Mercedes boss hails Chinese market

By Ben Shore
Europe Business Reporter, BBC News, Brussels

Image caption,
Mr Zetsche says China will become Mercedes' biggest market in a few years

"Our cars are never expensive," says Dieter Zetsche, the man in charge of the German carmaker Daimler, owner of Mercedes-Benz.

But he does concede that "sometimes the high value is represented in an adequate high price".

It is an open question whether anyone looking to buy an SL class Mercedes sees it this way.

They may be too busy eyeing up the 100,000 euro price tag.

But the comment does tell us something about Mr Zetsche. He is fiercely proud of the marque that can trace its history to the dawn of the commercial motor car, in the 1880s.

Flat sales

Mr Zetsche spoke to the BBC during a visit to Belgium in his role as president of the European Automobile Manufacturers Association, which was holding a meeting in a chateau on the outskirts of Brussels.

There was certainly no shortage of luxury cars in the driveway.

But while the surroundings were refined, the situation facing car makers in Europe is less than welcoming.

"In Europe, at best, we are working horizontally as far as the markets are concerned," Mr Zetsche acknowledges.

"Working horizontally" can be roughly translated as "sales are going nowhere".

In May, new car registrations across the European Union were down almost 10% compared with the same month last year, while total sales were up just less than 2% between January and May.

Chinese giant

This might help explain Mercedes' "World Cup"strategy.

Image caption,
Daimler is actively involved in sports

As Germany progresses through the tournament, customers are being given money back on recently bough new cars. The further the team gets, the greater the retrospective discount.

Or the carmaker's deepening involvement with Formula 1 with the return of star driver Michael Schumacher.

But no one's kidding themselves that such efforts provide the answer to lacklustre sales.

So just where is growth going to come then?

"Well that is very obvious," says Mr Zetsche.

"First of all in China, which is almost exploding as far as the market is concerned.

"China has become the biggest automotive market (but) for us as a company it will be another 3 to 4 years before China becomes our largest market as well."

Taxing times

The economic rise of China is hardly a secret, though for someone in Mr Zetsche's position the numbers make very interesting reading.

China currently has about 870,000 dollar millionaires. These are exactly the kind of customers Mercedes is targeting because most of the cars it sells in the Far East are its big, expensive saloons.

Selling cars in China is no mean feat because of the very high taxes charged on high powered foreign vehicles.

But as Mr Zetsche points out, this does not seem to dampen interest.

"We see many Chinese people buying our top level S-Class and they might even pay 20,000 euros per year as additional tax," he says.

Staying ahead

So tax does not seem to be putting off the new Chinese millionaires.

But is it not a bigger problem for a luxury car maker such as Mercedes that China will not want to be importing foreign cars indefinitely?

Are the Chinese firms not soon emerging as challengers to mighty German powerhouses such as Mercedes, BMW and Volkswagen?

"It's not a danger," says Mr Zetzche. "It's a reality that the Chinese will learn better and better how to build good cars.

"On the other hand, we have seen the same happening with Japan decades ago.

"Our chance in Europe is to stay ahead, based on innovation, based on brand values and fascination around our products. And if I look at the situation today, the European industry is rather more competitive than [it was] 20 years ago."

Of course this is what business often ends in: a bet that you can produce a product better than the competition.

For the time being Mercedes seems to be betting successfully on China, including with the models it is making in the country.

Which is fortunate, given that there is currently little money to be made in Europe.

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