How Mercedes got its groove back

Marcus Breitschwerdt, president of Mercedes Canada, believes the premium/luxury segment of the Canadian car market could easily rise to 10% -- even 15% -- from about 5% today.

For the better part of a decade, Mercedes-Benz Canada Inc. has been in what industry analyst Dennis DesRosiers calls "a funk." Less-than-perfect execution of certain cars, such as theM-class in the early years after 2000, hurt the company in the showroom. The rise of Japanese rivals such as Lexus and Acura made competition fiercer. A disastrous transatlantic merger between parent Daimler AG and Chrysler Corp. was a distraction it probably didn't need.

Now, Mercedes is back with a vengeance. More models and trims. More focus. And, according to experts, more deals. It is now cheaper to lease a Mercedes C-class than a similarly equipped Honda Accord or Mazda6, says George Iny, president of consumer group Automobile Protection Association. "We can't figure out how they're doing it," says Mr. Iny. "The value proposition for Mercedes has never been as strong. Ever."

It has been nine years since Mercedes owned bragging rights to the title of top luxury-car seller in the country. But this could be the year it reclaims the crown. Through the first five months of 2009,Mercedes is outselling premium vehicle rival BMW Group Canada Inc. May was in fact the automaker's best month in history.

How did Mercedes get its groove back? Some say by offering so many incentives on leasing. But there's more to it than that. The company also turned accepted wisdom on its head. Marcus Breitschwerdt, president of Mercedes' Canadian operations, tells the tale in an edited interview with Nicolas Van Praet.

Q Automakers reported May sales results on Tuesday. Mercedes was up 6.9% in a market that was down 16.5% overall year over year. How do you sell luxury cars in a recession?

A I don't know how to do it in other times. Since I've been in Canada, there has been a recession in the car market. The Canadian market has grown between 1995 and 2002 up to 1.7 million [units]. And then in 2003, which was the year when I arrived here, the market had a huge slide down. And the year after again. It went down to 1.6 million, 1.5 million. It recovered a little bit, went down again. It will end up this year at probably 1.45 million. So it [has been, for]more than five years, a market in stagnation and recession. And how do you sell cars in such a market? You simply accept that the market itself is not growing. So if you want to grow, you have to be better. And you have to be more focused than everybody else competing for the customer.

Q What is the biggest thing that affects your customers buying or not buying?

A The Canadian customer is very much more European-like than the U. S. customer. Canadian customers are brand aware. Canadian customers buy an overall experience which is not transportation, which is not just product, which is not just technology. It's also the service. It's also the overall sales experience. So you have to deliver a full package, which is: Advanced technology, innovation, safety, which is, on the product side, a solution which in detail actually serves the needs of the customers. But more than that, you also have to really meet customers' expectations in terms of the emotions, in terms of the functions when service is concerned. It is simply a business which lives or [dies based on whether] you are focused or not focused. Focused on the customer. That's the whole thing.

Q Is it your goal to be No. 1 in the market?

A Sheer volume, sheer mass, is not our target. We are not measuring ourselves against figures of other organizations. We are looking into our own year-over-year development. We are looking into our customer satisfaction. And we are looking into our test results we get from the independent press and from independent institutes. What we did when the market first turned in 2003 into tough waters, we totally restructured our business in Canada. We started with huge and heavy network investments. We invested money together with our dealers --a high three-digit million-dollar amount of money --building great dealerships coast to coast. Every single dealer had to move into a new dealership with bigger service, bigger sales facilities. We totally reshaped the model lineup more toward the European model lineup because we believe that Canada is very much different society from the U. S. Canada is very much living from actually having a highly performing, well-educated middle class. And people like this are the relevant customers which make a brand like ours grow. They are brand aware. They are quality conscious. They are safety aware. They have fun [living and driving]. So what we did is we brought new product in. We brought the Smart car in four years before it came to the U. S. We brought the B-Class in, which is the first compact luxury vehicle in North America. And we made clear that it is a success. We broke the rules. We proved that the old North American saying -- that big cars are big profit and small cars are small mar-gin and you cannot sell small cars that are good cars --is all wrong. And the third element of our success was really to very much focus on the introduction of new processes. Our customer was always driven by hands-on and passionate people. But if you want to grow, you want to make sure that independent from the fact if the great guy is in today or not, that anyway the service and everything works perfectly well. You want to be absolutely sure that independent of who is on duty today, it will simply work. You do not want to rely on the hero. And this is what I tried to practice with my people. We do not want to have heros. We do not want to have Mr. Superman or Mrs. Superwoman. We just want to have people who do a great job every day independent of who is on shift and in charge today and that our customers can rely on that. So process. It's very important for us.

