As the automotive industry navigates the challenges of transitioning to electrification, Mercedes-Benz is making strategic adjustments in response to changing market dynamics. With rising interest rates deterring U.S. buyers from high-end models, the luxury automaker has announced plans to pivot towards entry-level vehicles, incorporating a greater mix of combustion-powered cars in its lineup.
During the pandemic, many automakers adopted a margin-focused strategy, capitalizing on short supply, surging demand, and low interest rates to produce high-end luxury cars. However, with supply levels normalizing and interest rates climbing, this strategy is no longer as effective.
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To maintain sales momentum, Mercedes-Benz informed dealers at a January meeting that it would shift its supply mix towards lower-priced models and reduce its focus on electric vehicles (EVs). The company plans to prioritize production of entry-level cars like the GLC, while increasing output of combustion cars and hybrids to meet U.S. customer demand.
Analysts view this strategic shift positively, noting that it reflects Mercedes-Benz’s adaptation to market realities. Ivan Drury, Director of Insights at Edmunds, commented, “Mercedes is keeping in touch with reality instead of trying to alter it. Entry-level vehicles allow consumers to get a taste of what is to come if they can afford to stay within the brand’s family.”
Dealers, who have expressed concerns about stocking electric vehicles, welcome the change. One dealer stated, “I’d rather have entry-level vehicles with a turn rate of less than 30 days that I can make a small profit on than carry $100,000 [electric] vehicles for half a year and lose money on.”
Despite the push for electrification, some high-end customers still prefer gasoline engines. To cater to diverse preferences, Mercedes-Benz plans to introduce 25 new and updated models in the U.S. this year, including plug-in hybrid variants of the S-Class and GLE models, as well as an electrified GLC crossover.
Senol Bayrak, Sales Director at Mercedes-Benz USA, emphasized the company’s commitment to offering a balanced mix of ICE (internal combustion engine) and electric products, stating, “We’re very happy to bring into the market what is needed, which is the right balance of ICE products, electric products and now also adding PHEV into the mix.”
