General Motors Company (GM), Daimler AG (USA) (DDAIF): Mercedes Emulates Audi in China’s Booming Luxury Cars Market

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Luxury car maker Daimler AG (USA) (OTCMKTS:DDAIF), owner of the iconic Mercedes Benz, is eyeing double-digit growth in China as it aims to increase its share in the nation’s booming luxury car market.

Daimler AG (USA) (OTCMKTS:DDAIF) is expecting up to 15% growth in China in the current year. The company will expand its network of dealer outlets by opening 75 new stores in the inland West and smaller cities.

Daimler AG (USA) (OTCMKTS:DDAIF)’s management has admitted that the company has lagged behind its rivals — such as Volkswagen AG (ADR) (OTCMKTS:VLKAY), the maker of Audi — who have been aggressively expanding in China. In a previous article, I highlighted Volkswagen AG (ADR) (OTCMKTS:VLKAY)’s impressive performance in China. In the first half of the year, Audi reported a remarkable 18% increase in Chinese sales, while Mercedes Benz’s sales remained flat.

General Motors Company (NYSE:GM)New Dealerships

However, for Daimler’s investors, the positive development is that the management has recognized their “shortcomings” and believes that the solution lies in expanding the dealership network. By the first half of 2013, Daimler AG (USA) (OTCMKTS:DDAIF)’s number of active dealerships in China had increased by 20 to 279. As mentioned earlier, the business plans to open 75 new dealerships in the country, of which nearly 34 will be opened in Tier-3 and smaller cities.

New Products

Daimler is eyeing a boost in sales in the second half of 2013, which will be driven by an increase in dealerships and some new product launches . For instance, the long version of the new E-class and the Grand Edition of C-Class will be launched in China in this month. This will be followed by the arrival of S-Class later in Q4-2013 .

The most important of these is the S-Class, which has been specifically designed for the Chinese market . The anticipated SUV, called the GLA, will be launched in 2014. And this is just the beginning; over a span of 24 months, Mercedes Benz will launch 20 new or upgraded vehicles in the country .

Capacity Expansion

Daimler AG (USA) (OTCMKTS:DDAIF) will also increase its production capacity of Mercedes cars in China. It currently imports nearly half of its cars, and therefore ends up paying a hefty 25% excise duty. By expanding its Chinese capacity, Mercedes will reduce the number of imported cars to nearly one-third of its total sales, cutting costs and helping Daimler compete more effectively with its rivals in terms of price .

China’s Luxury Car Market: Competitive Landscape

China is a highly competitive market, in which Daimler AG (USA) (OTCMKTS:DDAIF)’s growth ambitions are threatened by local as well as foreign players. Volkswagen AG (ADR) (OTCMKTS:VLKAY) and General Motors Company (NYSE:GM) are two of the biggest foreign companies operating in the four BRIC nations in general, and China in particular.

China is already the world’s biggest automobile market, and it’s expected to grow faster than other BRIC nations between 2013 and 2015 . Its luxury car market, which is expected to expand by 140% between 2012 and 2016, is on track to become the biggest in the world by 2016 .

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