Daimler should shelve simplistic size ambitions

The Mercedes brand owner wants to overtake BMW and Audi as the world’s premium carmaker. While the company must avoid dropping further behind, it is silly to want simply to be the biggest. It threatens profitability, and 2012 financial results show that is already a problem.

Daimler wants to overtake BMW and Audi as the world’s largest premium carmaker. It may be an understandable annoyance for Dieter Zetsche, the CEO, to be third in the global pecking order. He is a leader who is clearly eager to lead. But targets involving smallish differences in volume relative to its peers could prove more a distraction than an incentive.

Zetsche deserves credit for cleaning up the mess created by the ill-fated conjunction with Chrysler. But his ambition is to re-establish Mercedes Benz as the world’s biggest maker of premium cars by 2020 looks odd. Mercedes sold 1.32 million cars in 2012, whereas BMW sold 1.54 million and Audi pushed out 1.46 million units. Rather than aim to be the biggest, the company should aspire to be the best.

Daimler’s financial results for 2012, published on Feb. 7, show strains at the earnings line. Unit sales and revenue both increased to the highest level ever. Earnings before interest and tax from ongoing operations, however, shrank by 10 percent to 8.1 billion euros. Daimler needs to look hard at ways to fix the issues that are undermining earnings.

Some progress is under way. In December, Zetsche eventually – but belatedly – tackled troubles in China with the kind of vigour that may make a genuine difference. A new member of the executive board will have the sole duty of taking care of the world’s largest emerging market. Among other things, the carmakers distribution network in China will be restructured. Meanwhile the all-new S-class, Daimler’s most profitable high-end model, will be relaunched later this year and there are 13 completely new vehicles due to appear before 2020.

It will be difficult for Daimler to overtake BMW and Audi in volume terms: not least because neither competitor will stand still. But while the Mercedes brand owner must avoid dropping further behind, it is silly to want simply to be the biggest. Attempts to gain pole position is a goal that may do more harm than good. It could encourage staff to chase unsustainable, costly, growth.

This article was initially  published as a Reuters Breakingviews comment on 7 February 2013.


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