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Even With Pressure On Earnings, Mercedes-Benz Seeks To Increase Direct Sales.

Even With Pressure On Earnings, Mercedes-Benz Seeks To Increase Direct Sales.
In light of the uncertain economic climate, Mercedes-Benz Group on Friday issued a warning about lower earnings this year and announced plans to increase direct vehicle sales in important markets like Germany and Britain while maintaining its focus on high margins on stable volume.
Even though sales at the Mercedes-Benz Cars business are anticipated to remain flat, the premium automaker anticipates a lower adjusted return on sales for its cars division in 2023 of 12%-14% and group earnings slightly below 2022.
It added that the outlook was better in the United States and cited sluggish demand in Europe, a slow recovery from coronavirus restrictions in China, high energy and raw material costs, and inflationary pressures to support the forecast.
Sales of premium vehicles, whose high margins have thus far allowed the automaker to maintain profits despite rising costs, are still anticipated to increase slightly from the previous year.
The German company's prediction is in line with industry-wide cautions about a difficult year to come. For example, the German auto association projects that global vehicle sales will total around 74 million this year, up 4% from last year but still 8% below pre-pandemic levels.
According to Chief Financial Officer Harald Wilhelm, balancing price and volume is Mercedes-top Benz's priority because net pricing increases accounted for the majority of the company's earnings growth last year. He also said, "We remain on the cautious side."
According to Wilhelm, Mercedes-Benz remains on track to meet its 2020 commitment to reduce fixed costs, capital expenditures, and research and development spending by more than 20% from 2019 levels by 2025.
The car company is "Ola Kaellenius, chief executive, said the company was "quietly" transitioning to a direct sales model in a number of European markets, including Britain, and intended to do the same in Germany. He added: "You turn yourself from a wholesaler into a retailer. It completely alters the way you approach managing the company."
Selling directly reduces expenses for the business and allays customers' worries that they might find a better deal at another dealer, he continued.
When asked how the company would protect its market share in China during the switch to electric vehicles (EV), Kaellenius suggested "strategic patience" and noted that the premium EV market in the nation was still in its infancy.
Mercedes-Benz reported a 14.6% margin for 2022 and a 28% increase in group earnings to 20.5 billion euros ($21.81 billion), meeting its forecast for a 13%-15% adjusted return on sales in the cars division.
"Given the rising input cost, we are encouraged Mercedes is putting value over volume and planning with flat volumes in 2023 to protect pricing," Bernstein Research analyst Daniel Roeska.
In addition to proposing a dividend of 5.20 euros per share, up from 5 euros last year, for a total payout of 5.6 billion euros, the company also agreed on Thursday to buy back up to 4 billion euros' worth of shares by 2025.
In a Refinitiv poll, analysts had predicted fourth-quarter earnings of 5 billion euros; instead, they came in at 5.4 billion euros.

Christopher J. Mitchell

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