The ill-fated merger with Chrysler, which ended in 2007, saw Daimler take its eye off the ball with Mercedes – a situation that chairman Dieter Zetsche has worked hard to correct. Daimler is no longer the number one luxury car maker – it has been overtaken by BMW in recent years and was also overhauled by Audi in 2011. Even so, Mercedes sales have continued to grow, reaching a total of 1,279,100 in 2011.

Long-term strategy

Zetsche has outlined a long-term strategy designed to regain the luxury top spot by 2020, with sales of 2.7m cars – more than double 2011’s total. This ambitious target involves a major alliance with Renault-Nissan, further manufacturing capacity in North America and significant growth in emerging markets, especially China and India – which Mercedes believes will be the world’s number one and three markets by 2020.

Zetsche said the medium-term target for unit sales was more than 1.5m in 2014 and more than 1.6m in 2015. And that growth must be profitable, he added. “We are approaching our targeted return on sales of 10%, which we want to achieve on a sustained basis as of 2013 – on the assumption that our business environment will remain stable,” said Zetsche.

According to a 2012 survey of analysts by Bloomberg News, Daimler’s 2011 operating margin was 8.3%, the highest since 2007, the year the DaimlerChrysler alliance broke up. But it still trails Audi and BMW, both of which posted operating margins of above 10% in 2011. Nevertheless, Zetsche’s 10% target is clearly in sight, and Daimler, like its German rivals, is in a much better position as regards margins compared to rivals such as Renault or PSA Peugeot Citroen, which struggle to get margins above 2%.

Zetsche told Daimler shareholders in Berlin earlier this year that the group was in good shape but was “not there yet”. First-quarter Mercedes-Benz car sales rose 11.9% over the same period in 2011 to 313,902 units, thanks to strong sales of B-Class, C-Class and S-Class, as well as SUV models, and March was the strongest sales month in company history at 131,334 units.

In the first quarter, Mercedes-Benz set a new sales record in the US, Canada, and Mexico – US sales alone rose 15.3% to 61,513 units. And emerging markets sales were strong too, with sales in China growing 19.5% to 51,328 in the first quarter, Q1 sales rising 32.7% in Russia, and 6.9% in India. In Japan, 56,552 units were sold in the first quarter, an increase of 14.6%.

And even though Western Europe Q1 sales were less impressive, Mercedes still posted a rise of 6.7% to 78,135 units compared to Q1, 2011.

Sales growth looks set to continue throughout 2012. Second-quarter sales were around 370,400, up 4% on 2011’s Q2, suggesting overall car sales could be close to 1.4m for the full year. Including truck sales and Smart car sales, first-half Daimler group sales reached 1.72m units.

Key account management

With Europe-wide and worldwide tender requests becoming increasingly widespread in the fleet market, Mercedes-Benz increasingly has to offer international framework contracts with manufacturers and leasing companies. Many large fleets want to streamline their base of car suppliers, and that means sourcing from only one or two premium manufacturers. A broader base of products has become essential to win these orders, but having a fleet sales and management structure that can cope is just as vital.

Mercedes has more than 200 fleet customers with an International Framework Agreement (IFA). Of these, 80 are based in Germany, 30 customers are in Great Britain and around 20 each are in France, Italy, Spain, Switzerland and Belgium.

IFA customers range from genuine multinationals operating in several continents, to regional players with operations in two or three countries. The IFA consolidates all the national agreements covering the customer’s vehicle orders, and guarantees the most favourable terms in every country where the customer company is represented, even national subsidiaries operating smaller fleets.

IFA customers have a personal contact – an International Key Account Manager who plans, controls and monitors the implementation of your framework agreement in close collaboration with the relevant Mercedes-Benz national subsidiaries or distributors.

New hungarian plant

Much of the Mercedes-Benz small car production will be concentrated at a new plant in Kecskemet, Hungary, which has opened this year, in addition to the existing, modern Rastatt plant in western Germany, which opened in 1992 and produces A-Class as well as B-Class. The German plant built 177,572 vehicles in 2011 and is close to capacity. A third shift will be added in the autumn to increase capacity in order to build a small SUV at Rastatt from 2013, Daimler has recently announced.

