Mercedes Looks To Carry On The Momentum With The Debut Of New C-Class

by Trefis Team
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Daimler AG
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With sales up 14% to 312,534 units in the U.S. in 2013, Mercedes is looking to carry on the momentum by the launch of the new C-Class at the Detroit Motor Show. The revamped version is more spacious and lighter than its predecessor and contains a number of technological upgrades such as a touchpad, Intelligent Drive and a parking assist. [1]

We have a price estimate of $78 for Daimler’s stock, which is about 10% lower than the current market price.

Pricing of the new model remains undisclosed for the time being although it should be near that of the current version, which starts at $35,800. Not only do model refreshments buoy the overall sales, they also help companies realize better pricing and consequently lift the margins. The C-Class is Mercedes’ second best selling car in the U.S. after the E-Class. Moreover, it is the highest selling car in the U.S., where the model alone generated sales of 88,571 units in 2013. [2]

Targeting Younger Audience

The 2015 version of the C-Class is also sportier and swankier than the previous version. This is in line with the company’s policy of attracting a younger audience. Earlier in 2013, it also introduced the CLA, which starts at $29,900 to compete against BMW’s 1-series and 3-series and Audi’s A3 and A4. Due to a lack of model refreshments in the past, the old model designs often didn’t appeal to the younger buyers who, in turn, prefer the more sporty BMWs and Audis. Another advantage of targeting customers when they’re young is the higher rate of customer retention. Customers who purchase a Mercedes car when they are young are likely to stick to the same company when they upgrade their cars in a few years time.

Success of new introductions and model refreshments will be pivotal in deciding whether the company will be able to achieve its long-term target of 9-10% operating margins. Mercedes’ margins had dropped to 3.4% in the first quarter of 2013 due to one-time expenses associated with model makeovers but the figure improved to 7.3% during the third quarter. [3] The new models helped post higher revenues as well as improved the pricing, which buoyed the margins. Rivals Audi and BMW regularly clock operating margins in excess of 10% in addition to selling more vehicles.

Catching Up To Its German Rivals

BMW retained the crown of the world’s largest luxury automaker in 2013, although Mercedes and Audi are catching up. Mercedes’ introduced a number of models in 2013 including the E-Class, S-Class and the new CLA. The product offensive is part of Mercedes’ strategy to regain the crown of the world’s largest luxury automaker by 2020.

Positive reception in the U.S. could also be a harbinger of things to come in China, where the automaker has upped its game recently. The models at the lower end of the luxury spectrum are likely to account for a significant portion of the sales in China since the customers are more price sensitive. In addition to China, the automaker is also looking to bolster its presence in India with 10 new introductions lined up in 2014. Currently, the automaker has a limited lineup due to which it is losing out to Audi and BMW in the country. [4]

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Notes:
  1. 2015 Mercedes C-Class gets semi-autonomous braking, distancing, and parking, techhive.com []
  2. Mercedes Edges Out BMW For 2013 U.S. Luxury Sales Crown, January 6, 2014, motorauthority.com []
  3. Daimler Investor Relations []
  4. Mercedes to strengthen portfolio with 10 new cars, January 13, 2014, mydigitalfc.com []
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