Q To what extent is it important for Mercedes to improve its dealership metrics right now, especially the sales per dealer, which is not as high as your top competitor?

A It's not just about the units, the number of transactions. Our dealer structure is extremely healthy. I would say it's the healthiest in the country. None of our dealers is losing money. All of them are [experiencing] a tough time in terms of they have to work hard but also a rewarding time because it pays off. As you might know, Mercedes Benz Canada is the only manufacutrer in North America that has its own relevant corporate retail-- we own 17 locations ourselves and are selling roughly half of our volume through our own corporate stores. So in terms of revenue, Mercedes Benz Canada probably would be the largest dealer group in Canada. Which means that being a car dealer myself, I will never ever ask or try to implement any nonsense into my dealer body because I know myself, I see myself if stuff would work or would not work.

Q A high dollar encourages more people to shop in the United States for luxury cars. Are you worried about the loonie's recent rise?

A I'm worried about a general attitude these days. Whatever happens out there, there is always at least one or five experts that tell you it's a bad thing. And the world is always coming to an end. And you know, it's a lot of excitement instead of just quietly and calmly analyzing the facts and just doing a good job by adjusting to an always changing environment. Canada in my opinion is a rock-solid place [from an international perspective]. It is actually a big achievement of the provincial and the federal governments nowadays and in the past having brought Canada into that position. We have a very conservative banking sector. We have a humble society here. People who don't spend more than they really earn. And based on that our economy is in pretty good shape. I cannot see at all what Canada should have to fear other than just a normal recession cycle. The Canadian dollar being high only shows you that the budgets are in better shape-- the private budgets, the federal budgets, the public budgets -- than in some other countries. [In terms of currency exchange rates,] I fully trust that the politicians and the public will be able to see how to responsibly react on that. I am not scared at all.

Q How do think the competitive landscape in the luxury segment is going to shake out with the bankruptcy protection of General Motors Corp. and Chrysler LLC? GM has Cadillac. But do you see it as a direct competitor?

A What we have seen over the last 25 years was that the domestic manufacturers have lost customers on a growing basis towards Japanese importers who more and more represented a solid middle class in the market. And the Japanese importers now are losing towards premium and luxury importers like us and others -- you could call them maybe German importers. For me, that's a normal development, the same that you had in most parts of Europe over the years. The Canadian market still has a lot of potential for an elaborate and differentiated luxury and premium segment. Altogether, the [luxury carmakers] don't have a market share at this point which is significantly higher than 5%. But they could easily reach to 10% or 15%, which is a normal kind of a segment structure for a society like Canada if you compare it to the U.K., to Germany, to Spain, to France, to Italy. This is exactly what I do expect. Canada as a G7 country has an economical and social structure which supports that. What we will lose is the cheap side, cheap in a negative way, the cheap side of the market. Because more and more people, especially in times like this, will find out what we always say in the part of Germany that I'm from, which is 'We are too poor to buy cheap.' And this is the driving force behind what we call luxury. That you take the best material, the best knowledge, and build something which is the benchmark and which lasts longest.

Q What is the single biggest thing the government of Canada could do right now in terms of policy that would help your business?

A Cancel the sales tax temporarily. It's not a secret that I'm not a big fan of bailout deals and of guarantees done by the government.... The [revenue] has to come from the customers. You have to move customers to the dealerships. And the best way, the easiest way to do it is for a time, to abandon the sales taxes.