Big Benz

China's first "one-child" generation is literally the driving force behind the country's thriving auto market, but in the early 1980s, most of their parents were still striving for a Feige (Flying Pigeon) bicycle as the ultimate in personal transportation.

"At that time, owning a bicycle was still a luxury for Chinese. With a salary of less than 50 yuan per month, nobody dared to dream of someday owning cars costing hundreds of thousands yuan," says a Mercedes-Benz owner who purchased an E-Class sedan in 2005.

It was in the 1990s, when few nouveau riche began driving their private cars that some Chinese businessmen began to yearn for a "Daben" (big Benz), the Chinese nickname for Mercedes-Benz.

However, in the new century owning a Mercedes-Benz is becoming a reality rather than a dream for China's new generation.

Last month, the German luxury automaker officially launched its locally produced C-Class sedans priced at between 378,000 and 478,000 yuan, targeting younger, newly affluent Chinese.

In the first quarter this year, Mercedes-Benz sold 9,626 luxury sedans in China, a 40 percent increase year-on-year, which is a sales figure the company never imagined when it entered China market.

"In the history of the world, no country has changed as much as China in the past 30 years, and it is not only amazing to watch it, but to be a part of it and help contribute to it," says Ulrich Walker, chairman and CEO of Daimler Northeast Asia Ltd, parent of Mercedes-Benz (China) Ltd.

Actually, Mercedes-Benz was selling vehicles in China in 1913, when it had a sales office in Qingdao, Shandong province, which was then a major German business and military enclave in China.

"Since then, we've been importing vehicles to China in varying capacities, but now we are proud to produce the Mercedes-Benz C- and E-Class vehicles here," says Walker.

In 1980, just one year after the Chinese government permitted ownership of private automobiles, the company set up a Daimler-Benz liaison office in Beijing in anticipation of the potential of the Chinese market for luxury sedans. It was the first such supplier in China.

But the Benz brand was still unknown in China, a slight irony given that Karl Benz created the first modern gasoline-powered automobile (the Motorwagen) in 1885.

So "in 1986, we established Mercedes-Benz China in Hong Kong, largely because the economy there was already quite developed," says Walker.

In the late 1980s, Mercedes-Benz's flagship model 250S and 280 SEL replaced the Hongqi (Red Flag) sedan as the official car for a few high-level Chinese leaders, but it was still unknown to the general public.

But as the Chinese mainland becomes increasingly open to the outside world, more consumers began to realize that the three-pointed star logo stands for wealth and prestige and they began to be crazy for the brand.

By 2000, total automobile production in China had increased rapidly from 220,000 units in 1980 to 1.83 million units, making China the ninth biggest country on auto production.

"We see great potential in the Chinese mainland with the growth of the luxury car market, a quickly growing economy, and a dramatic rise in demand for luxury vehicles," says Klaus Maier, president and CEO of Mercedes-Benz (China) Ltd.

"With this thought in mind, we brought the S-Class to China first, following a strategy of logistics and service first, paving the way for more products to follow. Mercedes-Benz's business then healthily develops in the Chinese market," says Maier.

In 1993 and 1994, China's luxury sedan market enjoyed a short-lived boom when the government allowed foreign enterprises or joint ventures to buy duty-free imported vehicles in order to encourage more foreign investments.

By saving more than 100 percent of the tariffs, Mercedes-Benz became a hot ticket in 1994 with estimated sales of over 10,000 units that year.

However, in 1995, Mercedes-Benz's global rival, Volkswagen made the decision to produce its luxury sedan Audi in a joint venture with China FAW Group Corp in Changchun, Jilin province. And in 1996, the first Audi 200 V6 rolled off the production line.

With Audi's star model A6's coming into the market in 1999, the local-produced sedan with competitive price soon wins the luxury market with sales of 6,911 units the year.

Mercede-Benz's other major German competitor, BMW, also formed a joint venture with Chinese Brilliance Auto in 2003 to begin producing BMW limousines in Shenyang, Liaoning province.

In 1984, Mercedes-Benz talked to FAW in hopes the Chinese company could use Mercedes-Benz's technology to retool its homegrown luxury Hongqi sedan. However, that plan was aborted in 1986 for unknown reasons.

It wasn't until 2005 that Mercedes-Benz finally established a joint venture Beijing Benz-Daimler Chrysler Automotive (BBDC), with Beijing Automotive Industry Holding Co (BAIC), and started producing E-Class autos.

"Daimler Northeast Asia and Mercedes-Benz have a long-term commitment to China. We are very happy to have great partners in China, and we are working together to introduce new vehicle technology and manufacturing technology to China," says Walker.

Moreover, "in 2006 we cemented our long-term commitment to China with Mercedes-Benz China Ltd moving from Hong Kong to Beijing," adds Walker.

In 2007, Mercedes-Benz began producing MB Vito/Viano and Sprinter vehicles together with partners of Fujian Motors Group and Taiwan-based China Motors Corp.

"And last month, we saw the all-new locally produced C-Class hit the market, expanding our local presence and deepening our relationship with BBDC," Maier adds.

J.D. Power & Associates forecasts luxury auto sales in China will more than double by 2014, to around 508,000.

"To continue to be automotive pioneers, we have to bring our latest technology to China in the shortest amount of time possible. We are bringing more of our lineup to China, investing in capacity, hiring more people and looking at increasing R&D and design in China as well," says Walker.

Dozens of premium models including the imported passenger car, sports car, and SUVs as well as locally produced C-Class and E-Class have been launched in China and became best-sellers in their market segments. Mercedes has also introduced the extremely high-end AMG brand to China last year and sold 300 units in nine months, an amount "far greater than our original expectations," says Maier.

"We continue learning that in order to be successful here, one must localize," says Maier. "As a global company, we must find the right balance between international standards and local practices. In addition to producing the C- and E-Class vehicles in Beijing, we will continue localizing our operations, our supply chain and our people".

"China is very significant for Mercedes-Benz and Daimler AG. As one of the fastest growing markets in the world, we place great emphasis on our long-term commitment. As mentioned, we are producing more vehicles including vans here and sourcing more and more parts in China - for production in China, and for export," Walker adds.

At the Auto China 2008 expo through April 20 in Beijing, "we will bring more than 30 models for exhibition, including a global premiere which shows ... our focus on the China market", says Maier.

(China Daily 04/21/2008 page6)