STUTTGART -- Daimler will launch a new efficiency program at its Mercedes-Benz Cars division to dampen the acceleration in its growing cost base as the company seeks to achieve record vehicle sales, revenue and profits for 2015.
The company has for the past few years failed to match the higher margins generated by BMW and Audi and employs a much larger workforce at Mercedes -- even though it sells fewer cars than its two larger rivals.
CEO Dieter Zetsche said fresh measures taken as part of its new "Next Stage" program would help its Mercedes car division achieve a 10 percent margin target in the midterm and offset the structural cost increase stemming in part from the combined 11.2 billion euros in plant and equipment investment budgeted for this year and the next.
“Our planned growth will be accompanied by absolute increases in our fixed costs and net assets. However the structural changes we plan to make will significantly limit these increases,” Zetsche told reporters at the company’s annual press conference on Thursday.
Zetsche did not quantify the program’s exact effect on the group’s earnings. "We don’t want to garnish these with demonstrably spectacular figures to impress the financial markets. We want to sustainably improve the structural competitiveness of the company,” he said.
Next Stage is expected to run through 2020, by which point Mercedes aims to surpass both BMW and Audi as the biggest and most profitable premium carmaker in the world.
“We intend to reach a level of profitability that is unprecedented at this company,” Zetsche said.
Last year Mercedes boosted earnings before interest and tax as a proportion of sales to 8 percent from 6.2 percent in 2013, but that significantly lagged the 9.4 percent margin achieved by BMW and 10.1 percent at Audi. BMW and Audi have yet to publish results for last year.
Daimler has long countered arguments that it has a bloated workforce by pointing out that it needs more workers to build components that rivals outsource. Transmissions, for example, are built in a Mercedes powertrain plant near Stuttgart, while BMW procures transmissions from suppliers such as ZF Friedrichshafen.
Investment adviser ISI Group says Mercedes has a far higher labor costs to sales ratio than its rivals. Mercedes employs 72 percent more workers than Audi and 26 percent more than BMW, ISI says.
"Mercedes is the smallest of the three German premium automakers. Yet it employs materially more people than its competitors BMW and Audi,” Arndt Ellinghorst, ISI's head of automotive research, told Automotive News Europe.
Zetsche said he wanted to close the profitability gap with BMW and Audi by boosting worker productivity by extending best practices across other parts of the company, such as methods used to improve the efficiency of procurement that will soon be used in its manufacturing operations as well.
“We have enacted massive efficiency programs in r&d, for example, that allow more cars to be developed without the corresponding need for more engineers and that principle will be applied to all areas of value creation throughout the company,” Zetsche said.
“The marked structural developments in our retail (through the sale of wholly-owned German car dealerships), but also in wholesale, give us efficiency gains - these and many more are all examples of the contributions made with respect to the target that fixed costs grow significantly less than our revenue,” he added.
Daimler said it expected 800 million euros in additional gross earnings improvement this year as the full effect from its previous, 4 billion-euro efficiency program is fully reflected in profits for 2015.
To support further growth, it is launching four new models in 2015 that have no predecessor: the Mercedes CLA Shooting Brake compact, GLE Coupe, Maybach superluxury sedan and AMG GT sports car.
As a result, the group aims for around 5 percent growth in vehicle sales and 10 percent increase in operating profit from its ongoing business this year.
In 2014, Daimler’s revenue rose 10 percent to nearly 130 billion euros on the sale of 2.5 million Mercedes cars and trucks, while operating profit from its ongoing business rose 27 percent to 10.1 billion.