To err is human, but to lower your prices as a result is unique in the auto industry.
Admitting that it lost ground to Japanese luxury cars in the last couple of years by focusing on models costing $60,000 and more rather than those going for $40,000 and less, Mercedes-Benz said it will hold the line on prices of some models for 1994 while reducing the stickers on others.
The new C-Class replacement for Mercedes’ entry-level 190 series, its smallest and least expensive model, will go up by only $50, to $29,900, for the C220 4-cylinder sedan and to $34,900 for the C280 6-cylinder sedan for 1994.
Meanwhile, the E-Class sedan will come down by $1,300, to $42,500, in 1994, from $43,800 in 1993.
The new Mercedes C-Class will underprice the rival Lexus ES300 sedan by about $1,000, and the E-Class sedan will be about $7,400 less than a Lexus LS400 sedan.
“This is the first time Mercedes has introduced a new car at the price of the old car,” said Michael Jackson, executive vice president of Mercedes, referring to the 190 replacement. “We’re in a more pro-active mood than in the past.”
Jackson said that while Mercedes focused on promoting quality, durability and engineering in past years, for 1994 it will emphasize price and value versus its rivals.
“We may even allude to some of our rivals in our ads, like the Lexus ES300,” he said.
Before Mercedes gets bruises patting itself on the back for the pricing gesture, Jackson admitted in an interview that dealers deserve some credit in helping the German automaker hold or reduce price levels.
Dealers have agreed to reduce their margins on the ’94 models by 2 percent. That means dealers will pay the factory 2 percent more for the cars so consumers don’t have to. A noble gesture, though some might say a practical gesture is more apropos. A new Mercedes pricing strategy was necessary because sales will slip to 60,000 units in 1993 from 63,000 in 1992.
Oddly, only two years ago Mercedes told media gathered in Detroit for a new-car preview that it was turning its nose up at Japan luxury-car competition.
Mercedes told the scribes it wasn’t concerned about the Japanese making inroads in the $40,000-and-under market because it was going to focus on the $60,000-and-up luxury segment, where it would rule supreme. Let the Japanese fight for the scraps at the low end of the market, Mercedes would reign where five figures run into six figures without buyers running away.
Two years later, Jackson makes it evident that Mercedes has adopted a less snobbish outlook.
“We’ve lost some sales to Japan, no question,” he said. “The arrival of Japan has impacted everyone in the luxury segment. But that doesn’t mean we’re going to retreat and give up the $60,000-and-higher market either,” which is obvious by the fact it will offer $70,000-to-$133,000 sedans and roadsters.
Still, in 1994 Mercedes will focus on the low end of the market, where the Japanese have been trying to stake claim, Jackson admits.
“In the ’80s we focused on the S- and SL-Class cars (big sedans and little but expensive roadsters), and sales were about 55 percent S and SL and 45 percent 190 and E-Class sedans,” he said.
“Looking forward, we see the biggest volume in luxury cars in the high $20,000 to low $50,000 range and are restructuring our sales so that volumes would be 70 percent C-Class and E-Class and 30 percent S-Class and SL-Class. The market is telling us that would be the wise thing.”
Jackson said an all-new entry-level car and holding the line on its price is meant to help Mercedes reintroduce itself to luxury buyers who have fled to the Japanese, as well as to change their perception of the German automaker.
And that perception, he said, is that “Mercedes-Benz is too expensive.”
“We have to recognize our strength-reliability-but also our weakness-price,” he said.
Jackson said Mercedes is forecasting sales of 70,000 units in 1994, partly because of its new pricing strategy and partly from having the new C-class on the market.
Though Japanese prices are rising and Mercedes prices are falling-at least on some models-Jackson said he doesn’t expect the Japanese to pack their bags and head home.
“They’re tough competitors, we haven’t knocked them for a loop yet,” he said.
Rolling on: “We’re seeing signs of the renaissance,” said Michael Donovan, managing director of Rolls-Royce Motor Cars Ltd., of Crewe, England, who was in town to show dealers the 1994 Rolls and Bentley lineup.
The renaissance is not to be confused with the light at the end of the tunnel. Three years ago, Rolls looked for just such a light and saw a freight train coming at it.
In 1990, the British automaker sold a record 3,333 new cars, 1,200 of them in the United States. Things were looking promising in the kingdom and its environs.
Then came the U.S. luxury tax on automobiles in 1991.
The 10 percent tax on the amount of the price exceeding $30,000 annoys potential buyers, Donovan said.
“It’s not that our customers can’t afford it,” Donovan said. “The problem is that our customers see the tax as unfair. They don’t want to be told what they have to spend their money on. It’s discriminatory to tax someone just because they’re successful.
“It destroyed the year for us,” Donovan said. “We sold 408 cars in the U.S. (1,700 worldwide) in 1991. For years, sales had been building steadily, and then came the crash.”
Rolls still is feeling the effects of the luxury tax on cars in that sales in 1992 rose to only 412 units (1,300 worldwide) and are expected to hold at about the same levels when the numbers are in for 1993.
“Our average buyer pays an $11,000 luxury tax,” Donovan said, which means what a Rolls buyer pays in tax what a Toyota buyer does to get a Corolla.
As with domestic automakers, Donovan said that as sales fell and losses mounted, Rolls learned what the term downsizing means.
“We’ve become a leaner organization,” he said. “We’ve gone from 5,700 employees to 2,400. We’ve gone through a really painful period of change but have emerged fitter because of it.”
Donovan said bringing out a new “entry-level” Bentley Brooklands sedan at the outset of this calendar year has helped by allowing those with only $147,100 in pocket or purse to get into a Rolls.
Even at $147,100, Brooklands costs $40,000 less than the “cheapest” Rolls. And in a weak economy, every $40,000 counts.
“We’ve found that 60 percent of all Brooklands buyers in the U.S. never owned a Rolls or Bentley before,” Donovan said, obvious evidence that Rolls did the right thing by offering a lower-price model.
Until the Brooklands appeared, Donovan admitted that Rolls did a poor job of getting across the Rolls/Bentley story.
The two share mechanicals as well as much sheet metal, and basically Bentley is a Rolls without a flying lady hood ornament. Bentley is the performance car, Rolls the luxury car. Yet many people considered Bentley a step down from Rolls.
“Some people thought a Bentley was only for those who couldn’t afford a Rolls,” Donovan said. “We failed to communicate properly about the Bentley.”
Donovan forecasts sales will rise to 500 units in the U.S. within the next two years as buyers regain sufficient confidence in the economy and in Rolls.
Helping lay the groundwork is the fact Rolls has found a couple of new markets-mainland China and Russia (55 cars sold there this year). In the U.S., Donovan said the folks in Florida, one of Rolls’ biggest markets here, seem to be visiting the Rolls lots again.
“We’ve been waiting for the California market to come back too, but it hasn’t happened yet,” he said. “We see some signs of life, but there still are a lot of layoffs in the high-tech industry.”
