Price war drives Mercedes into the red
The luxury car manufacturer is heading for a R120-million loss, writes DON ROBERTSON
Mercedes Benz has thus become the latest victim of the continuing, profit-sapping motor industry price war.
It follows the shock announcement last month by Automakers, holding company of Nissan, that it had plunged to a R91-million loss in the six months to December, after chalking up a disappointing attributable profit of R127.8-million in the year to June.
Some estimates are that Mercedes-Benz, which also produces the Japanese Honda and Mitsubishi Colt, will report a loss of at least R120-million to its German head office on sales that were marginally higher at R5.4-billion.
In 1995, the group's taxed profits amounted to a substantial R213.8-million on sales of R5.2-billion.
Delene Ströh, general manager corporate affairs at Mercedes-Benz, confirms that the group will suffer a "substantial" loss in 1996, but that the exact figure will not be revealed until the Stuttgart-based parent, Daimler-Benz AG, reports results for the 12 months to June.
She is unable to confirm whether the true loss is above or below the R120-million estimate.
The major factor in the profit plunge was the entry-level price war which affected sales of the Honda range. With its Mercedes-Benz pedigree, Hondas have always retailed at prices higher than their competitors.
The switch to smaller cars left Honda sales down at 11 608 in 1996 for 4.6% of the passenger market, compared with 13 086 or 5.5% of the market in the previous year. Sales of Mercedes, however, were barely changed during the year at 13 378 against 13 400 in 1995.
The introduction of increased fringe-benefit tax in last month's Budget, however, is likely to affect sales in the luxury market, although a typical change to less expensive cars could see motorists switching to Honda to retain connections with Mercedes-Benz.
Also hitting the profit performance was the 25%-plus decline in the value of the rand against the German mark, which led to an increase in production costs.
These higher input costs could not be recovered through retail price increases because of intense competition in the marketplace.
A third factor was a luxury import tax introduced in Germany during the year. A significant export by Mercedes-Benz SA was leather seats for the luxury S-Class range, which attracted the increased duty and reduced revenue.
As a result, the company will now produce leather upholstery for the middle-range E-Class. Exports, although not released for 1996, amounted to a significant R673-million in 1995.
At the beginning of last year, chief executive Christoph Köpke forecast an increase in total market share to 12% and hoped that the Mitsubishi Colt would capture a 7% share of the one-ton bakkie market. In the event, sales rose marginally to 36 654 during the year compared with the 36 208 in 1995 but, because of a 4.3% increase in overall sales, market share actually fell to 9.3% from 9.6%, while the Colt achieved 6.6% in the light commercial market.
With record sales in May, Köpke predicted that the company would be the country's foremost manufacturer and would be No 1 in retail sales last year. It is expected that most adverse factors will have largely worked their way out of the market this year and Ströh is predicting improved results for the 1997/98 financial year.