Mercedes Takes on BMW With Sleek Compact Cars

Times Staff Writer

For three generations, Mercedes-Benz built outstanding motor cars, but its image was somewhat staid, even fusty.

In Munich, about 130 miles southeast of here, Bavarian Motor Works, a rival in the high-performance luxury car market, developed a reputation for producing zippy, dynamic cars that appeal to the younger, upwardly mobile motorist.

But with the introduction here in December, 1982, of the Mercedes 190 compact, the so-called Baby Benz, and subsequently of the new mid-range 200-300 model, the Stuttgart firm has shed much of its conservative look.

Bringing out a new compact model represented an enormous risk for the company, which invested heavily in a new plant to build the car. But it has paid off. "It could have been an Edsel," one industry observer commented. "Instead, it was a smash."

Sales of the compact and medium-size models are soaring. Mercedes sales director Hans-Juergen Hinrichs said: "We went after a new psychological segment of the market and it's been a great success."

In Munich, BMW officials seem to be somewhat piqued at the attention that the Baby Benz and its bigger brother are getting. After all, BMW practically invented the concept of the high-quality smaller car.

Eberhard von Kuenheim, BMW's chairman, said: "I'm quite proud to see others following our philosophy." He pointed out that BMW outsells Mercedes in such key markets as the United States.

Still, the new look of Mercedes has prompted some commentators to suggest that there may have been a reversal of roles, with Mercedes now providing the cutting edge in high-tech engineering and styling.

Auto Motor and Sport, a publication regarded as the bible of the West German motor world, said recently that "the three initials BMW are no longer enough to hold the attention of the public."

Mercedes' parent company, Daimler-Benz, appears to have taken the lead in buying into companies--like the West German electronics firm AEG--engaged in high-tech research that could be applied to the automotive industry. "We want to broaden our base," Mercedes official Bernd Gottschalk said, "into high-tech fields where the basic research can be used in the car business."

Daimler-Benz has also acquired an interest in Dornier, an aerospace firm, and in MTU, which manufactures engines.

BMW, too, is looking for acquisitions related to the automotive field, but BMW executives say they wish to purchase only companies in which they can acquire a controlling interest. This may limit their choices.

BMW officials say they want to stay close to the car industry rather than branch out. As Chairman von Kuenheim put it, "if you want raisins, you don't buy raisin cakes."

Mercedes and BMW are natural competitors but not on the scale, say, of Ford and General Motors.

This year Mercedes will produce about 540,000 cars, compared to 450,000 by BMW. Mercedes exports about half of its production, with 15% going to the United States. One third of Mercedes' American sales are in California. BMW sends fully 65% of its production abroad, and 19% goes to the United States.

In the past, BMW concentrated on smaller, high-performance cars with a dynamic, innovative look and reputation--the 300 series, the mid-range 500 series and the 700 series at the top of the line.

Devised First Workable Car

Mercedes designers--and buyers--preferred a larger car with a comfortable, luxury look that sold for top dollar in world markets. Mercedes favored that style almost from the time its founders devised the first workable motor car 100 years ago. According to the company, Gottlieb Daimler in Stuttgart and Karl Benz in Mannheim, working independently, each developed a car with an internal combustion engine in 1886.

Daimler eventually named his car Mercedes, after the daughter of his biggest distributor in France, and the two companies were merged in 1926. Today, the corporation is known as Daimler-Benz and the cars and trucks as Mercedes-Benz.

With the oil crisis of the early 1970s, Mercedes executives decided that the company should introduce a fuel-saving compact car, which was a sharp departure from previous models, except for the expensive, two-seater SL roadster, which is popular in California.

Sales director Hinrichs recalled: "The decision was made at a time when there were definite trends toward smaller, more economical cars. Our image was very positive at the time, but we were not looked upon as dynamic and sporty.

"We wanted to add an auto to our line that would not be a substitute for our existing ranges. But we wanted the car to look like a Mercedes and have our usual life-span of 10 to 12 years. We also wanted a new segment of the market, people who could afford a Mercedes but felt our cars didn't fit their life styles.

"But our goal was to keep the substitution rate as low as possible--that is, Mercedes customers who would buy the compact rather than other models.

"Conversely, we wanted the conquest rate--people shifting from other makes--to be as high as possible."

The company turned to chief designer Bruno Sacco, an Italian who had trained in Turin and who has been with the company for 28 years. Sacco already had modified the look of the top-of-the-line SEL model by reducing the amount of chrome to give the car a more discreet look, in keeping, he says, with "the ambiance of the times."

Further, Mercedes had to avoid a sharp break between the new model and its predecessors, in order to prevent the earlier model from being dated overnight, which has been the case with most Detroit cars.

Sacco, an elegant, bearded man who favors pin-striped suits, reflected: "We found the main ingredients in our S-class, but we had to simplify the visual message. We had to stress the main design elements, making them starker and more obvious, with a more clearly defined body. We had to imprint the shape in the eye and mind."

The result was a sleek shape with a lower hood, a more slanted front windshield and a higher trunk--what one executive calls a "sophisticated wedge." It was designated 190 because the first model had a 1.9-liter engine.

There were billions of dollars riding on the design--in reputation, new plant and future sales.

"Designers always live dangerously," Sacco said, "but in the case of the 190, I always had a good feeling about the acceptance of the car." Sacco's feeling proved accurate: The automotive press was enthusiastic, though the public was hesitant at first.

"It was half a year until it was fully accepted," Hinrichs said. "The customers were getting a smaller Mercedes at the same price. We had to get them into the car, to drive it. Once they did, the future of the 190 was assured."

BMW sources suggest that much of the popularity of the Baby Benz was at the expense of Mercedes' own mid-range models. Mercedes officials say that half of the new sales were from Mercedes buyers; the other half, they say, represented first-time customers who were lured away from other makes, including 30% from BMW buyers.

The success of the 190 led quickly to the introduction of the new 200-300 middle-range series, which looks like a larger 190 and was introduced this fall in America. It has been extremely popular in Germany.

Mercedes' sales future seems assured well into the 1990s. Officials in Stuttgart say that a recent survey by an automotive journal showed a fidelity rate among Mercedes buyers of 90%, while BMW customers listed only a 73% repurchase rate.

Stabilized Work Force

Both firms show a steadily ascending sales curve, not the jagged ups and downs of the typical Detroit auto.

"This means we have a stabilized work force that is not subject to periodic layoffs," one Mercedes executive said. "And that means we can expect much better quality in our production lines."

BMW expects no improvement in sales in 1986 because production is at capacity and additional output will have to wait for the opening of a new plant in Regensburg in northeastern Bavaria.

BMW officials, stung by criticism that the firm is losing its sporty image, point out that it has doubled its sales in the last 10 years and that Mercedes sales have gone up by only a third in the same period.

Mercedes believes in controlled growth and expects to see the sales curve continue to rise.

"Competition with BMW keeps us awake," a Mercedes official said. "Our problem is that, the more successful you are, the more vulnerable you are to anything that smacks of non-success."

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