Daimler spent €800m building Kecskemet and a further €600m expanding Rastatt for the new compact models, and B-Class production began at Rastatt in September 2011. Daimler said the Kecskemet plant was needed to meet “overwhelming demand” for the B-Class. Zetsche said: “With the production network of the Rastatt and Kecskemet plants, we now have the capacity to meet the demand from many new and existing customers in the segment.”

Kecskemet currently builds B-Class, and a ‘four-door coupe’ version (possibly called CLA, or BLS) of the new-generation compact range will also be built in Hungary, where the workforce will rise from around 2,500 now, to more than 3,000 by the end of 2012.

The move into Hungary makes sense. The country is emerging as a low-Cost hub for automakers, with lower taxation, and labour costs that are almost a fifth of the German equivalent. The cost of manufacturing a Mercedes-Benz B-Class in Hungary is estimated to be $2,500 lower than in Germany.

Opening a new plant for the compact A and B-Class cars in Hungary and offering four instead of two models is the clear long term move to strengthen Daimler’s position in the relatively price-sensitive compact car segment. Mercedes’ share of A/B-Class sales has dropped from 20% in 2008 and 2009 to 18% in 2010 and 14% in 2011, as the ageing and rather quirky old models started to lose ground against newer rivals.

Such is demand for A-Class and B-Class that even the two plants cannot cope with demand at the moment. As a result, Finnish assembler Valmet Automotive has been awarded a contract to assemble 100,000 A-Class models between 2013 and 2016. The firm already supplies convertible roof systems to Daimler.

This arrangement is likely to end when Kecskemet completes a second phase of expansion. Hungarian media has recently reported that Daimler plans to double annual production at its new plant in Hungary to 300,000 vehicles by 2015. And while Daimler will not confirm this plan, the company says such expansion is possible.

All four new compact models (A-Class, B-Class, B-Class coupe and small SUV) use the new front- and all-wheel drive MFA platform. Daimler says there will one more vehicle to come on this architecture, possibly a small conventional four-door sedan for China and the US.

Extra flexibility comes from more efficient logistics. Most Daimler plants are linked by rail, with regular trains used for components deliveries. Body parts, engines, transmissions and other components are delivered from the German locations to Kecskemet by rail. From 2013, most of the completed vehicles will also be transported by rail in the opposite direction. Overall, when completed, this will save up to 60,000 tons of CO2 per year.

Fleet-friendly small car models

There is considerable potential to grow with fleets – only around 15% of Mercedes-Benz’s global sales are accounted by fleet car sales, so part of the growth plan involves making a much more fleet-friendly model range.

This is most clearly demonstrated in the recent launch of new A-Class and B-Class models, which are much less quirky than the original cars, and are instead aimed at key fleet competitors such as the Audi A3 and BMW 1 Series.

The A-Class and B-Class, together with planned future derivatives, share the same platform architecture, which provides production flexibility. All models can be produced on the same assembly line, in all variants of the product range and in any sequence. So if A-Class demand starts to outstrip B-Class, the volumes can be altered very quickly.

Large car production concentrated in Germany

Most medium and large saloons are produced at two massive plants in Germany. The biggest Daimler plant is at Sindelfingen in Germany. In 2011, this plant produced 484,014 cars across several platforms. Models built there include Mercedes-Benz C-Class, E-Class, S-Class, CL-Class and CLS-Class, as well as SLS AMG coupe and roadster and Maybach super-luxury limousines. Sindelfingen is also home to the Mercedes-Benz Technology Centre, which heads research & development for new Mercedes-Benz models.

The bulk of Mercedes-Benz C-Class production (sedan, estate and coupe) is concentrated at another large plant in Bremen, the one-time Borgward factory taken over in 1971. This plant built 313,026 cars in 2011, and as well as C-Class derivatives it also produced E-Class coupe and cabriolet, SLK and SL sports cars, and the new GLK compact SUV, which uses the C-Class platform.

