Daimler’s Mercedes-Benz Faces Stiff Competition From BMW And Lexus In The U.S.

Daimler AG‘s Mercedes-Benz lost the global luxury sales crown to BMW in 2005, and now ranks third behind both its compatriots BMW and Volkswagen AG‘s (OTCMKTS:VLKAY) Audi in terms of global volumes. One of the reasons why BMW and Audi have been outselling Mercedes is their stronger foothold in the fast growing Chinese luxury vehicle market. China is the world’s second largest premium vehicle market behind the U.S., selling just over 1.5 million units in 2013 by our estimates. The country is expected to overtake the U.S. as early as 2016, in terms of luxury volumes bolstered by increasing disposable incomes and less penetration of luxury vehicles at present. China has only around 79 vehicles per 1,000 inhabitants, whereas the figure for the U.S. stands at 791 vehicles per 1,000 inhabitants. In addition, only 7% of the total vehicle sales in China at present are constituted by the luxury segment, compared to the consistent 10-11% for the U.S. Both Audi and BMW accounted for around 60% of the net volumes in China last year, with Audi selling more than twice the volumes sold by Mercedes in the country. Slower volume-growth compared to its chief competitors in China has somewhat hampered Mercedes’ aggressive growth strategy aimed at regaining the luxury sales crown by the end of the decade.

However, the U.S. still remains the largest market for Mercedes-Benz. The country accounted for over one-fifths of all unit sales for the luxury automaker last year. ^[1] Although posting slower growth rates compared to China, the U.S. is still the world’s largest luxury vehicle market. As consumers look to upgrade to luxury vehicles and/or replace their ageing vehicles, the U.S. premium automotive market could further grow. In fact, the average age of a passenger car in the country reached 11.4 years in 2013, while the average age stood at 8.4 years in Europe and below 5 years in China. ^[2]

See Our Complete Analysis For Daimler AG

Mercedes Loses Lead To BMW In The U.S.

In terms of volumes, the three German automakers are ranked in China as Audi, BMW and then Mercedes, in that order. However, the rankings turn upside-down when considering the U.S. premium market. Mercedes fended-off growing competition from BMW to hold the lead in the U.S. luxury auto market last year, selling over 312,500 units in the country. ^[3] However, led by a 25.5% increase in sales of light trucks, including sports utility vehicles (SUV), BMW has overtaken Mercedes in the first five months of this year, selling 127,181 units in the U.S., up 12% year-over-year. In contrast, the brand Mercedes has sold 125,118 units in the country during this period, up 6.5% from 2013 levels. Toyota Motor Corp‘s (NYSE:TM) Lexus has also made a steady recovery in the U.S., following the earthquake in Japan in 2011, with volumes growing by an impressive 18.7% to 115,171 units through May in the country. Mercedes launched the compact CLA-Class last year, along with the refreshed models of the E-Class and S-Class, and followed it with the launch of the SUV GLA-Class and revamped C-Class this year. The company aims to launch 30 new or refreshed models through 2020. However, Mercedes faces stiff competition from BMW and Lexus in the U.S., and could lose out on the number one spot in the country at the end of this year. Through May, BMW had a 23.6% market share in the U.S. luxury segment, followed by Mercedes’ 23.2% and Lexus’ 21.4% share (together making up 68%), by our estimates. ((U.S. auto market volumes))

BMW And Lexus Aim To Dethrone Mercedes

Mercedes has already lost the luxury market lead to BMW in the early part of this year, and could continue to lose share, owing to the new model launches in the pipeline for BMW. The new BMW M3 and M4, high performance versions of the compact luxury sedans 3-series and 4-series respectively, were launched in the U.S. this month. With emphasized focus on the budding compact luxury segment, BMW could cut into Mercedes’ market share. The global compact premium segment is expected to grow to 1.3 million units this year, and further grow by over 30% to reach 1.7 million unit sales by the end of this decade. ^[4] BMW will also launch the new compact crossover SUV X4 in July, in a bid to gain from the rise in demand for luxury SUVs in the U.S. While the luxury car segment grew by 4.5% year-over-year through May, the luxury SUV segment witnessed an increase of 9.5% in volumes during this period. ((ref:4)) In addition, the electric car BMW i3 also went on sale last month in the U.S., and could make inroads in the fast growing electric vehicle market in the country, which grew 30% through May to 42,570 units, contributing around 40% to the global electric vehicle sales. ((electric vehicle sales in the U.S., insideevs)) The BMW i3 is already the best-selling electric vehicle in Germany, following its launch late last year.

On the other hand, Lexus volumes have also recovered in the U.S., after production in Japan was disrupted due to the March earthquake and tsunami in 2011. Lexus had been the best-selling premium vehicle brand in the U.S. for eleven years before both Mercedes and BMW overtook the company in 2011. ^[5] However, with a refreshed IS sedan and GX SUV, Lexus will aim to narrow its gap with Mercedes and BMW this year. The automaker could further eat into Mercedes’ market share with the expansion of Lexus brand’s production activities in the U.S. At present, Lexus imports all its vehicles except for the RX SUV. The luxury carmaker will now start the production of its best-selling sedan ES 350 in the U.S. by late 2015. Construction of the first Lexus assembly line in the country had already commenced in Kentucky in January. The Lexus ES 350 sold 72,581 units in the U.S. last year, up 29% year-over-year, with the ES models ranking as the fourth highest selling premium vehicle range in the country. The plant will be operational by 2015, and Lexus may be able to supply two-thirds of the ES demand in U.S. through production in this plant. With increase in production within the country, Lexus will be able to evade transportation costs and also somewhat protect itself from unfavorable movements of the Japanese yen against the U.S. dollar. Mercedes has already lost the U.S. market lead to BMW this year, and could lose further share to Lexus going forward.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

1. Daimler annual report 2013 [↩]
2. Average age of vehicles on the road remains steady, June 2014, wsj.com [↩]
3. Mercedes beats BMW in luxury race [↩]
4. “Jaguar plans four new models by 2018“, autocar.co.uk [↩]
5. Toyota paves road for first U.S.-built Lexus in Kentucky, wallstcheatsheet.com [↩]