Analysis: Mercedes lets China peek under hood to open market access

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br DAIMLER-CHINA Reuters Visitors at the Mercedes-Benz exhibition booth of Auto China 2014 in Beijing last month. The brand is fighting to reclaim the global crown of top-selling maker of luxury cars. Photo: Reuters

Frankfurt - Battling to catch up with German rivals in China, luxury car maker Daimler is shifting gears, giving local authorities unprecedented access to new Mercedes-Benz models and even tailoring engines destined for its home market to Chinese regulations.

For years, Daimler has lagged Audi and BMW in the biggest car market. Last year, Mercedes-Benz, the company’s premier luxury brand, sold 228 000 cars in China, compared with nearly 492 000 for Audi and over 362 000 for BMW. The reasons are varied.

For years Daimler doubted the sustainability of growth in China. German labour union resistance to shifting production out of Daimler’s main factory in Sindelfingen also played a role.

Another key factor has been Daimler’s cautious approach to sharing technological know-how due to fears of piracy. This prevented the company from deepening its footprint in China, where foreign car makers are required to work with local companies, at a time when its rivals were going all-in.

This is changing, in part because the Chinese have taken steps to crack down on copyright violations, but also because Daimler executives have realised that there is no alternative to closer co-operation if they are to make up lost ground in a market that continues to post impressive growth rates.

Daimler will start production of its newest C-Class in China and Germany this year, a step change for a manufacturer that had previously delayed local Chinese production of new models by months.

Beijing Benz Automotive Company (BBAC), the joint venture company Daimler runs with Chinese partner Beijing Automotive Group, is also constructing a new production line for the compact GLA model.

To get permission to build both cars locally, they need to undergo a 160 000km emission durability test and a regulation test with Chinese authorities. These can take up to a year.

As part of this process, Mercedes is allowing Chinese officials to take component samples and make detailed measurements of its newest cars. “To put it bluntly, we are transferring know-how,” said Rene Reif, the head of engineering and manufacturing at BBAC.

Today, Mercedes-Benz GLA prototypes are parked at a new research and development centre built for BBAC. And a new C-Class, code named V205, is propped up on vibrating pillars to undergo final “bust squeeze and rattle” testing before its looming launch in China.

To tap China’s potential more effectively, Daimler recently moved its Mercedes-Benz Advanced Design Centre from Japan to Beijing.

Its main research and development activities for Mercedes remain in Germany, but China’s influence is increasing, even on Daimler’s home turf.

The AMG GT, for example, a sports coupé being developed in Affalterbach, Germany, is having its engine size reduced to avoid China’s progressive taxation thresholds.

“The GT was developed in part with the new tax in mind,” AMG chief executive Tobias Moers said, explaining that the car would have an eight cylinder engine with a capacity of just below 4 litres because of the Chinese tax.

Daimler only started making Mercedes-Benz cars in China in 2006, reaching production capacity of 120 000 vehicles last year. Audi, which has been making cars there since 1988, surpassed that in 2007.

If demand continues to rise, Daimler says the capacity of its Beijing factory can be ramped up to make 350 000 cars a year.

Asia remains the key battleground in Daimler’s fight to reclaim the crown of the top-selling maker of luxury cars. The last time Mercedes held the title was in 2004. – Reuters


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