Merc’s new warpaint

A blinding white A-Class hatchback occupies the space that for 10 years had been taken by a life-size replica of the three-wheel, 1885 Benz Patent Motorwagen in the main lobby of the Mercedes-Benz Pune factory. The switch is the handiwork of Eberhard Kern, the seventh managing director to head Mercedes-Benz in India in 19 years. When he took charge in January, Kern asked: “Why is this artefact here? Is this what we’re selling to our customers? Move it.” The replica was relegated to an obscure corner.

The changes at Mercedes-Benz aren’t only cosmetic. Displaced four years ago as the No. 1 luxury carmaker in India, it is trying to regain its former position, and it’s up to Kern to oversee this in what he’s calling “the year of the offensive”. A survey by Kotak Wealth and Crisil Research lists Mercedes-Benz as the third-most aspirational car brand: BMW had 18% votes, Audi 14.8%, and Mercedes-Benz 12.5%. The survey mimics the actual ranks in the market.

Mercedes-Benz, which came to India in 1994 in partnership with the Tatas, enjoyed first-mover advantage for a decade, until BMW came and ate into its market share with better marketing and a larger product portfolio, including sporty cars pitched at younger customers. Mercedes-Benz’s challenge in India isn’t about technical support, financial services, or engineering prowess—all that’s in place. What the brand needs is a change of its stodgy image here and the perception that it sells cars to older customers. Sumit Bali, director, Kotak Mahindra Prime, an auto financier, says that historically, those above 45 bought the Mercedes-Benz to “announce they’ve arrived”. But for today’s young, upwardly mobile exec, the Merc is his father’s car.

At Daimler AG, Mercedes-Benz’s parent company, in Stuttgart, managers are devising strategies to attract new millionaires and professionals, including women, in emerging markets. The approach will need to be nuanced and require plenty of imagination because while targeting the relatively younger set, Mercedes doesn’t want to abandon its core positioning. “We’re a chauffeur-driven car and this will remain for traditional customers but there will be more emphasis on self-driving in our new products,” says Kern.

This ties in with Mercedes’s overall thinking. Matthias Luehrs, Mercedes’s head of worldwide sales, says in five years they will sell one out of three vehicles outside their traditional markets such as the U.S. and China. In this context, the importance of India is well understood at Stuttgart. Joachim Schmidt, global head of sales and marketing, says India is a young country with growing disposable income. “Add to that the increasing levels of brand awareness, global mindset, and high optimism about the future and you can create a picture of Indian consumers today.” The Indian car market is projected to grow to 7 million units by 2020 and by conservative estimates, if the share of luxury cars comes to 4% (it’s 7% in China), it translates to 280,000 luxury cars, which is nearly 10 times what it is today. Of these, 7,138 are Mercedes’s according to last year’s numbers.

This means Merc’s other competitors are equally keyed up. On May 28, the day before Kern was to launch the A-Class, Merc’s much anticipated hatchback, Audi India’s managing director Michael Perschke disclosed its price as he tweeted, “Here is the big question of the day. Why buy an A-Class at Rs 23 lakh as petrol when you can get a Q3 2.0 TDI with 177 BHP diesel Quattro power at Rs 27 lakh?” He wasn’t the only one trying to take attention away from the launch. The following day, as Kern stepped onto the stage in Mumbai’s Grand Hyatt to launch the A-Class, BMW e-mailed a press release announcing the production of its new 7 Series from its Chennai plant.

Kern, a six-foot-tall MBA from the University of Stuttgart, who has spent over 30 years with Daimler, is no pushover. Kern admits he’s quite familiar with the scrappy world of luxury car sales. When he was sent to Russia in 2005, the size of the luxury market was 5,000 cars. Today, it’s 40,000, with big brands elbowing for a share. Merc is the No. 1 player there now. Inside Merc, Kern is seen as inscrutable. “You never know what he is thinking,” says an employee familiar with his working.

Kern plans to rebuild the company in three key areas: product mix, dealer network, and brand experience. Already, there’s a focus on downsized newer models coming out of the Mercedes front-wheel architecture—a platform on which mostly compact and mid-size cars are being built.

