Friday, April 29, 2005

Mercedes, the GM of Germany

Outside of GM's meltdown, the other big story in the auto biz is Mercedes bringing down DCX, and an otherwise profitable Chrysler. Most of the pundits are just shocked that the wondrous Mercedes marque isn't being dragged down by the plebian Chrysler, and that the exact opposite is occuring.

Besides my ranting that aesthetics are incredibly important to a car manufacturer, another theme I'm trying to get people to listen to is the theme of organization. If you're a car company, for every price range you should sell ONE car. Not two, or three, but one. Maybe a station wagon version, and possibly an SUV in that price range, but essentially only one platform. It's one of GM's biggest problems. With so many divisions, you get overlap, and that means you are competing against yourself. It also means less money, and a poorer set of products competing against one unified product by your competitor. Toyota has the Camry, GM has the G6, Malibu, Impala, LaCrosse, etc. Mercedes does something similar. Look at this schematic from the Mercedes website. In the 50-60 thousand dollar range, Mercedes sells a C-class, and an E-class sedan. There's further overlap in 90-100k range, and the worst overlap is in the 120-140k range, where the high end S-Class compete with the Maybach. Remember, every 10 grand you rise in price, the market shrinks immensely. Are there really that many people who can afford these cars? Where BMW would offer the 5 series as competition, Mercedes gives two or three different cars. BMW also would never make a high end 7-series to compete with its Rolls-Royce brand. But Mercedes does.

The international luxury market used to be dominated by Mercedes. Now there is Cadillac in America, Lincoln with its SUVs, BMW, and Audi. Even the ultra luxury market is crowded, with a resurgent Bentley and Rolls Royce competing with Mercedes late comer Maybach. The numbers of buyers are so small, and will shrink further with rising gas prices, to try and compete with several offerings overlapping is just crazy.

Mercedes needs to step back and condense. Customers are complaining about reliability, well then instead of making several different models, just concentrate on making one model really well. The more effort and money you put into one model, the more reliable it becomes. Diversification of product always leads to less reliability. With cars ever-increasing in technology and complexity, especially in the luxury market, it just doesn't make sense to have so many offerings.

Mercedes and GM both have many of the same problems. It will be interesting to see what methods they use to get out of them, and if either will be successful. Hopefully both will.

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