Mercedes S-Class sales decline in blow to luxury strategy

FRANKFURT: Mercedes-Benz Group AG’s sales of ultra-luxury vehicles such as the S-Class slumped in the third quarter, a blow to the automaker’s strategy of focusing on cars with the highest profit margins.

Orders of high-end Mercedes vehicles dropped 11% to 69,900 units in the third quarter compared to the same period a year ago, the carmaker said today.

Global sales of its flagship S-Class model declined 18%, while sales in China, the company’s biggest market for the car, fell 12%.

Under chief executive Officer Ola Källenius, Mercedes is directing resources to its most expensive vehicles, including Maybach limousines, AMG performance cars and the G-Wagon off-roader.

The carmaker is shifting away from less profitable entry-level models like the compact A-Class.

Tom Narayan, an analyst at RBC Capital Markets, said he was concerned that estimates of Mercedes’ full-year earnings could be too high if the automaker’s sales mix shifted away from its most expensive models.

“This could be evidence of this happening,” Narayan said in an email. “But it is too early to tell so far.”

Mercedes is due to publish third-quarter earnings Oct 26. For its full-year guidance, the manufacturer expects group earnings before interest and taxes around the prior-year level of €20.5 billion (RM103bil). Mercedes has forecast an auto making margin of between 12% and 14% this year, down from 14.6% in 2022.

Among the biggest risks to German carmakers is the weakening demand in China, where they’ve been able to rely on profit growth for years. BMW AG reported earlier today that its sales in China declined 1.8% in the third quarter.

China’s economy is struggling to bounce back from severe coronavirus lockdowns, with a property crisis also weighing on consumer sentiment and growth.

The country’s economic difficulties have weighed on everything from Chinese stocks to commodity prices and the results of European and US consumer goods manufacturers.

Mercedes didn’t give a reason for the overall decline in its high-end sales, though orders for its high-performance AMG cars were impacted by model changeovers and there is a certification delay for the S-Class in the US, a spokesman said.

At the same time, rising interest rates are affecting car financing deals in all segments, increasing the cost of acquiring Mercedes vehicles.