Mercedes-Benz: More EVs that fit buyers' lifestyles, please

Last year was an important checkpoint on Mercedes-Benz's path to electrification.

It marked the first full year of EQS sedan sales, as well as the introduction of the EQE sedan and the EQB crossover. An EQE crossover is coming soon.

Joseph Agresta Jr., chairman of the Mercedes-Benz Dealer Board, thinks the products are exactly what retailers need.

"I think they did it right coming in there and following [the EQS] with this combination of sedans and SUVs," he said. "We're still in an SUV market in every sense. [The electric utility vehicles] fit the lifestyle for the current SUV buyer. That's really important. We shouldn't need to have our customers adapt to our vehicles. They should be able to have the vehicle we're offering fit into their lifestyle."

Agresta, president of Benzel-Busch Motor Car Corp., which has Benzel-Busch Mercedes-Benz in Englewood, N.J., and Mercedes-Benz of Orange County in Harriman, N.Y., said he's looking forward to another profitable year as supply levels begin to normalize.

Agresta, 56, spoke with Staff Reporter Michael Martinez about inventory expectations, the electric vehicle transition and Tesla. Here are edited excerpts.

Q: What's the inventory outlook for Mercedes-Benz dealers in 2023?

A: I think we're going to continue to see inventories normalize and stay at healthy levels; not too high and not too low. We're looking to maintain a number of vehicles on the ground that help our sales turn and that we can satisfy the demand that's out there in the marketplace. We want to capture it. I think we'll have vehicle availability across our models where that will happen.

Where we might see a little bit of imbalance right now is in electrics, partially because of adoption. West Coast might be short on some of that. East Coast or Northeast might be heavier. That's where a balanced day's supply and more responsible allocation system will be helpful.

I think we'll see less disruption in 2023, although there will be some disruption. Hopefully it will be mitigated from what it was. I think we'll be in a much more normal inventory cycle.

Has Mercedes-Benz improved its communication with dealers about production levels and inventory bottlenecks?

We were getting very frequent webinar updates, first weekly and, lately, monthly, looking at what's happening now with production, trying to give us an advanced notice on what the next quarter might look like and what we should start to expect. We also ran into some issues with Mercedes-Benz making a transition in the communications system they use to communicate with their dealers. That was upgraded over the summer. That transition didn't go as well as planned, which created some ongoing communication problems, so that's been something we've all been trying to work through.

What EVs would you like to see added to the lineup?

I think Mercedes-Benz did the right thing coming in at the high end of the market with the EQS. I think it was the right target to start with. It's a spectacularly beautiful product, it drives incredibly well, it has all the fit and finish you'd expect from a Mercedes-Benz and all the technology and features you'd expect. It's going to take us a little bit longer to get to the entry-level part of the market. Right now our EQB is a small SUV in that segment but we will also have additional vehicles positioned at that price point. It's going to take a little longer to get there, but we're all anxious to see how this helps adoption as we get into different price points.

How can you combat Tesla's quick rise among luxury brands?

A couple things. I think Tesla, because they were first to market, had first-mover advantage for a very long period of time. They do have good battery technology, they got it to market quickly. They built a good product. I don't feel like it's true luxury. It doesn't feel like a true luxury experience when you buy it or drive it, at any of the levels.

I think their success is largely around the fact that nobody else was playing in that space. A lot of early adopters only had one brand choice.

As you're looking at the landscape of electrics now, I think Tesla's faced with some challenges. They haven't had the burden of legacy costs and legacy vehicles out there that they've needed to worry about servicing and maintaining. I think the market changes now. They're starting to sound more and more like they have to play a traditional manufacturing game.

The real downside I think they have is that they don't have a dealer network behind them. We absorb some inventory, we take residual risk on with our pre-owned programs. I think Tesla's going to have a huge problem when these cars are coming back at the end of their life cycle. Then they get into some of the servicing problems when they don't have the capacity out there. These are all areas where I think Mercedes-Benz is really well-positioned. We have a really well-run dealer body.

What are your top priorities as council chairman?

As I think about this position, it's a bit of a balancing act. The understood portion of the job is that I have to be here to protect enterprise value for the dealerships. But there's the balancing act of also having to protect brand value for the manufacturer. Without those two components in strong balance, this doesn't work. You can't have strong enterprise value if you don't have a strong brand of equal value.

You want your best money in the marketplace being attracted to the brand. You want your best dealers investing in the best brands, and those brands want the best teams. It all becomes a self-fulfilling promise. If the dealer board is doing a good job working with the executive team protecting enterprise value and brand value, and if the manufacturer's executive team is doing the same thing, this works really well. At the highest level, that's the mindset I want to establish.

