Heads Up, Hollywood: China Is Taking Your Mercedes

Mercedes-Benz GL

The carmaker operates nearly two dozen dealerships in and around Los Angeles, yet some of its most popular vehicles are suddenly scarce.

Mercedes-Benz operates nearly two dozen dealerships in and around Los Angeles, yet some of its most popular vehicles, particularly the M and GL SUVs, are suddenly scarce. When demand outpaces supply -- which appears to be happening at big-city Benz dealers nationwide -- it begs a simple question. Mark Barsoomian, general sales manager at Mercedes-Benz of Beverly Hills, tells THR.com that the shortages are real, but "there's no ghost in the machine driving up demand."

What, then?

Blame the Chinese.

Mercedes recently posted its best year-to-date sales ever: 141,950 cars in the U.S. in the first half of 2013. That comes after nearly four straight years of month-over-month sales growth. Now, the Stuttgart-based carmaker is taking a new tack in what has been a feverish but largely quiet sales push in still-emerging markets, especially China.

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As recently as 2010, China saw its own shortages of Mercedes, BMW and Audi models. Well-heeled customers paid tens of thousands in markups for a chance to cut in line -- even though they still waited months for the cars to arrive. Last month, Mercedes announced a sales initiative aimed at raising brand awareness among Chinese buyers and cultivating relationships with existing customers, calling China the “most important passenger-car market for the future.”

Mercedes’ China initiative calls for 75 new dealerships in the region this year, growing annually by about 50 dealers in cities where the brand hasn’t yet put down stakes. (The company has already poached Audi’s China-based sales manager, Benjamin Auer, to head the operation.) A key element in Mercedes’ efforts is an expansion of local production for popular C, E, GL and GLK-class models. That effectively unlocks higher profit margins that would’ve gone unrealized had the automaker chosen to import from elsewhere.

But until production ramps up in China, torrid demand there will continue to contribute to global supply shortages thanks to rebounding economies and growing consumer confidence worldwide, particularly in the U.S.

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Two long-standing rivalries with Audi and BMW burn bright on every continent where Benzes are sold, no more so than in China, which boasts the biggest luxury-car market on the planet and where Audi is -- and has been for some time -- the best-selling luxury brand. (BMW is No. 2 and Mercedes is No. 4). Audi sold a record 42,140 cars and SUVs in China in May alone, with sales primarily driven by the Q3 mini-SUV and the China-specific, long-wheelbase A4 and A6. Long wheelbase models are particularly popular in China. Xinhua-based newspaper China View reports the demand for chauffeur-driven cars is growing in the nation, where much like the American car culture of the ‘60s and ‘70s, a bigger car -- denoted with a letter “L” in its badging, for long wheelbase -- connotes prestige.

Speaking to the limited supply of the brand’s most sought-after models in Los Angeles -- the C, E, GL and M -- Mercedes Benz of Beverly Hills’ Barsoomian likens the situation to that of Apple iPhone releases: “They’re usually sold out from day one.”