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Investors Fear Mercedes Will Trade Profit For Increased Sales

 

2013 Mercedes-Benz A Class

2013 Mercedes-Benz A Class

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Mercedes-Benz is struggling in the United States market to displace BMW from the top of the luxury auto sales pyramid. Its strategy seems to be based on introducing a dizzying array of new cars, some positioned to attract new and younger buyers into the Mercedes family.

This much is clear: its current product line isn’t sufficient to help Mercedes achieve its stated goal of 2.7 million sales (globally) by 2020. Complicating the picture is a depressed economy in Europe, which has seen a dramatic decrease in luxury car sales,  and ever-tightening fuel economy requirements on both sides of the Atlantic.

Combined, all these factors are beginning to make investors nervous. As The Detroit News (via World Car Fans) reports, there’s serious doubt as to whether or not Mercedes can reach its projected 10-percent operating profit by the end of the decade, too.

Analysts are quick to point out that smaller models, like the upcoming CLA and GLA Class and the existing A and B Class, may generate greater sales, but at the expense of lower per-vehicle margins. Labor costs continue to rise for Mercedes as well, further reducing the likelihood it will reach its stated profitability targets.

Daimler has been reluctant to share the bad news of late, too. In September and October, the company published downgraded profit estimates with no prior warning, hoping, perhaps, they would go unnoticed.

In the words of Credit Suisse analyst Arndt Ellinghorst, “The company remains in denial. Labor costs at Daimler stand at 16.4 percent of sales versus 11.2 percent at BMW.”

Others are a bit more forgiving. Tim Schuldt, an analyst with Equinet Bank, says, “It will be difficult to reach both (profit and sales) targets, and the competition is unrelenting, and you have to bring small cars to market whether you like it or not. There’s no other way around it.”

Those betting on Mercedes choosing profitability over sales may see things a bit differently, however, and we’re not sure there is a correct answer for this particular problem.

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