After its six-passenger R-class crossover suffered an identity crisis, Mercedes-Benz has bumped up sales by lowering the vehicle's price and targeting a different group of buyers.
Since launching the R class last fall in the midst of a slumping large-truck market, Mercedes-Benz has sold 10,029 units. It put $5,000 in dealer cash and a $499 monthly lease offer on the vehicle in December. The base price for the six-cylinder R350 model is $48,775, including shipping. The V-8-powered R500 price starts at $56,275, including shipping.
Mercedes also switched its marketing from empty nesters to families. Sales in February and March averaged 2,192 units a month - roughly what Mercedes needs to reach its U.S. sales target.
Mercedes-Benz USA executives won't say what sales targets are for the R class. But before launch, executives at headquarters in Stuttgart said the R-class' global sales goal was 50,000 vehicles a year. Half of that was to be for the United States.
Ron Mueller, department manager for luxury sport utility and touring vehicles at Mercedes-Benz USA, says sales in the R-class segment dropped between 10 and 20 percent last year, depending on which vehicles are included.
Mueller says R-class competitors include the Cadillac SRX, Chrysler Pacifica, Infiniti FX, and Volvo and Audi wagons. Analysts say full-sized SUVs, including the Lincoln Navigator, Hummer H2 and Infiniti QX56, also compete with the R class.
Other competitors are waiting in the wings. BMW will enter the segment with a similar vehicle and a smaller people carrier in 2008. And Audi launches its Q7 SUV in June.
While others have called the R class a large station wagon or small minivan, the brand's executives say it is in a new segment. Mercedes recently completed an online poll of would-be-buyers of the R class who said the vehicle is "something different and something new," says Mueller.
And the R class is bringing in new buyers. About 75 percent are conquests, he says.
Families, not nesters
Mercedes says launch marketing pitched the vehicle at the wrong buyers - wealthy empty nesters. Mercedes positioned the R class as "a brand new way for six adults to travel."
Mercedes found that young families are shopping the R class, which raised questions about the vehicle's pricing.
The confusion over the target customers is surprising, considering Mercedes started marketing the crossover more than two years before launch. Last June, after an 18-month Internet campaign, Mercedes-Benz said it had a list of 98,000 potential buyers. The vehicle was first shown in concept form at the Detroit auto show in 2002.
So what went wrong?
Todd Turner, an analyst with Car Concepts Inc. in Thousand Oaks, Calif., says Mercedes got the entire concept wrong. The styling isn't sporty enough for Mercedes.
"In this market people expect Mercedes-Benz to be luxurious, sporty and just about anything that the R class isn't," Turner says. "It's too expensive for the styling statement that is has."
Response to GM
Mueller says that Mercedes-Benz pumped up incentives in December because segment sales were dropping. Also, General Motors was cutting sticker prices on its products, he says.
"We had to respond as quickly as we could," Mueller says. "You can't reprice the vehicle in the middle of the model year."
According to data from the Power Information Network, Mercedes-Benz outspent competitors on incentives in March with more than $9,000 on both the R350 and R500.
The average transaction price has fallen from $62,182 in October to $54,018 in December and $50,248 in March, according to Power data. Mueller says initial production was heavily skewed toward fully loaded models to make sure the plant in Alabama could manufacture a vehicle with all options.
Fletcher Jones, owner of the Fletcher Jones Management Group with Mercedes dealerships in Honolulu; Fremont and Newport, Calif.; Las Vegas; and Chicago, says Mercedes-Benz acted correctly to refocus marketing.
"The program has been good and aggressive," he says. "It's a tremendous family car that husbands aren't ashamed to drive."
You may e-mail Diana T. Kurylko at [email protected]