Even Mercedes Hits a Few Speed Bumps

Its image is up there on the top floor with Prada, Tiffany and Baccarat, but for thousands of Mercedes-Benz buyers these days, reality is down in the bargain basement.

From Newport Beach to Newport News, complaints keep rolling in: Mercedes just isn’t making ‘em like it used to.

Indeed, the brand has fallen from the top of the heap in most major quality and durability surveys in the United States and Europe, and top management at parent DaimlerChrysler is scrambling to make fixes.

The problems range from the merely bothersome -- brake dust that dirties the cars’ expensive alloy wheels -- to the insufferable.

One owner says his $145,000 V-12-powered S600 sedan sits in his garage in Virginia because the doors and trunk won’t open and the battery keeps dying.

Although Mercedes’ U.S. sales have not suffered so far -- they have nearly tripled since 1995 -- the cars have lost their top-selling position in the luxury category to the Lexus division of Toyota Motor Corp.

And it won’t take too many more reports such as last week’s J.D. Power & Associates durability study to start taking a toll on sales, analysts and market- ng specialists say. The study ranked onetime quality leader Mercedes-Benz 26th out of 37 brands sold in the United States, based on complaints from owners of 3-year-old models.

Addressing Problems

Most of the models in the Power study have been revised in the last two years, and many of the problems have been fixed or are being addressed in redesigns of the vehicles, said Johannes Reifenrath, spokesman for the Stuttgart, Germany-based automaker.

Mercedes also continues to rank high in surveys for the mechanical guts of its vehicles: engines, transmissions and the like.

What’s more, the company contends, Mercedes’ durability remains among the best in the world -- the Power report notwithstanding. In the United States, 77% of the nearly 3 million Mercedes-Benz cars sold since 1952 still were registered as operating vehicles at the end of last year, said Donna Boland, spokeswoman for New Jersey-based Mercedes-Benz USA.

For some customers, however, such numbers aren’t so convincing.

Suzy Valentino, an 18-year-old Orange resident, is just the type of trendsetting young buyer Mercedes and other carmakers are trying to woo. But she recently traded in a 4-month-old Mercedes for a new Cadillac sport utility vehicle because of problems with the Benz, taking a $7,500 loss in the process.

She bought her 2003 Mercedes C240 sedan, a $34,000 “entry-level” luxury car, in February with earnings from her modeling career.

It “was nothing but trouble from the start,” Valentino said. Within a few weeks of driving away from the dealership in Anaheim, she recalled, the electrically operated sliding sunroof stopped working -- in the open position and during a rainstorm.

In just four months of ownership, Valentino said, she took the car back for repairs four times for the sunroof and four other times for problems with warning lights that inexplicably flashed on and off, a taillight that quit working and a brake pedal “that shook and bounced anytime I stepped on the brakes.”

Then in May, fed up with an expensive car that wouldn’t run right, Valentino drove to a nearby Cadillac dealership and bought a 2003 Escalade. She wangled a trade-in allowance of $26,500 for the nearly new Mercedes -- 22% depreciation in four months.

“I will never, ever, look at another Mercedes again,” she said. “The whole experience was just awful.”

The dealership, Caliber Motors, declined to comment.

Boland, the company’s U.S. spokeswoman, says Mercedes prides itself on its customer service but does have customers who, “no matter how hard we tried, we just couldn’t satisfy.”

In the annual J.D. Power survey of customer satisfaction with dealership service departments, Mercedes slipped about 22 points, from a position slightly above the industry average score in 2001 to below the 2002 average. The report for 2003 is due later this month.

The big problems with current models seem to center on the incredibly complex electronic systems -- including computer-controlled stability, traction and braking systems -- that underpin most Mercedes vehicles.

“Their quest for high-tech advancements has been a challenging one, as it has for the entire industry,” said Rex Parker, an analyst at AutoPacific Inc., a Tustin-based automotive market research firm.

“Automotive electronics have to perform in a variety of conditions that your home computer would never accept,” he added. “It is hard just to engineer these systems, let alone to engineer them to be durable.”

‘Mercedes-ness’ Is Key

Though acknowledging problems with some electronics systems, including door locks, voice-controlled navigation and stereo systems and the warning light arrays that monitor dozens of vital functions, Mercedes has no intention of backing off.

“Things that go wrong are not acceptable, and we have to focus on these issues,” Reifenrath said. “But we also have to maintain the Mercedes-ness of Mercedes. We have no option but to keep developing innovative items. That’s the competitive edge this company has.”

For all that, customers still complain of cheap plastic interior parts where real wood and metal once was used, paint that chips and fades and upholstery glues that give off ill-smelling fumes on hot days.

Autospies.com, a San Diego-based Internet magazine devoted to following the goings-on at the world’s top luxury and performance car firms, has written a number of stories about Mercedes’ quality problems -- including the inability of the company to install promised navigation systems in early models of its new-for-2002 E-Class cars.

Although some customers paid in advance for the delayed systems, Mercedes discovered when they arrived in the United States this spring that they weren’t compatible with the wiring that had been installed for them.

