Daimler buys Beijing auto stake as China revamp accelerates

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

FRANKFURT, Germany — Mercedes-Benz announced a sweeping overhaul of operations in China last December as its sales in the world's largest auto market sputtered out. A year later, the carmaker's deliveries in the country are once again on the rise and propelling global growth that's outstripping rivals.

The reorganization has included naming a new China chief who sits on the management board, adding dozens of dealerships, opening an engine factory in the country and merging competing sales organizations.

The result: 10-month China deliveries at Mercedes are up 8 percent, compared with growth of just 1.5 percent last year. The revamp gained a further boost Tuesday after Stuttgart, Germany- based Daimler AG, Mercedes's parent, completed the purchase of a 12 percent stake in the BAIC Motor unit of joint-venture partner Beijing Automotive Group Co. The transaction cost 625 million euros ($845 million), Daimler Chief Financial Officer Bodo Uebber said at a press briefing in the Chinese capital.

"Mercedes is on the right track in China," said Frank Biller, a Stuttgart-based analyst at LBBW. "Sales have picked up since June and they seem to be gaining ground."

Catching up in China is crucial to Daimler Chief Executive Officer Dieter Zetsche's target to surpass Bayerische Motoren Werke AG and Volkswagen AG's Audi in global deliveries by the end of the decade. Success in the region was hampered in the past by separate sales organizations for imported and locally produced cars, which led to price cuts as the two competed with one another for customers.

Mercedes's volume outside the country matches or beats the two larger premium manufacturers, "which makes it very clear and obvious that, in order to accomplish our 2020 target, we have to get closer to the levels of BMW and Audi within China," Zetsche said at Tuesday's press conference in Beijing.

The German manufacturer laid out plans last December to fold sales into one entity jointly owned with BAIC, a combination completed earlier this year. Daimler also promoted former truck-division executive Hubertus Troska to the management board, with responsibility specifically for China to underscore the market's importance.

As part of the deal between the two partners, BAIC will increase ownership in the production joint venture to 51 percent from 50 percent currently, and Daimler will raise its stake in the integrated sales partnership by 1 percent to 51 percent. Troska and Daimler CFO Uebber are joining the board of BAIC Motor, the German carmaker said Tuesday in a statement.

"Daimler has acknowledged its mistake and is now taking the right measures," said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. "To dedicate a board position to China was an important step. They finally gave China a priority."

Zetsche is backing his effort to regain the top sales position that Mercedes lost to BMW in 2005 by rolling out 13 new models without a predecessor. The model push includes the addition of the four-door CLA coupe last April and the GLA compact sport-utility vehicle next year, which will also be locally produced in China.

Mercedes, which already makes the mid-sized C-Class, the GLK SUV and the long-wheelbase version of the E-Class in the country, has plans to sell 300,000 cars in China in 2015.

Mercedes-Benz's sales worldwide are up 11 percent through October, beating gains at BMW of 8.6 percent and Audi of 7.5 percent, helped by the higher demand this year for its models in China. Still, Mercedes's 10-month delivery growth in the country of 8 percent to 173,300 vehicles is dwarfed by 20 percent increases at its two main German competitors.

"The real catch-up hasn't yet started," Pieper said. "You can't quickly correct years of tardiness."

Daimler is taking a long-term approach by increasing production in the country and boosting its dealer network. The company is on track to open 75 new outlets in China this year, Uebber said last month. The expansion will continue with another 50 dealerships added annually in the next two years.

In August, the automaker said it will invest 2 billion euros by 2015 to double local production to more than 200,000 vehicles. The manufacturer Tuesday opened its first engine plant outside Germany in China. The factory, built at a cost of 400 million euros, will have an initial capacity to assemble 250,000 motors.

Daimler announced plans in February to buy the stake in BAIC Motor as a means of backing the Chinese parent company's strategy for an initial public offering of the unit.

"With the whole package" of investment measures, "we think we can support the IPO and further strengthen our relationship," Zetsche said Tuesday.

_ With assistance from Tian Ying and Penny Peng in Beijing.