Mercedes to reduce focus on entry-level models like A & B-Class

Aditya · 9th October 2020, 19:28

Mercedes-Benz has decided that it will reduce its focus on smaller and cheaper models like the A-Class and B-Class in the future. The company will not prioritise allotment of resources for the development of these cars.

Mercedes to reduce focus on entry-level models like A & B-Class-abclass.jpg

The move comes as the company is looking to cut spending on research and development and reduce the size of its model portfolio, in an attempt to reduce its break-even point. The company does not plan to focus on volumes, but is aiming to increase its profits.

Mercedes to reduce focus on entry-level models like A & B-Class-abclasas.jpg

While Mercedes-Benz admits that the A-Class and B-Class had helped rejuvenate the brand it claims that it does not want to become a competitor of the volume makers.

Mercedes to reduce focus on entry-level models like A & B-Class-aclass.jpg

Mercedes’ profits have been cut down by billions of euros due to high fixed costs and costs incurred to deal with allegations surrounding the carbon emissions of diesel cars.

Link to Team-BHP News Article

Source

CEF_Beasts · 9th October 2020, 20:09

Honestly Mercedes-Benz is doing the right thing by shifting focus away from the A and B class because both never felt like real Mercedes Benz cars! ( I am talking about the ones that were present in India and now have been discontinued). Their real line-up starts from the C-Class and it should be kept that way.

landcruiser123 · 9th October 2020, 23:35

Small cars from MB never made sense to me in the first place. The profits from small cars are small.

However, Audi/Genesis/Lexus have a distinct advantage here as they can leverage a small car platform and sell it as a premium VW/Hyundai/Toyota. But MB has the (almost defunct) Smart car and BMW has the (expensive)

mrinalnanda · 10th October 2020, 00:40

This step makes sense.

The Germany auto-industry (and in turn the economy) has been hit pretty hard by the pandemic (temporary situation) and Tesla/other alternative fuel-based manufacturers. MB (and the rest of the German manufacturers) need to think long-term.

Tesla's trickle-down technology strategy worked pretty well: hype brand new technology and exorbitant prices for the super-rich to try. They got the product right in the second try with the Model S (quality niggles aside), and Porsche is doing a similar thing with the Taycan. I believe the VW will be able to capitalise on their sprawling empire of cars across different price bands just like they have done for their ICE models.

MB should focus on a premium experience, that's what it's always been known for and that's what customers expect. Fat margins on premium cars would allow them to invest the money earned in new technologies, while these smaller/cheaper models will add to unnecessary developmental and lifecycle maintenance costs. Perhaps MB could look towards trickle-down strategy post they sort out their product and technology.

ajmat · 10th October 2020, 14:25

The reason to move out of this segment are due to the following

Small cars make no margins, the only way is to collaborate and share components which brings me to the next point
The unravelling Nissan-Renault relationship - Mercedes had a close relationship with the rebel alliance but this is withering.
Small cars are going electric - This is driven by city zonal laws
Affordability of small electric cars - If you do it well, it will be expensive, witness the new Honda E!
Small city cars might go the subscriber way, once Covid goes away
A, B, CLA CLB, GLA, GLB - too many variants, too little market overall. the A class commands decent volumes (5th best seller in the UK), not the rest so much. Probably only the A and the GLB hold some appeal
Margins are thin in this segment, discounts are rife. A lot of the A class sales are lease based so that helps.
Time to end the pissing contest with VW - Mercedes under Schremp wanted to go downmarket, Piech wanted to go upmarket with the Phaeton and A8. None of them made money. Time to lift a leg and mark your segments out!

avira_tk · 10th October 2020, 14:42

I believe that cars exist purely to keep up with CAFE requirements and to lower corporate CO2 average, the hot air baloney. The PHEVs and pure electric will mean they can go back to focus on money making models. The GLA and GLB will stay relevant, given the growth in the segments.

lapis_lazuli · 10th October 2020, 14:56

About 1.5 years back, I was in a MB showroom, close to parting with my money for the GLA200 petrol. The very professional Sales Executive, I must say, several notches above the average adviser, actually did make this same comment: as to how these two segments never made any money for anyone, after realistic on road prices. I don't know if that guy was with an exceptional acumen, but in a personal chat he did say these 2 segments were burdens for them! That I moved on to buy another vehicle which was far more VFM is a different matter but somehow I feel that this company hires people who seem to understand the industry and segment dynamics. Even at the sales floor. So I guess it's a right decision by the top guys...