With the launch of the next generation C-Class, the Bremen plant will become the centre of competence for this high-volume production series – which is likely to result in E-Class derivatives shifting to Sindelfingen and all C-Class build being concentrated in Bremen.

SUV production from the US

Mercedes-Benz opened a plant in Tuscaloosa, Alabama, in 1997, specifically to build the new M-Class SUV. Tuscaloosa now serves as the worldwide source point for this vehicle and two other niche SUV ranges, the GL-Class, and R-Class. Total production in 2011 was 148,092 vehicles, and further expansion will see the next-generation C-Class being assembled at Tuscaloosa for the North American market. And in 2015, the plant will begin manufacturing a new, as yet unspecified fifth Mercedes-Benz model.

Renault-Nissan partnership

Daimler unveiled a strategic collaboration and the Renault-Nissan Alliance in April 2010, including an equity exchange that gives the Alliance a 3.1% stake in Daimler and Daimler a combined 3.1% interest in Renault and Nissan. This wide-ranging alliance covers several joint projects, including:

Joint architecture for Smart and Renault Twingo: From the first quarter of 2014, the Twingo will use the same platform as the next-generation Smart. The next-generation two-seater Smart will be produced at Daimler’s plant in Hambach, while a four-seater Smart will be produced at Renault’s plant in Novo Mesto, Slovenia, alongside the Twingo. The rear-engined layout is likely to be retained for the Smart – suggesting the Renault will switch to rear-drive.

New Mercedes-Benz Citan van: Mercedes now has an LCV below the Vito, thanks to this reworked version of the Renault Kangoo van, built at Renault’s van plant in Maubeuge, France.

Powertrain cross-supply: Renault-Nissan will supply Daimler with compact three-cylinder petrol engines to be used in Smart and Twingo vehicles and four-cylinder diesel engines to be used in both the Citan and in Mercedes-Benz’s next generation of compact cars. In return, Daimler will supply Nissan and Infiniti with four- and six-cylinder gasoline and diesel engines as well as with automatic transmissions. Some of these engines will be made at Nissan’s engine plant in Decherd, Tennessee. The plant will supply these for fitment to US-buit Infiniti models as well as to Mercedes’ plant in Alabama, which will assemble C-Class from 2014.

Platform sharing: Infiniti plans to base a premium compact vehicle on the Mercedes A/B-Class compact-car architecture, starting in 2014.

Electric vehicles: Daimler will provide batteries from its production facility in Kamenz, Germany, and Renault-Nissan will provide electric motors for use in electric vehicles (Smart and Twingo Z.E.) from 2014.

Light commercial vehicles

Mercedes-Benz has arguably the broadest single-manufacturer vehicle range, running from the two-seater Smart car, via a full car range from hatchbacks to luxury limousines, MPVs and SUVs, as well as a full commercial vehicle range of vans, buses and heavy trucks.

This does present opportunities for fleet sales that its main rivals cannot match – for example providing a fleet of vans as well as cars via the same international fleet structure.

Daimler’s biggest van production plant is in Düsseldorf-Derendorf, which produces the Sprinter large van range at a rate of more than 600 Sprinters per day (in excess of 150,000 units per year) including the similar Volkswagen Crafter, produced for VW as part of an alliance between the two companies on large vans.

The smaller Vito van, as well as its passenger-carrying derivative, the Viano, is built at the Vitoria plant in north-west Spain’s Basque region. This plant received a major financial boost in 2003, when the introduction of the second-generation Vito/Viano resulted in a doubling of the plant’s size and an increase in capacity to 100,000 vehicles a year, a level it has maintained despite the recession. The battery-electric Vito E-CELL model is also produced in Vitoria.

Mercedes-Benz claims market leadership for large and mid-sized vans in western Europe. The brand increased its market share to 18% in 2011, and division head, Volker Mornhinweg, said 2011 was the most successful year in the firm’s history: “We sold over 264,000 vehicles last year, or 18% more than in 2010. We even boosted profits by 85%, achieving a new record of €835m.”

