Mercedes counts on hold-the-line pricing to rebound from Japanese walloping

CHICAGO -- It was two years ago that Mercedes-Benz giggled at the Japanese. Who'd want to buy a $35,000 Lexus when they could buy a $50,000 Mercedes?

Ha, ha, and tsk, tsk. A Lexus rather than a Mercedes.



Suffice it to say the Japanese walloped the Germans. Mercedes stuck its nose in the air and nearly drowned.


For 1994, Mercedes has adopted a new strategy, though some will say that for 1994 Mercedes woke up and smelled the sushi. It brought out an all-new and larger C-Class sedan to replace the 10-year-old 190 and raised the price by only $50, to $29,900, on the C220. Fifty bucks! Not enough to cover the cost of the dual air bags offered as standard.

The up-level C-Class 280 stayed at $34,900, not one mark, shilling, krona or penny more than the old top-of-the-line 190.

Not content with holding the line, Mercedes lowered the price of the E-Series sedan by $1,300, to $42,500. Part of the reduction was accounted for by making standard equipment optional: headlight wipers, telescoping steering column, high-performance sound system, memory seats and metallic paint.

Mercedes realizes now that the decision to focus on the $50,000-and-above market and leave the $40,000-and-below market open for the Japanese proved foolhardy. Luxury-car buyers didn't just step into Japanese cars; they took a running leap.

Long-term strategy

"The pricing of the C-Class and E-Class cars for 1994 is definitely part of our long-term strategy," said Ken Enders, product planning manager for Mercedes, in an interview while in town to unveil the cars for the Midwest Automotive Media Asso


"Our new goal is to make cars more valuable without making them more expensive," he said. "We've moved [prices] to where our competitors' are. And this isn't a flash-in-the-pan event. It's our strategy for the next three to five years."


OK, if Mercedes can sell cars at the same or lower prices than before, then it is guilty of dumping, the charge the Japanese were accused of when the Lexus LS400 sold for $35,000 in 1990 but now lists for $50,000.

Mr. Enders insists that it isn't dumping and that the price was held in check because Mercedes, taking a cue from the cash-strapped U.S. automakers, chose to produce cars more efficiently.

"We cut our cost of producing the C-Class by 20 percent vs. the 190," Mr. Enders said.

But pricing isn't the only reason Mercedes sales slipped from a peak of almost 100,000 units in the United States in 1986 to 58,000 units in 1992 and a forecast of 60,000 units in 1993.

"We had new cars in 1982, the Japanese had new cars in 1989, and our products got old, and we didn't replace them until this year," Mr. Enders said of the C-Class arriving at long last to replace the 190.

Sales forecasts


With a new car and one priced at less than the Lexus ES300, Mr. Enders said Mercedes is forecasting sales of 24,000 to 25,000 C-Class cars in 1994 vs. 11,000 in 1993. Add 24,000 to 25,000 E-class models, 15,000 S-Class models and 5,000 SL models, and the outlook for 1994 is total sales of 70,000 units.

"And while 70 percent of our volume typically had been SL and S-Class models [with prices ranging from $70,000 to $133,000 for an S-Class, $85,000 to $120,000 for an SL], for 1994 we see 70 percent of our sales being the C- and E-Class cars," Mr. Enders said.

To meet those sales projections, Mercedes will try to lure 190 owners back into the showrooms.

"We have more than 180,000 190 owners and, starting in January, we are going to send out a mailing to up to 75,000 of them as well as up to 250,000 owners of rival luxury cars such as the BMW and Infiniti that will include a videotape detailing our new car," Mr. Enders said.

Mercedes hopes to find an audience willing to listen to what a German automaker has to offer those who have a Japanese luxury car in the driveway, especially since Lexus boosted prices by 6.5 percent, or $2,424, and Infiniti upped prices an average 6 percent, or $2,072, for 1994. So, the C-Class sedan starts at about $1,000 less than the Lexus ES300, and the E-Class starts at about $7,400 less than a Lexus LS400.

'Window of opportunity'


"Japanese pricing has opened a window of opportunity for Mercedes," Mr. Enders said.

You'll have to be content with only peeking through that window for now. C-Class shipments here are going to be very limited initially. In fact, each Mercedes dealer is going to get only two copies, a four-cylinder C220 and a six-cylinder C280, as demos to be used to take orders.

"It will take some months for supply to catch up with demand," Mr. Enders said, meaning you can expect to pay full list and/or a premium until supplies increase.

Mercedes is counting heavily on the new C-Class series to help return Mercedes to its glory years. The car line was unveiled in showrooms Nov. 18, and already company officials are talking about adding a couple of new models -- a diesel version in

the 1995 model year and a high-performance sports model (developed with long-time customizer AMG), now called the C36, that would offer a 285-horsepower V-6 engine and be limited to 300 to 500 copies a year starting in the 1995 calendar year (as a '95 or '96) at the earliest.

"We're looking at a 2.5-liter, 5-cylinder diesel in the C-Class," Mr. Enders said. "It could be added in 1995 at the earliest. We'll have a 3-liter diesel in the E-Class sedan in January. Why diesels? There's half-a-million Mercedes diesel owners out there who are our most loyal owners. [The S-class sedan currently offers a 3.5-liter, 6-cylinder turbo diesel.]"


On other topics, Mr. Enders said:

* "There are no sticks [manual transmissions] in Mercedes for 1994. The reason is buyer ordering patterns. Fewer than 1 percent of the buyers ordered one when we offered it on the 190 in 1993, even when it was offered at a $1,000 discount vs. automatic."

* The subcompact Vision concept car unveiled at the Frankfurt ** auto show this fall is a prime candidate for production. "It makes more sense for Europe now because of the high cost of fuel, and we would introduce it in Europe first if we do it [supposedly 1997-1998]. But we're also looking at it as a zero-emissions vehicle for the U.S., too, but not until the 2003-2004 time frame," he said. Vision can be powered by a 3-cylinder gas engine, 3-cylinder diesel engine or batteries as an electric.

* Mercedes, the gas-guzzler champ with 12 models saddled with the tax in 1993, has only seven guzzlers for 1994. The SL500 is tagged with a $1,300 guzzler tax, the E500 and S420 with $1,700, the S500 sedan and coupe with $2,100, the SL600 and S600 coupe with $3,000, and the S600 sedan with $3,700.

* Traction control is optional or standard (selected S-Series models) in all Mercedes for 1994, and dual air bags and anti-lock brakes are standard in all of its cars. Four-wheel-drive is no longer offered because traction control has made it obsolete, Mr. Enders said.