Analysis: Mistakes in strategy led Mercedes to accumulate losses in Brazil

The internal crisis that made Mercedes-Benz announce the dismissal of 3,600 employees in São Bernardo do Campo (Greater São Paulo) does not come from now. The automaker has been accumulating losses for at least 20 years, resulting from strategies that did not work in Brazil.

The repeated mistakes were not tolerated by the current management of the automaker in Germany, which promotes a global restructuring.

The problem that currently affects the heavy vehicles division –which is one of the most promising segments in the country– grew when the brand decided to produce passenger cars in the domestic market.

The first attempt began in April 1999, the month in which the Juiz de Fora (MG) plant was inaugurated. There was capacity to assemble 70 thousand units of the compact Class A per year, but sales did not take off. The assembly line came to a halt in 2005, with the production of just 63,000 cars over six years.

The investment – ​​estimated at the time at US$ 820 million (R$ 4.28 billion) – was never recovered. The “Mercedinho” was launched in the midst of the currency crisis.

In addition to the downturn in the economy, the car was not well accepted by the public. It was tiny and, in January 2001, cost from R$ 33.5 thousand. At the same time, the average Honda Civic sedan was sold for R$30,200 in its simplest version. The values ​​are based on the Fipe table.

The mining unit also had the assembly of the C-Class sedan, but these vehicles were made exclusively for the North American market. There was also the CLC coupe, produced for Brazil for a short time.

After these temporary solutions, the Juiz de Fora plant started to assemble trucks. Today, however, only semi-finished cabins leave there.

The negative experience of the past was not enough to make the brand give up on domestic passenger cars. With the Inovar-Auto program (2012-2017), which granted tax incentives to companies that invested in technological advancement and local production of vehicles, the Germans started a new venture.

In February 2015, the automaker started the construction of a factory in the city of Iracemápolis (São Paulo countryside). The macro-region, which also houses Toyota and Honda plants, has taken on the role that ABC once had.

Production of the C-Class and GLA models began in March 2016, amid yet another economic crisis. R$ 600 million were invested.

When the time came to decide on the assembly of the new generations of these cars in the country, the matrix chose to close the factory in São Paulo. The last units were made at the end of 2020. Today the unit belongs to the Chinese Great Wall Motors.

The problems were not concentrated in Brazil’s assembly lines. In October 2012, Mercedes announced an investment of US$ 170 million (R$ 887.7 million) in Argentina. The objective was to assemble the Vito van at the plant in La Matanza, in the metropolitan region of Buenos Aires. The first units were produced in 2015.

The model arrived on the Brazilian market, but production ended in February 2019. The amount invested was not recovered and, once again, the economic crisis and low sales were the reasons disclosed by the brand to justify the stoppage.

There was another recent loss, this one at a global level: Mercedes gave up producing the mid-size Class X pickup in Argentina after the model showed a deficit in European markets.

The utility shared the Spanish assembly line with Nissan Frontier, which remains one of the best-selling vehicles in the category worldwide.

European manufacturing of the Mercedes pickup began in June 2017, but the interruption was announced in May 2020. The brand invested in the modernization of Nissan’s Argentine factory, but no X-Class came out of there.

It is these problems that led the German automaker to operate in the red in Brazil, with an apparently more difficult situation than that of competitors who also produce locally. There are rivals both in the heavy vehicle segment, such as Scania and Volkswagen Caminhões e Ônibus, as well as among luxury car brands, such as Audi and BMW.

But while it is doing poorly in the country, the group is registering global growth. In the last quarter of 2021, the reported profit was 12.7 billion euros (R$ 65.73 billion). Profitability is the positive side of the restructuring process.

Since February of this year, the company has been renamed Mercedes-Benz Group AG (formerly Daimler Group AG). The truck unit was renamed Daimler Truck – an independent company, listed on the Frankfurt Stock Exchange.

In other words, the losses generated by the passenger car sector will no longer be shared with the heavy vehicle segment. This movement helps to understand what is happening now.

The layoffs in São Bernardo do Campo are part of this restructuring process, which should also result in the production of electrified vehicles. Part of the components will come from third-party suppliers.

The resumption of domestic production of passenger cars has become unfeasible. There was a repositioning of the products, which are more expensive and equipped. Today Brazil receives Mercedes cars imported from Germany, Mexico and South Africa.