Strategic Changeover at Mercedes Benz

Introduction:

Mercedes Benz is a world renowned luxury car manufacturer and was created under the name of Daimler-Benz in 1926. Though it faced many obstacles like World War-I and World War-II, Mercedes Benz always prospered mainly due to increasing demand of vehicles in Germany. During 1960s and 70s, Mercedes Benz became synonymous to prestige and excellence. Even the Oil crisis of 1970 couldn't dent the success of Mercedes. Daimler-Benz was diversified Industrial Corporation with 4 segments viz.

• Mercedes Benz: Automobile and commercial vehicle group contributing 69% to revenue

• AEG: Electronics group adding 14%

• Deutsche Aerospace: Contributing 13% to revenue

• Daimler-Benz Inter-Services: Software, Financial services and Trading, adding 4% to revenue

Mercedes Performance:

By 1991 the sales of passenger's car segment has DM 39Billion sales and commercial vehicles has DM 27 Billion sales. Passenger car division has three levels of luxury cars: S-Class Sedans and Coupes, Mid series cars (T-models) and compact series cars. The commercial vehicle division manufactured trucks and busses which were distributed worldwide with manufacturing sites in Mexico, Argentina, Turkey and US.

(Sales in DM Million) 1992 1991 1990 1989

Passenger Car Sales 39601 39513 35527 32887

Commercial Vehicles 26879 27591 24288 23480

Net Income(DM Million) 849 1548 1545 1492

Industry Structure:

• Mercedes competed in high end of the industry which was beginning to see global competition.

• Many industry biggies like General motors, Ford, Toyota, and Nissan had their production plants close to point of sales. This reduced logistics costs.

• Also, due to the increasing strength of DM against dollar and import tax levied by US government on imported vehicles, German car manufacturers like BMW started to establish new production plants in US.

• Labour costs were too high in Germany

• Due to heavy competition from the Japanese counterparts who were providing same quality as Mercedes, priced their cars at low prices causing dip in Mercedes' sales.

Existing Strategy

Mercedes was following export strategy where in most of value added work like design and manufacturing was done in Germany and overseas subsidiaries were responsible for sales and services.

Strategic Redirection Plans:

• Abandon plans to open a new truck plant at Ahrensdorf, Germany - November 1992

• Announcing the departure from reliance on home manufacturing – November 1992

• Transforming as a full line manufacturer instead of high end luxury cars - January 1993

• Starting a new production plant for sports utility vehicles in Alabama and using it as global sales facility for this segment, US-October 1993

Why New Strategy:

• It is mentioned