For years, Daimler has lagged Audi <VOWG_p.DE> and BMW <BMWG.DE> in
the world's biggest car market. Last year, Mercedes-Benz, the
company's premier luxury brand, sold 228,000 cars there, compared to
nearly 492,000 for Audi and over 362,000 for BMW.
The reasons for this are varied.
For years, Daimler harbored doubts over the sustainability of growth
in China. German labor union resistance to shifting production out
of Daimler's main factory in Sindelfingen also played a role.
Another key factor has been Daimler's more cautious approach to
sharing technological know-how due to fears of piracy. This
prevented the company from deepening its footprint in China, where
foreign automakers are required to work with local companies, at a
time when its rivals were going all-in.
Now this is changing - in part because the Chinese have taken steps
to crack down on copyright violations, but also because Daimler
executives have realized there is no alternative to closer
cooperation if they are to make up lost ground in a market that
continues to post impressive growth rates.
This year, Daimler is starting production of its newest C-Class in
China as well as Germany, a step-change for a manufacturer that had
previously delayed local Chinese production of new models by months.
Beijing Benz Automotive Co. (BBAC), the joint venture company
Daimler runs with Chinese partner Beijing Automotive Group Co., is
also constructing a new production line for the compact GLA model.
To get permission to build both cars locally, they need to undergo a
160,000 kilometer emission durability test and a regulation test
with Chinese authorities. These can take up to a year.
As part of this process, Mercedes is allowing Chinese officials to
take samples of components and make detailed measurements of its
"To put it bluntly, we are transferring know-how," said Rene Reif,
head of engineering and manufacturing at Beijing Benz.
Today, Mercedes-Benz GLA prototypes are parked at a brand new
research and development center built for BBAC. And a new C-Class,
code named V205 is propped up on vibrating pillars to undergo final
"bust squeeze and rattle" testing before its looming launch in
Frank Deiss, president and CEO of the joint venture, says the
Chinese-made cars will have the same build quality as a Mercedes
assembled in Bremen or Rastatt.
To tap China's potential more effectively, Daimler recently moved
its Mercedes-Benz Advanced Design Centre from Japan to Beijing.
Its main research and development activities for Mercedes remain in
Germany, but China's influence is increasing, even on Daimler's home
The AMG GT for example, a sports coupe being developed in
Affalterbach, Germany, is having its engine size reduced to avoid
China's progressive taxation thresholds.
"The GT was developed in part with the new tax in mind," AMG Chief
Executive Tobias Moers said, explaining that the car will have an 8
cylinder engine with a capacity of just below four liters because of
the Chinese tax.
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Daimler only started making Mercedes-Benz cars in China in 2006,
reaching production capacity of 120,000 vehicles last year. Audi,
which has been making cars there since 1988, surpassed that level in
If demand continues to rise, Daimler says the capacity of its
Beijing factory can be ramped up to make 350,000 cars.
Asia remains the key battleground in Daimler's fight to reclaim the
crown of the top-selling maker of luxury cars in the world. The last
time Mercedes held the title was in 2004.
Last year, BMW led the pack with 1.65 million units sold worldwide.
Audi was next at 1.57 million and Daimler in third place, with 1.47
million Mercedes-Benz branded cars sold.
For all three premium manufacturers, the biggest growth came from
China. Mercedes-Benz saw China sales jump 27 percent last year, BMW
rose 19 percent and Audi 21 percent.
Daimler says Chinese clients want top-of-the range models and that
this is the main way for Mercedes-Benz to increase its market share
in China which stands at around 1.5 percent, compared to around 5
percent in Europe or more than 15 percent in Singapore and Hong
Daimler is counting on China to outgrow Western Europe, North
America, and Japan because the Chinese market still has fewer than
74 cars per 1,000 inhabitants compared with 562 in Germany and 742
cars per 1000 inhabitants in the United States.
The pace of Daimler's expansion ambitions has led the company to
train Chinese staff using the German model of vocational training
and send China-based staff to Germany to acquire specialist skills.
In 2012, about 100 Chinese high potential employees received
training on how to build engines at the Daimler factory in
Untertuerkheim. Daimler is also opening a training center for
Wang Lingyu, a general manager for vehicle quality at Beijing Benz,
said that apart from taking part in weekly conference calls with
Daimler's German factories, she makes regular trips there too.
Concerns that closer cooperation might open the door to piracy by
Chinese manufacturers have been mitigated by better protections,
says Thomas Weber, the Daimler board member in charge of research
With rip-offs less likely to be tolerated, Daimler is stepping on
the gas in China, even with its most cutting edge technologies.
"Innovations that are introduced late, are of no use," said Weber.
(Reporting by Edward Taylor; Editing by Noah Barkin and Janet
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