Daimler, BMW Surge on ‘Bottomless’ Appetite for German Luxury

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Daimler, BMW Surge on ‘Bottomless’ Appetite for German Luxury

July 16, 2010, 6:05 PM EDT

July 17 (Bloomberg) -- Daimler AG’s E-Class Mercedes-Benz, Bayerische Motoren Werke AG’s new 5-Series and Volkswagen AG’s revamped Audi A8 are attracting wealthy buyers in the U.S. and China, prompting the German carmakers to boost deliveries.

Daimler raised a full-year forecast yesterday after second- quarter profit beat analysts’ estimates. BMW this week lifted its 2010 sales and earnings projections. Audi’s first-half increase in vehicle sales beat both BMW and Daimler’s.

“The Chinese appetite for German nameplates is absolutely bottomless,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG. “There are more than 900,000 millionaires in China and many of them are bursting to show off their wealth.”

The German carmakers are posting gains in China, which passed the U.S. last year as the biggest auto market, as new models attract buyers. BMW has said the new 5-Series is sold out, while Audi is benefitting from the new A8 sedan. Daimler’s Mercedes-Benz aims to add market share with an extended E-Class sedan, its first vehicle for Chinese consumers.

Mercedes-Benz, BMW and Audi are adding workers and cutting summer factory breaks to boost production as demand for luxury cars returns quicker than they had planned.

Daimler has hired 1,800 temporary workers and added Saturday shifts at German assembly plants making the SLS gull- wing sports car, GLK sport-utility vehicle and E-Class convertible. Audi is putting on extra shifts. BMW has added 5,000 temporary workers and will give all employees covered by a wage agreement 1,060 euros on average in one-time payment.

Flared Headlights

BMW’s new 5-Series, which abandoned the flared headlights and small kidney-shaped grill of the previous version, is sold out in all markets and customers are waiting three to four months for deliveries, the Munich-based carmaker said June 23. The sedan, which starts at $44,550 in the U.S., went on sale in the country last month and in Europe in late March.

“German premium manufacturers have really worked to improve the quality of their cars,” said Robert Heberger, an analyst at Merck Finck & Co. in Munich. “Daimler’s new E-class is of a much better make than its predecessor. BMW benefits from a positive product cycle. The 5-Series is brand new and such state-of-the-art models are always in demand.”

BMW, the largest luxury carmaker, this week raised its 2010 forecast, predicting sales will rise about 10 percent to more than 1.4 million cars and sport-utility vehicles, while the operating margin at the automotive unit will exceed 5 percent.

BMW increased first-half group deliveries 13 percent while second-ranked Mercedes-Benz posted a 12 percent gain. Six-month deliveries at Ingolstadt, Germany-based Audi, which aims to dethrone BMW by 2015, advanced 19 percent.

‘Death Bells’

“It’s really the other side of the 2009 coin, when everyone was ringing the death bells,” said Sascha Heiden, senior analyst at IHS Global Insight in Frankfurt. “BMW and Mercedes field relatively new models with their 5-Series and E- class, so that may help the German companies attract more buyers.”

Daimler yesterday reported second-quarter operating profit of 2.1 billion euros as sales increased 28 percent to 25.1 billion euros. The carmaker was forecast to post Ebit of 1.52 billion euros on revenue of 22.7 billion euros, according to the average estimates of analysts compiled by Bloomberg.

Mercedes-Benz second-quarter production output of “well over” 300,000 vehicles will be close to the volumes achieved before the start of the financial and economic crisis, Daimler said May 28.

Luxury-car makers are among the best performers this year, with BMW up 33 percent and Daimler gaining 16 percent on the Frankfurt exchange. The 11-member Bloomberg EMEA Auto Manufacturers Index added 2.9 percent.

German Exports

“German luxury carmakers are benefiting from their product portfolio and their regional positioning especially in the surging North American and Chinese markets,” said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg. “Especially in China we’re seeing growth that’s way beyond expectations and that won’t be easily derailed even if economic growth slows.”

BMW plans to export 10,000 3-Series vehicles built in Munich to China this year to meet additional demand. Along with the additional temporary workers, the carmaker is in talks with unions to expand regular shifts beyond the average 38 hours, BMW said this week.

“German luxury cars are a synonym for status, comfort and safety,” Gommel said. “Those are the traits you want to embody when you’re courting future partners for business. In China, buying a German luxury car is seen like buying a ticket to future wealth.”

--With assistance from Cornelius Rahn in Frankfurt. Editors: Kenneth Wong, Jim Silver

link:

http://www.businessweek.com/news/2010-07-16/daimler-bmw-surge-on-bottomless-appetite-for-german-luxury.html