Mercedes-Benz Group will continue to build vans as a “hedge” against volatility in the passenger car market, CEO Ola Kallenius said, even as the Mercedes brand moves further upmarket and targets higher pricing.
Mercedes sold about 415,000 vans worldwide last year, with a return on sales of 11.2 percent. For the first three months of 2023, that figure jumped to 15.6 percent on sales of about 99,000 units, which the automaker said was a record quarter.
However, van sales have not yet returned to the pre-pandemic high of 438,000, although margins have jumped about nine percentage points.
Kallenius and Mercedes’ van chief Mathias Geisen on Tuesday presented the automaker’s updated van strategy through 2030, which will focus on more-profitable segments such as campers and a new full-electric platform for medium and large vans called VAN.EA.
Mercedes sells three van sizes: The T-Class and Citan compact, built by Renault; the V-Class and Vito midsize, with a new generation due in several months; and the Sprinter large vans.
Mercedes is targeting a return on sales of 11 to 13 percent this year, with “double digit” returns expected to be about 10 percent through the end of the decade, as the share of less-profitable full-electric vans increases to 50 percent in some markets.
Kallenius and Geisen are aiming to cut fixed costs by 20 percent by 2030 while at the same time pushing up the average selling price – already up 24 percent from 2019 to 2022.
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Geisen, Kallenius and group CFO Harald Wilhelm acknowledged, however, that the while the vans business has been profitable, it is not likely to match margins on the passenger car side.
Analysts have questioned whether selling commercial vans still makes sense for Mercedes, which plans to radically reduce its so-called “entry luxury” passenger car sales in favor of high-priced models from its Maybach, AMG and G-Class divisions, as well as high-end Mercedes brand cars from the E- and S-Class series (including full-electric EQ models).
Competition in the van segments is fierce, with total cost of ownership and brand loyalty important factors for vehicles that have few fundamental differences.
Among Mercedes’ competitors, Stellantis has set up a separate vans division that takes in six of its brands: Citroen, Fiat, Peugeot, Opel/Vauxhall and Ram. Renault has consolidated its commercial vans in recent years, discontinuing a Dacia model. Volkswagen and Ford are collaborating on vans and in 2020 said they planned to produce a total of 8 million light commercial vehicles together.
Under Kallenius, Mercedes-Benz has reorganized its business structure to focus on passenger cars. Formerly known as Daimler, it is now Mercedes-Benz Group, and the heavy trucks division was spun off at the end of 2021 as a separately listed company called Daimler Truck, including the Freightliner brand in North America.
Kallenius signaled Tuesday that the vans operation would remain within the group, while acknowledging that part of reason for the strategy update was to convince investors that it was the correct strategy.
“Does really make sense to keep the businesses together?” he asked rhetorically. “Yes it does. Thanks to different model cycles and marketing methods it makes our business more resilient.”
"It's a little bit of a hedge against the cycles on the passenger car side," he said.
Vans typically have a longer model life cycle than passenger cars, up to twice as long, and they require less development costs. Most vans are sold to commercial buyers as well as fleets, or through third-party converters, meaning there is less contact between automakers or dealers and users.
Kallenius and Geisen said they saw no disconnect between Mercedes’ goals on the passenger car side and the vans side, with opportunities for growth and higher selling prices for vans such as the luxury V-Class midsize and campers, especially in North America.
A standalone van business would not benefit from passenger car synergies, especially from a bill of materials standpoint, Kallenius said.
“If the car company is a tree, the van business is a branch,” Kallenius said. “I’m not aware of any large van player that doesn’t have a tree to attach to.”
