Ola Kallenius’s new strategy of favoring the luxury range and dropping some volume models is being harshly criticized by the German Mercedes Dealers Association. A strongly worded letter from the German Dealers Association challenging the inflated prices has been made public. The new order situation is catastrophic. An analysis by Mercedesblog.com.
In statistics, Mercedes’ situation is excellent. On July 11, Mercedes presented the sales results for the second quarter of 2023. Mercedes sold in the second quarter of 2023 517,000 units (+6%) and in the first six months of 2023 1,019,200 units (+5%). Meanwhile, in Q2 2023, sales in the Top-End Luxury segment increased by 12% to 84,900 units, and sales of electric models increased by 123% to 56,300 units.
In the Core Luxury range, sales increased by 2% to 276,600 units, and in the Entry Luxury segment by 11% to 154,100 units.
So, looking at the figures, there are increases across all categories. But things are far from rosy. According to the German auto motor und sport magazine, the German Mercedes Dealers Association is harshly criticizing Ola Kallenius’ luxury strategy.
In a four-page letter made public by Business Insider, the German Mercedes Dealers Association addressed Mercedes management with extremely harsh words. The reason for the dealers’ discontent is the exaggerated price increases that have led to a dramatic drop in orders. The excellent figures recorded in the first six months of 2023 are the result of older orders, recorded before the price increase. Now, the order situation is disastrous, and orders are falling dramatically day by day.
German dealers are very adamant that Kallenius’ luxury strategy will lead Mercedes to a major failure, at least as far as the German market is concerned. The new extras policy is also heavily criticized. Many of the optional extras can no longer be ordered individually as before, but only in very expensive packages that increase prices even more.
Dealers point out that in the more price-sensitive compact segment, they are facing order cancellations for the Mercedes A-Class and B-Class due to the new extras policy of only offering expensive packages instead of individual options.
In the case of the new C-Class, this policy is seriously jeopardizing fleet sales in Germany. Particularly with the smaller engines, the Mercedes C-Class was a very popular car for fleets. But many German companies have price limits when buying fleet cars, and the Mercedes C-Class exceeds these limits. So German companies are turning to rival Audi A4 and BMW 3 Series models.
The German dealers’ association also says Mercedes is facing a serious image problem. Private customers perceived the new luxury strategy as greed. And dealers can’t counter exaggerated prices with discounts.
The wrong fleet policy will affect several market segments. Most likely, the Mercedes E-Class will no longer be the car of choice for German taxi drivers because the new generation will come with much higher prices. Also, Kallenius’ decision to restrict the number of compact models will seriously affect sales volumes. The next-generation compact range will no longer have a direct successor to the A-Class and B-Class, which will lead to the disappearance of some young customers.
Former CEO Dieter Zetsche fought for years to bring the age of Mercedes buyers down from 48 to under 40. The third-generation Mercedes A-Class of 2012 and its successors attracted younger customers who will disappear and move to the competition from Audi and BMW, who still offer the BMW 1 Series, 2 Series Active Tourer, and Audi A3.
The fact that the Mercedes Dealers Association made the letter public indicates an open conflict with Ola Kallenius’s management, which is apparently only interested in making as much profit as possible.
The policy of exaggerated prices has effects not only in Germany but also in China in a wider context. Chinese competition in the electric car market has led to a dramatic reduction in demand for European electric models.
Mercedes has had to cut prices in China dramatically because it has sold only 100 Mercedes EQS units per month on average in a market larger than the European or American market.
Mercedes has therefore reduced the price of the top-of-the-range Mercedes EQS 580 4Matic by USD 33,000, from USD 167,870 to USD 134,860, which is equivalent to 20%. What profit margin does Mercedes have on the EQS if it could afford to reduce the price by 20%? Kallenius’s strategy of selling very expensive models as expensive as possible is a huge failure in China.
Globally, the Mercedes sold only 19,200 EQS in 2022 compared to over 90,000 S-Class. These figures represent 4.5 times lower sales for the EQS compared to the S-Class. As we revealed in our test, the EQS has poorer quality materials than the S-Class but is priced higher. In many countries where subsidies are no longer given for electric cars, the price difference between EQS and S-Class with equivalent power is significant.
And the failure is not only in the top-end EQS models but also in the cheaper Mercedes EQE business limousine. Thus, the newly launched Mercedes EQE has reduced its price in China from $74,480 to $67,430, which is the equivalent of 10%.