GTO · 12th October 2020, 08:56

The current Mercedes boss is a dude, a stud. One of the most likeable & smartest personalities in the car world - watch his interview below. At this time, he has an X amount of R&D budget and it has to be split between current models & future tech (primarily electric cars). There is a lot of catching up to do with Tesla; have driven Teslas & the EQC and can tell you Mercedes is 5 years behind. The logical thing to do would be to reduce investments & management bandwidth in cheaper models.

https://www.youtube.com/watch?v=ojdT1OrL2k0

Also, Mercedes' portfolio has bloated & is unnecessarily wide. Many times when I hear of a model, I actually have to google to check its positioning. Trimming some fat is absolutely required and when it comes to that, the cheaper cars are the first to be ignored (small cars = small profits). I love the A-Class and do think its a proper Mercedes, but it's easy to see why Mercedes would rather focus on the E-Class (as an example) instead of the A & B.

1.2TSI7DSG · 12th October 2020, 12:10

I would not be surprised if MB replaces all the small cars with EVs. Given the lower mobility requirements, city cars (A/B class) can be EVs. Highway cars can continue to remain Hybrid/fossil powered.

Today it might seem that MB is focussing of E+, but i believe they will return to A/B once EV tech is catches up.

dhruvlath · 12th October 2020, 22:45

Once the EVs come into the market it might make more sense to reintroduce the smaller MBs. The new GLA looks promising and has learnt a few things from the X1 in the way it looks. I feel like it’s a good idea to keep the offering open to newer buyers who can start their MB ownership earlier on in life rather than wait till they can own a C or E.

StarrySky · 13th October 2020, 12:02

According to this report, Mercedes does not plan to remove any of the existing products in the line-up, but to "move them upwards in terms of margin contribution".

Quote:

So, could this mean that they might kill some of the compact models? Not for the current generation, because these accounted for 25 percent of Mercedes-Benz’s 2.38 million deliveries in 2019.

“We will not take existing products out. We want to move them upwards in terms of their margin contribution”, Kallenius noted. “We want to raise the bar to extract the maximum out of the existing portfolio.”

CEO-speak for "get ready to pay more for our compact cars"?

9th October 2020, 19:28	#1
Aditya Team-BHP Support Join Date: Feb 2004 Location: Mumbai Posts: 17,835 Thanked: 77,054 Times View My Garage	Mercedes to reduce focus on entry-level models like A & B-Class Mercedes-Benz has decided that it will reduce its focus on smaller and cheaper models like the A-Class and B-Class in the future. The company will not prioritise allotment of resources for the development of these cars. The move comes as the company is looking to cut spending on research and development and reduce the size of its model portfolio, in an attempt to reduce its break-even point. The company does not plan to focus on volumes, but is aiming to increase its profits. While Mercedes-Benz admits that the A-Class and B-Class had helped rejuvenate the brand it claims that it does not want to become a competitor of the volume makers. Mercedes’ profits have been cut down by billions of euros due to high fixed costs and costs incurred to deal with allegations surrounding the carbon emissions of diesel cars. Link to Team-BHP News Article Source Last edited by Aditya : 9th October 2020 at 19:57.
	(17) Thanks

9th October 2020, 20:09	#2
CEF_Beasts Distinguished - BHPian Join Date: Jun 2020 Location: Mumbai Posts: 2,742 Thanked: 18,118 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class Honestly Mercedes-Benz is doing the right thing by shifting focus away from the A and B class because both never felt like real Mercedes Benz cars! ( I am talking about the ones that were present in India and now have been discontinued). Their real line-up starts from the C-Class and it should be kept that way.
	(10) Thanks

9th October 2020, 23:35	#3
landcruiser123 Senior - BHPian Join Date: Jun 2015 Location: Chicagoland Posts: 2,986 Thanked: 6,859 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class Small cars from MB never made sense to me in the first place. The profits from small cars are small. However, Audi/Genesis/Lexus have a distinct advantage here as they can leverage a small car platform and sell it as a premium VW/Hyundai/Toyota. But MB has the (almost defunct) Smart car and BMW has the (expensive)
	(4) Thanks