From some of the initiatives, I'd like to make sure we have effective communication, and a good cadence of communication, with the dealers. I think the dealers need to be better informed as to what are the topics we're taking on as a dealer board, what are we accomplishing and why. We'd like to keep the dealer body knowledgeable about the opportunities we see in the marketplace, as well as help dealers mitigate risk. If we do this well, I think we can significantly help the Mercedes dealer body in both of those areas.

Is subscription service for features, like a performance boost or heated seats, a good idea?

I think this is going to be one of those areas that has to be a very delicate balance. I think there are some services that do provide real value. You could see them clearly fitting into a subscription role. If I think about some of the offerings Mercedes has, a perfect example would be their guard system. They have a subscription service that has vehicle monitoring, almost like an alarm company would. Features like that, where there's truly an added service. Navigation system updates, those kinds of things. Those are ongoing software programming things that will take real value over time.

Hard features in the vehicle? I have a really hard time seeing how those are value-adds for a customer without them looking at it as nickel-and-diming them. I think BMW got beat up on this in South Korea over heated seats. To charge a subscription for that is a difficult thought. I think that's where this balance will come in; what are good value-added services and which should just be included in the price of the vehicle?

How are dealers reacting to the company's decision to reorganize field support based on throughput? Do you believe it's a good idea?

Change is always something that creates anxiety, especially when it comes to support levels for dealers. We definitely rely heavily on field support in our daily operations. The field teams can provide a lot of transactional support trying to get more information about individual vehicles, help with problems on service and so on. So whenever those things will be changing there's a lot of anxiety about it because we rely so much on it. The transition doesn't kick off until this year. We know what it looks like, but it hasn't taken effect yet, so I think Mercedes is heading in a direction to make sure the support levels are in place, but it's a bit of an unknown for right now.

I understand the rationale for doing what they're doing. I think there are dealers who are definitely concerned about this and I think some of it will just have to play out. Some of the things we're happy about that we're seeing is that allocation won't be tied to these performance groups, so it will still be tied to an individual dealer's performance, which really puts it back into your individual dealership's hands. I think that's a comforting fact for a lot of dealers. Mercedes-Benz is moving in a really good direction with their allocation program.

Dealers have expressed clearly what their individual levels of support are that they need. I think we have to let the manufacturer decide how they can reorganize best to support us. What dealers always hate is when manufacturers tell us what they want us to do and how they want us to do it. If you're going to do that, you don't need me as a dealer.

What they need is to tell me what their goal is and let me figure out how to get there. That's what we do really well as dealers. You want to give us the freedom to create new processes and use new technologies.

Mercedes-Benz, I believe, has the best dealers assembled out there. And if I tell them what I need, I need to give them an opportunity to put it together in a way that works for them but also provides that level of support for me. I think that's about as fair as I can be with them. Will they succeed? I don't know because it's not been launched yet. But I'm confident they're trying to do that.

Do you believe it's a smart idea for AMG to go electric? Will loyalists make that move?

I think the market will move to EV regardless of whatever holdouts might be in the marketplace. I think we'll be a full EV marketplace at some point in the future. I don't think it's in five years, I think it's further out than that. I'm a real horsepower junkie; I love the feel of a V-8 or bigger. I think we'll all have to accept the better technology for sustainability is going to win here. It's just the nature of how this market has to go. Manufacturers have all made their announcements. At some point, no matter what, we're not going to have internal combustion engines available. The nice part about performance aspect is that EVs perform incredibly well, and they're super fun to drive. The motor just goes. It's exciting and fun.

What can you do to ensure 2023 profits stay strong?

There's a few things, and there's some things the manufacturers can help us with. There seems to be a willingness and desire, from Mercedes-Benz at least, to help keep inventories in check and make sure the right vehicles are at the right dealerships, so that we're not getting backed up. There's no such thing as a perfect allocation system, and I don't think we'll ever create one, but if we can refine it and make it more responsive … that's a really critical factor for us to keeping gross profit levels at a good number.

I think the dealer body has done a tremendous job in getting heavily invested in pre-owned operations, which takes a huge burden out of the system for Mercedes-Benz. Keeping residual values high through those programs are all benefits to the manufacturer that will extend to profitability. We know new-car profit levels will continue to come down from their high during the pandemic, but we want to find a balance in there. Hopefully if there's a manageable supply on the new-vehicle side and if we have strong pre-owned operations, we should be able to sustain long-term profitability as dealers.