in smaller sedan models being offered by premium players in addition to the LWB sedans.
|
© IHS Automotive |
This year, Mercedes introduced a longer C class sedan for China. The model is 2.3 inches longer than the regular C-Class sedan variant, but will be fitted with the same engine options and transmission. The new 2015 C class is produced in Germany, South Africa, China, and the US, with the Chinese variant the longest.
IHS Automotive currently forecasts that Mercedes will continue to see growth in China, with annual sales in 2015 forecast at over 450,000 units.
The Chinese car market still claims to see cash sales for almost all transactions, although the penetration rate for auto finance is rising. Auto finance is a growing trend in China, and international automakers are increasing their finance options to attract new car-buyers. Mercedes has introduced 'Agility' as a tailor-made solution for the Chinese market, which includes a two- to three-year leasing period with monthly payments, offering the consumer three options at the end of the term: purchase the vehicle, trade in the vehicle for an upgrade, or simply return the vehicle to the dealership (see China: 16 June 2014: Mercedes pushes new auto finance solution in China). Meanwhile, the Chinese regulatory commission for banking has opened up ABS transactions to foreign OEMs, while local Chinese OEMs are quickly trying to offer competitive auto finance packages to new car-buyers in China (see China: 20 June 2014: China opens ABS transactions to foreign OEMs).
Over and above all this, the government is probing automakers such as Mercedes over alleged price-fixing in China (see China: 21 July 2014: Chinese government probes automakers over spare part price fixing). A wave of adjustments in spare-parts pricing is now taking hold in China as automakers race to counter findings by local governments, which are investigating a number of automakers for aftermarket spare parts price-fixing, as well as for the pricing of imported vehicles sold in China. Earlier this month, Mercedes cut the prices of certain spare parts by as much as 20% in China (see China: 28 July 2014: Audi cuts spare part prices in China following NDRC probe; Mercedes adjusts prices).