DAVID FURLONGER: C-ing into the future

To say that Andreas Brand is spearheading the next phase of the growth strategy at Mercedes-Benz SA (MBSA) would be particularly appropriate. When he succeeded Andreas Engling as CEO in May, he was presented with a traditional African spear during a ceremony, complete with dancing and praise-singers, in front of workers at the company’s East London vehicle assembly plant.

Officially, Brand is joint-CEO, with marketer Mark Raine. While Raine works out of Pretoria, Brand is in charge of all East London manufacturing activities.

The spear, which passes from CEO to CEO, signifies power and strength — qualities needed in spades for companies to overcome the global motor industry’s current challenges.

Economic recession, components shortages, war, falling sales in major markets and logistics bottlenecks caused by a pandemic that just won’t go away are testing the mettle of motor industry leadership around the world.

MBSA is not immune. It may be a jewel in the international Mercedes-Benz crown but Brand confirms that, 15 months after completion of a R13bn upgrade to build the new C-Class car range, East London is still not producing at full capacity. Despite operating 24 hours a day, five days a week, he says “constraints”, mainly related to global components shortages, including semiconductor microchips, remain a limiting factor.

Actually, it’s not clear what East London’s production capacity is. For several years, Mercedes-Benz operations around the world have been instructed by their German parent to withhold production and sales numbers. Therefore, monthly industry sales figures published by the Automotive Business Council (Naamsa) are only an estimate — albeit a pretty accurate one — in the case of MBSA.

They show that, so far this year, the company has sold about 7,385 vehicles in SA, and exported 58,479. These numbers do not include Mercedes-Benz trucks and buses, which are calculated separately.

The preponderance of exports underlines MBSA’s role within the global group. If we ignore the assembly plant in China, which builds exclusively for the Chinese market, East London is, in Brand’s words, the “lead plant” for global C-Class manufacture, ahead even of Bremen, in Germany.     

This is the fifth C-Class generation to be made in East London, which exports the cars to more than 80 countries, mainly in Europe, Asia and North America. This makes for complicated manufacturing.      

The plant produces a number of variants of the C200, C300E and AMG C63S 4Matic sedans. Besides left- and right-hand drive versions of each, they are available with traditional petrol and diesel internal combustion engines (ICE), or as hybrid electric vehicles (EVs). Different driving conditions in various overseas markets also require adaptations.

Engineers say there are more than 20 different side panels alone, depending on model and market specifications. Some are specific to EVs, to bear the extra weight of battery packs.

MBSA is the only major SA motor company to build plug-in EVs. These hybrid vehicles, which carry both electric motors and ICEs, are exclusively for export.

The global company has made it clear that it will phase out hybrid and ICE versions from all model ranges in coming years. Brand acknowledges that, long term, East London will also have to follow the all-electric route. For now, most production is ICE cars, though “the hybrid ratio is increasing”.

SA consumers have shown limited interest in EVs so far. MBSA has started to test the market with its imported EQ range. Like his counterparts at other companies, Brand is anxious for the government to show its hand on plans to incentivise the local manufacture and sale of EVs. MBSA is considering making some home-made hybrids available in SA, but Brand is looking first for signs of “initiative” from policymakers.

He would also like to direct more ICE C-Class cars to the market — if demand justified. Less than 10% of cars built in East London are sold locally. The C-Class is the most popular Mercedes car among SA buyers. Imported models, such as the A-Class, E-Class and S-Class, make up the market balance.

There was a time when SA offered Mercedes-Benz its highest penetration of any market in the world. According to Raine, at its peak, the brand accounted for 7.5% of all SA car sales. These days it’s less than 3% — the victim of a general buying-down trend among SA consumers. All mainstream luxury and premium car brands are feeling the pinch.

Raine doubts that any of them will return to the heights of their glory days. For Mercedes-Benz, he thinks 3% is a realistic goal in present circumstances.

Brand says: “If you look at the market profile and our group of potential customers, I don’t think we will strive to return to past market share.” In any case, he says that as a premium brand, Mercedes-Benz is not driven by sales volumes but by operating margins.

MBSA offers those through its manufacturing activity. Engineers say it takes about 11 hours to build each C-Class from scratch. By the time they leave the factory, cars have been through about 200 work stations and processes on their way through the body shop, paint shop and assembly line.

For most, their next stop is the adjacent harbour. This has been a source of irritation for many years. MBSA’s pleas to Transnet to upgrade East London harbour have fallen on deaf ears. Indeed, some Transnet decisions seemed designed to deliberately anger the industrial mainstay of the regional economy.

Besides the plant itself, the company has also attracted dozens of multinational and local components suppliers to East London. Local content in C-Class cars, says Brand, is 35%-40% — which, though short of the SA motor industry average, is an improvement on previous C-Class models.

The harbour is vital to the MBSA plant and to its suppliers — whether for direct shipments to and from the plant, or for feeder services carrying cargoes offloaded in Durban or Gqeberha.

So it is with some relief that Brand reports movement from Transnet. “It is very slight progress, a first step. Transnet has said it may be able to improve the infrastructure. Now we want to discuss what will be spent and what it will go towards.”

For MBSA, the priority is to widen and deepen the harbour, so it can be used by bigger cargo ships that can arrive and depart quickly. That saves money, enhances manufacturing and distribution efficiencies and, ultimately, makes MBSA even more cost-competitive.

That competitiveness already includes slashing water usage, reducing electricity consumption by 30% on the latest C-Class, and installing thousands of solar panels that will reduce energy costs even more.

As Raine says, East London does not compete for business with other companies’ SA assembly plants, but with fellow Mercedes plants around the world. Quality and cost-containment are non-negotiable.

That’s why Brand says: “It’s all about efficiencies. If one part of the system, like the harbour, doesn’t perform, it undermines everything else.”​