10th October 2020, 00:40	#4
mrinalnanda Newbie Join Date: Jan 2019 Location: Pune Posts: 17 Thanked: 74 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class This step makes sense. The Germany auto-industry (and in turn the economy) has been hit pretty hard by the pandemic (temporary situation) and Tesla/other alternative fuel-based manufacturers. MB (and the rest of the German manufacturers) need to think long-term. Tesla's trickle-down technology strategy worked pretty well: hype brand new technology and exorbitant prices for the super-rich to try. They got the product right in the second try with the Model S (quality niggles aside), and Porsche is doing a similar thing with the Taycan. I believe the VW will be able to capitalise on their sprawling empire of cars across different price bands just like they have done for their ICE models. MB should focus on a premium experience, that's what it's always been known for and that's what customers expect. Fat margins on premium cars would allow them to invest the money earned in new technologies, while these smaller/cheaper models will add to unnecessary developmental and lifecycle maintenance costs. Perhaps MB could look towards trickle-down strategy post they sort out their product and technology.
	(1) Thanks

10th October 2020, 14:25	#5
ajmat Team-BHP Support Join Date: Feb 2004 Location: Bangalore Posts: 14,862 Thanked: 27,966 Times View My Garage	Re: Mercedes to reduce focus on entry-level models like A & B-Class The reason to move out of this segment are due to the following Small cars make no margins, the only way is to collaborate and share components which brings me to the next point The unravelling Nissan-Renault relationship - Mercedes had a close relationship with the rebel alliance but this is withering. Small cars are going electric - This is driven by city zonal laws Affordability of small electric cars - If you do it well, it will be expensive, witness the new Honda E! Small city cars might go the subscriber way, once Covid goes away A, B, CLA CLB, GLA, GLB - too many variants, too little market overall. the A class commands decent volumes (5th best seller in the UK), not the rest so much. Probably only the A and the GLB hold some appeal Margins are thin in this segment, discounts are rife. A lot of the A class sales are lease based so that helps. Time to end the pissing contest with VW - Mercedes under Schremp wanted to go downmarket, Piech wanted to go upmarket with the Phaeton and A8. None of them made money. Time to lift a leg and mark your segments out! Last edited by ajmat : 10th October 2020 at 14:26.
	(10) Thanks

10th October 2020, 14:42	#6
avira_tk Senior - BHPian Join Date: Nov 2011 Location: Bangalore Posts: 1,339 Thanked: 3,069 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class I believe that cars exist purely to keep up with CAFE requirements and to lower corporate CO2 average, the hot air baloney. The PHEVs and pure electric will mean they can go back to focus on money making models. The GLA and GLB will stay relevant, given the growth in the segments.
	(1) Thanks

10th October 2020, 14:56	#7
lapis_lazuli BHPian Join Date: Feb 2012 Location: Ghaziabad Posts: 764 Thanked: 2,856 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class About 1.5 years back, I was in a MB showroom, close to parting with my money for the GLA200 petrol. The very professional Sales Executive, I must say, several notches above the average adviser, actually did make this same comment: as to how these two segments never made any money for anyone, after realistic on road prices. I don't know if that guy was with an exceptional acumen, but in a personal chat he did say these 2 segments were burdens for them! That I moved on to buy another vehicle which was far more VFM is a different matter but somehow I feel that this company hires people who seem to understand the industry and segment dynamics. Even at the sales floor. So I guess it's a right decision by the top guys... Last edited by lapis_lazuli : 10th October 2020 at 15:00.
	(7) Thanks

12th October 2020, 12:10	#9
1.2TSI7DSG BHPian Join Date: Nov 2015 Location: MH01/TS09 Posts: 697 Thanked: 1,760 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class I would not be surprised if MB replaces all the small cars with EVs. Given the lower mobility requirements, city cars (A/B class) can be EVs. Highway cars can continue to remain Hybrid/fossil powered. Today it might seem that MB is focussing of E+, but i believe they will return to A/B once EV tech is catches up.
	(1) Thanks

12th October 2020, 22:45	#10
dhruvlath Newbie Join Date: Sep 2020 Location: Bangalore Posts: 20 Thanked: 35 Times	Re: Mercedes to reduce focus on entry-level models like A & B-Class Once the EVs come into the market it might make more sense to reintroduce the smaller MBs. The new GLA looks promising and has learnt a few things from the X1 in the way it looks. I feel like it’s a good idea to keep the offering open to newer buyers who can start their MB ownership earlier on in life rather than wait till they can own a C or E.
	() Thanks