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Mercedes Burning 25% Less Fuel Seen Capturing BMW Drivers: Cars

June 09, 2011

June 9 (Bloomberg) -- Mercedes-Benz’s revamped M-Class sport-utility vehicle will burn 25 percent less fuel than its predecessor to lure customers seeking a less gas-guzzling alternative to Bayerische Motoren Werke AG’s X5.

“In terms of torque, our new M-Class is a sumo wrestler,” Daimler AG Chief Executive Officer Dieter Zetsche said at the SUV’s presentation this week in Stuttgart, Germany. “In terms of diet, it’s more like a Victoria’s Secret model.”

The carmaker overhauled its top-selling SUV with thriftier engines, a fuel-saving start-stop feature and more aerodynamic frame to increase demand with oil near $100 a barrel. Mercedes, once the world’s largest luxury-car maker and now third behind BMW and Audi, is catering to environmentally conscious buyers to boost sales and profit growth that lags German rivals.

The diesel ML250 base model, to be sold only in Europe, will be powered for the first time by a four-cylinder engine that gets 39 miles per gallon. That beats the segment-leading BMW X5’s 32 miles per gallon as well as cars like Toyota Motor Corp.’s Corolla. The fuel advantage positions the M-Class to outsell the X5 for the first time since 2007.

“It’s a race between Mercedes and BMW in the big luxury SUV segment,” said Christoph Stuermer, an analyst with IHS Automotive in Frankfurt. “With X5 heading toward the end of its lifecycle, Mercedes will have an edge.”

Mercedes, which established the luxury SUV segment in 1997, lost the lead to BMW after the current X5 hit the market. IHS Automotive forecasts M-Class sales of 103,000 in 2013, edging ahead of the 102,000 deliveries projected for the X5 and about double the sales of both Porsche SE’s Cayenne and the Audi Q7.

Starting Price

The current M-Class starts at $46,490. The new version, which goes on sale July 11, will be priced in a similar range, spokesman Christian Anosowitsch said, declining to provide details. The X5 starts at $47,200.

Daimler closed up 9 cents, or 0.2 percent, at 47.43 euros in Frankfurt trading today. The shares have dropped 6.5 percent this year, valuing the Stuttgart-based company at 50.5 billion euros ($73.4 billion).

The automaker plans to increase pressure on competitors by offering a diesel hybrid version in “the foreseeable future,” Zetsche said. “We’re going to raise the bar yet again.”

Mercedes invested more than 250 million euros at its factory in Tuscaloosa, Alabama, to expand and upgrade production capabilities for the M-Class. Deliveries will likely be held back by the plant’s capacity, which is already producing near its limit, even as the old model runs out, Zetsche said.

Sluggish Gains

Mercedes’s May sales rose 7.3 percent, less than half the 19 percent growth for BMW and Audi. The sluggish gain continues a first-quarter trend, when the Daimler unit had the lowest profit margins of the top-three luxury-car makers. Mercedes’s earnings before interest and taxes were 9.3 percent of sales, compared to Audi’s 10.6 percent and BMW’s 11.9 percent.

“Mercedes really needs the new M-Class to make an equivalent competitive leap as BMW did with its latest generation of SUVs,” said Bill Visnic, an analyst with Santa Monica, California-based Edmunds.com. “But it’s going to take more than a strong reception for the new M-Class for Mercedes to regain its luster.”

Audi, which installed more efficient engines in the Q7 last year, plans to reduce the vehicle’s weight by as much as 400 kilograms (882 pounds) when it overhauls the SUV in 2014, spokeswoman Esther Bahne said by email. The new generation will include a plug-in hybrid version from the start, she added.

BMW doesn’t plan any additional changes to the X5 after updating the model last year, spokesman Andreas Lampka said, declining to say when the next generation will be introduced. The current X5 went on sale in late 2006.

Cluttered Offerings

“Fuel savings is a big part of the game,” said Stuermer. “Not because of cost for the customers, but rather because it expresses technological prowess and that’s what luxury offers.”

While the M-Class may help boost sales, especially in the U.S., the model will do little to reduce a cluttered product offering, said Edmunds’ Visnic.

Mercedes offers a range of similar models such as two roadsters - the SLK for $54,800 and the SL for $102,600. The company also offers two high-end coupes: the CLS with four doors for $71,300 and the two-door CL for $113,150.

“Mercedes has fractionalized its model range to such a degree that it has made it difficult to develop a singular and meaningful marketing message,” Visnic said. “Too many models have resulted in a sort of schizophrenic brand image in the past several years.”

--Editors: Chad Thomas, Heather Harris

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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