By the end of 2012, Mercedes will enter the European compact van segment for the first time with the Citan, a restyled version of the Renault Kangoo, and the first product of the ‘Alliance alliance’. The compact van sector totals around 700,000 units a year in Europe, and Mornhinweg expects Mercedes-Benz’s market share to reach between 4% and 5% – around 35,000 sales.

Filling the niches

Mercedes is continuing to broaden its car range. Like BMW and Audi, new models are being launched into new niches, such as the CLS Shooting Brake ‘sports estate’ model, and the forthcoming ‘CLA/BLS’ compact sports sedan. Mercedes believes this will widen the customer base and give greater appeal to younger customers.

Mercedes says it is planning to launch 10 more new derivatives, for which no predecessor models exist, by the year 2015. For example, the luxury segment will be enlarged by expanding the S-Class range from three to six models, including an extra-long wheelbase Pullman version, effectively a replacement for the discontinued Maybach super-luxury brand.

Smart

The Smart fortwo city car has been built in Hambach, France, since the brand was launched after a lengthy gestation in 1998. Attempts to broaden the range with an outsourced larger model (from Mitsubishi in the Netherlands) came to a premature end, but Daimler has persevered with the two-seater model, now into its second generation, and with electric derivatives forming part of the range.

The Hambach plant is very lean and innovative in terms of layout, with a cross-shaped production line tailored to the needs of efficient logistics and assembly. Production was 103,635 units in 2011. Future growth and next-generation models – including another attempt at a ‘forfour’ model – are tied in to the partnership with the Renault-Nissan Alliance.

Expansion outside Europe

Daimler has announced investments of more than USD5 billion in production facilities for the Mercedes-Benz car division outside Europe – mainly the US and China. $2.6bn is earmarked for China and another $2.4bn will be spent in its North American business. Much of this involves new capacity, as well retooling existing factories in these markets so all plants can make vehicles from common platforms.

Russia, India and possibly Brazil could gain too. Mercedes plans to build vans in Russia, while a return to Brazil, where a previous manufacturing plant was closed in 2005, is believed to be under consideration.

In China Daimler is extending its Beijing Benz Automotive (BBAC) joint venture with Chinese partner Beijing Automotive Group (BAIC). In June 2011 both partners agreed to invest €2bn in the joint venture, which currently produces Mercedes-Benz C-Class and E-Class sedans and the GLK compact SUV. The plant will now also produce three versions of the new Mercedes compact cars.

From 2013, a new engine plant will produce four-cylinder petrol engines which will be used in locally produced Mercedes passenger cars and vans. A new R&D centre at BBAC will be established to focus on vehicle testing and helping local suppliers.

Daimler’s Russian van project is in partnership with GAZ Group, in Nizhny Novgorod, Russia. The companies plan to build the Mercedes-Benz Sprinter, as well as engines and other components. Daimler will invest more than €100m in the product, production processes and sales network. GAZ Group is investing €90m in the project.

Green initiatives

Reducing CO2 emissions has become a priority at Mercedes-Benz. Indeed, the average CO2 emissions of the Mercedes-Benz car fleet has been reduced within two vehicle generations by 35% to an average of 150g/km, and a fleet average target of 125g/km has been set for 2016. BlueEFFICIENCY-branded clean versions are available across the range. “We are convinced that ‘cool’ and ‘green’ can peacefully co-exist in our garages,” said Zetsche.

The reductions are being achieved through several initiatives. Mercedes has developed cleaner powertrains for its latest small cars – the new A-Class range, for example, starts with emissions of 98g/km. Meanwhile larger cars are going through a process of engine downsizing, most notably the launch in 2011 of a four-Cylinder diesel-powered S-Class, the S250.

Electric and hybrid cars have also been launched, including the E-CELL battery-electric versions of both B-Class and Vito van. Meanwhile, a diesel hybrid version of the E-Class has now been added to the range, the E300 BlueTEC HYBRID, with a compact lithium-ion battery pack fitted under the bonnet. This car is available as saloon or estate, and is the most efficient E-Class yet, with claimed consumption of 4.2 litres/100km (67.2mpg) and CO2 emissions of 109g/km.