Watchdog on the Case

Autospies founder and Chief Executive Donald Buffamanti, a former computer industry executive, said he had received “7,000 to 10,000 complaints” from consumers about Mercedes’ offerings since launching the Web site two years ago.

Mercedes’s biggest problem child, Buffamanti says, is the M-Class SUV, introduced in 1998 and built in Tuscaloosa, Ala. Early reports found trim pieces falling off the trucks as they rolled out of the factory -- though analysts say many parts have since been upgraded.

Despite the quality glitches, Benzes still sell well in the United States, a major market for its top luxury models.

But rival Japanese brand Lexus, a relative upstart with less than a fifth of Mercedes’ 100-year history, sprinted past Mercedes sales three years ago and has been widening the gap ever since. Through June of this year, Lexus had sold 118,256 cars and trucks in the United States; the comparable figure for Mercedes-Benz stood at 105,888.

One of those Lexus fans is Michael Rothberg, a New Jersey physician.

Early last year, he had abandoned the Lexus brand and bought a $101,000 Mercedes SL500 Designo special-edition sports car after seeing it in a dealership and “falling in love at first sight.” But the car has spent 100 days in the shop for problems that include “foul-smelling” upholstery glue that “makes my wife sick,” he said. The result: Rothberg is switching back to Lexus.

Lexus executives say that although as many as 15% of their more expensive models are sold to former Mercedes owners, defections from the German brand don’t account for a significant portion of total Lexus sales.

Marketing specialist Peter Sealey suggests that a lot of Lexus customers might have been Mercedes buyers had the Japanese company not been so successful with its pricing strategy.

“Mercedes was dominated by engineers and used cost-based pricing” in which the company simply added up the costs of making the car and then tacked on a profit, explained Sealey, a former Coca-Cola Co. marketing head and an adjunct professor of marketing at UC Berkeley.

Costing vs. Price

When Lexus entered the U.S. market, it inverted the approach and used “price-based costing,” Sealey said. The company decided to sell a high-quality luxury car for $38,000 -- about $10,000 less than the comparable Mercedes at the time -- and then built the car to fit the price.

“Lexus was a marketing success. Mercedes was an engineering success but marketing failure,” said Sealey, who knows something about marketing failures -- he managed the launch of “New Coke” at Coca-Cola.

Today, Mercedes is selling cars at prices of $29,995 to almost $130,000 and is introducing the ultra-luxury Maybach for more than $300,000 to compete with the Rolls-Royce and Bentley brands.

To Sealey, that’s a stretch that breeds identity problems: “BMW is the great performance car. Lexus is the great quality car. Rolls-Royce is the great prestige marque. Mercedes is caught in the middle -- not a place a brand should ever be.”

Some analysts say Mercedes’ quality decline began with its decision in the early 1990s to expand its lineup beyond the battleship-like sedans and sleek sports coupes and roadsters for which it had become famous.

“They went into things like the SUV market with the M-Class and into other products that you don’t see in the States,” said Stephen Reitman, London-based auto analyst for Merrill Lynch Global Partners. “They expanded too rapidly and ran into quality problems. They went from being a company that was used to launching one new product every two years to doing multiple product launches every year.”

Reitman, and several other European analysts who asked not to be quoted because of company prohibitions about speaking to the media, said executives of what then was Daimler-Benz grew worried about escalating production costs in the early ‘90s. Executives then made a policy decision to start trimming costs by notching down specifications for many components.

“But they committed the cardinal sin of having their cost cutting become obvious to their customers,” Reitman said, by reducing the quality levels of items such as upholstery fabrics, instrument panel trim and plastic knobs and switches.

Reifenrath, the corporate spokesman, said company executives maintained that there had never been a decision to save money at the expense of quality.

In fact, any of the problems that have caused Mercedes’ rankings to spiral downward in buyer satisfaction and long-term durability studies over the last five years could be more properly described as customer satisfaction or expectation issues than quality issues.

European-specification cup holders made to handle small cups of coffee, for example, don’t stand up well when stuffed with American consumers’ Big Gulps. Mercedes executives argue that dissatisfaction with cup holders is not a quality issue. But don’t tell that to a customer who pays $60,000 to $100,000 for a car that can’t handle a 36-ouncer.

And don’t even try to talk quality versus expectations with Paul Alem, owner of multiple Mercedes-Benzes.

The 26-year-old Washington-area apartment operator is a car buff who buys and sells an average of a dozen vehicles a year. Since the money started rolling in for him in the mid-1990s, Alem said, at least half of his annual purchases have been Mercedes-Benzes.

The Ethiopian immigrant owns a two-year-old S600 performance sedan, a 2001 E55 performance sedan, a 2002 CLK convertible, an ’02 C-Class sedan and two of Mercedes’ $80,000 G500 sport utility vehicles.

That’s about half a million dollars of Mercedes Benzes. But Alem’s Benz binge stopped last year, and he swears he’s going to sell them all and never buy another.

For one thing, the S600 sits in his garage, plagued by failed hydraulics and a constantly draining battery.

“The last straw was when I bought the two G500s and they both started having problems almost immediately,” Alem said. “For that kind of money, there should be no problems with doors that don’t work.”