Daimler is betting on its new line-up of products to woo away customers from Audi, Jaguar-Land Rover, and BMW. With a new two-tiered strategy, Mercedes-Benz will continue with a strong position in top-end sedans (S-, E-, and C-Class), while introducing a compact segment priced under Rs 30 lakh for younger customers. Two new cars in this segment are slotted for this year, including the A-Class (Merc’s cheapest in India at Rs 23 lakh), which saw 400 bookings in the first 10 days of its launch. The company points to its million-plus fan base on social media platforms, seeing it as potential buyers. There’s more to come in the form of the new body-style E-Class, the new S-Class, and at least 13 other models till 2020, of which five will be compact, says Kern. He will also launch another diesel small Merc, the B-Class Tourer, later this year. The petrol variant was launched earlier. Bali believes the shift to smaller cars is a major offensive. “They have their act together this year and it should show in their volumes,” he says.

Audi, meanwhile, is assessing its launches for this year, says Perschke in an e-mail. So far, its 2013 launches include the S6, R8 V10 Plus, Q5, and the 2.0 TFSI variant of the Q3—all priced well above Rs 30 lakh. BMW’s launches include the X6, 7 Series, X1, and compact 1 Series, says Phillipe von Sahr, BMW India’s boss, in an e-mail.

But there are key segments that Merc ignored—small SUVs, and entry-level sedans, where BMW has the X1 and formerly the 3 Series Corporate Edition. To fight back, Kern plans to bring in Merc’s recently developed GLA SUV. There are also plans to launch a compact sedan, CLA, positioned below the C-Class.

Part of the balancing act for Mercedes is in how far it goes with the surgical blade. What you get rid of and what you keep is not as simple when customers are finicky and road conditions bad. Take 52-year-old Pramoud Rao, managing director of Zicom, a security and surveillance products company. Rao bought a burgundy, petrol, E-Class in 2010 after test-driving a 5 Series BMW. “It’s that childhood thing. I always wanted a Merc,” he says. But the deal-breaker was the fact that “there was no spare tyre with a BMW and you can’t risk that on Indian roads”. (BMW cars come with run-flat or self-sealing tyres, which tyre companies say eliminate the need to carry a spare.) Rao exemplifies the tricky Indian customer; he rides a Harley-Davidson on weekends, but drives the Merc as the leader of a 500-employee company. “The BMW is for the younger lot who’ve just tasted success,” he says.

For “the younger lot”, Merc is redesigning its popular E-Class. In the Pune factory, the 2013 model E-Class is being assembled. This car is Merc’s big gun. It is priced below the top-end saloons and accounts for some 45% of the entire luxury market. Harshbeena Zaveri, managing director of NRB Bearings, a supplier to Daimler AG, says: “The revamped E ought to attract a new set of young buyers and put Benz back in the race in mid-segment luxury cars.” The new design has done away with the three-pointed star on the bonnet. The large staid grille will shrink, and the twin headlamps will be replaced by integrated halogens.

A Mercedes-Benz employee, who declined to be named citing Kern’s one-company-one-voice communication policy, says a board member coordinated feedback from employees on product strategy at the company’s annual review meeting on quality last year, and an amalgam of the inputs went into the E-Class face-lift.

LAST SEPTEMBER, DAIMLER AG’s director of international operations, Ralf Mungenast, inaugurated a Rs 200 crore paint unit at the Pune factory. In the unit, workers in masks with fibreglass visors work on the assembly line, while two life-size robots spray paint over a car’s body. Exactly four and a half minutes later, another steel shell comes their way, and the mechanical ballet plays out again.

The paint shop adheres to the same standards as any of Daimler global plants. Every car on the conveyor belt is tracked with RFID (radio frequency identification). Then there’s robotics—automated colour selection, sequence controls, and more. All of which shows how Daimler is deepening its manufacturing capability in India, with broader implications for exports and localisation. Audi and BMW still import pre-painted body shells.
Kern knows it’s going to take more than redesigning cars to win customers. He’s revamping the dealer network, and is often so busy he skips lunch. He’s been to Germany some 10 times since he took over in India, pushing the country’s needs with HQ. He says India is more than a strategic market. Right now, it’s at No. 25. Soon, he says, “India will become a top 10 market for Mercedes-Benz.”

Meanwhile, to move away from the staid image, he’s pushing the Mercedes-Benz Performance Drive for “adrenaline-junkies” who can participate in training certifications conducted by professional drivers. So far, 72 have signed up for the programme that costs a minimum of Rs 1 lakh.

Kartik Deora, managing director of Paramount Industries, a Mumbai-based packaging company, was 32 when he bought his C-Class in 2010. “I didn’t see anything mundane or old-fashioned about it. It has a turbo engine and is pretty exciting to drive in city conditions, and looks and feels sporty.” All Kern needs is to find more such folk.