“Best in Class”
Performance improvement in the Mercedes-Benz USA LLC.
Accessories department
“Best in Class”
Performance improvement in the Mercedes-Benz USA LLC.
Accessories department
Author
Niels Veen – 1177915
Rijksuniversiteit Groningen Mercedes-Benz USA LLC.
Faculty of Management and Organization Accessories Department International Business Cluster
University Supervisors Company Supervisors
D.P. Tavenier P. Spieth
J. Wijngaard E. Piehler
“ If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every
victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you
will succumb in every battle.
Sun Tzu, The art of War
”
Preface
This thesis is the result of research conducted during March 2004 and May 2005 at the Mercedes-Benz USA headquarters in Montvale New Jersey, in order to graduate at the faculty of Management and Organization at the University of Groningen. The focus is on the improvement of the performance of the accessories department.
The time I spend at Mercedes-Benz USA was my first working experience in an internationally operating organization. It offered me the opportunity to learn about the practical and operational side of the business, thereby increasing my interest in international business and further developing my personal skills. By offering me the opportunity to perform the research at Mercedes-Benz USA, Peter Spieth made it all possible and I would, therefore, particularly like to thank him. Besides Mr. Spieth and all employees of the accessories department, I would also like to express special gratitude to my supervisor Ed Piehler, who offered his time and support whenever needed and without whom the research in this form would not have been possible.
From the university I would like to thank Mr. Tavenier and Mr. Wijngaard for their support, advice and guidance during the research. Another person who I would particularly like to thank for his assistance is my brother Sven. And last but certainly not least I would like to thank Sandra for her continued support and acceptance of another six months of my absence.
Niels Veen
Culemborg, 17 May 2005
Executive Summary
As a subsidiary of DaimlerChrysler AG, one of the functions Mercedes-Benz USA LLC. performs is the sale and marketing of Mercedes-Benz accessories in the United States. The management of the accessories department expressed their concerns about the level of performance achieved in the marketing and sale of accessories.
Based on these concerns, the objective of this research was to increase the rationality of the policy process by delivering the management of the accessories department at Mercedes-Benz USA recommendations that are directed at improving the performance of the department. The knowledge required to achieve this objective is identified through the research question: What changes can the accessories department at Mercedes-Benz USA LLC. make that will increase the performance of the department?
Through an internal and dealership analysis, best practices can be identified that, when implemented correctly, could improve the performance of the department. To determine how the identified best practices could best be implemented different implementation methods were tested. This resulted in recommendations for changes the accessories department at Mercedes-Benz USA could implement in order to increase performance.
Problem background
In order to achieve the goal of the research and provide the management of the accessories department with recommendations on how to solve the problem, the characteristics of the problem were analyzed. Based on this analysis, the conclusion was drawn that the problem perceived by the management of the accessories department was a real problem1 and that the market offers MBUSA the opportunity to generate more revenue by selling a higher $ amount of accessories per new vehicle sold.
Internal Analysis
In order to determine best practices and how they can best be implemented, the strengths and weaknesses of the internal organization need to be identified.2 The principles of Porters value chain model were used to perform an analysis of the
1 Leeuw, de, A.J.C., Bedrijfskundige Methodologie, management van onderzoek, 2001.
2 R. C. Camp, Benchmarking: The Search for Industry Best Practices that Lead to Superior Performance, 1989.
policy, logistics, marketing and sales and services. Through the analysis of these activities it was possible to establish the strengths and weakness of the accessories department.
A weakness concerning the policy of the department is that it fails to inspire and motivate the employees of the department, thereby, decreasing the commitment of the employees to the policy and resulting in less motivation towards the achievement of the goals set by the department. A second weakness was found in the promotion of products. The promotion of accessories to customers is performed exclusively at
dealerships. This makes
Mercedes-Benz USA entirely dependant on the dealerships for the promotion of its accessories to customers. Another weakness is the position the accessories department has in the Mercedes-Benz USA structure. Positioning the department in the customer services business unit resulted in contact with the service and parts side of the dealership. The nature of the products, however, suggests that, to be successful in the marketing and sale of accessories, the focus should be on the sales side of the dealership. This is where the promotion and sale of accessories are most likely to be successful.
The supply chain offers considerable strengths for the products that are sourced for Mercedes-Benz Accessories. Through the close cooperation between Mercedes- Benz Accessories and the Mercedes-Benz design and development departments, competitive advantages are created in areas such as the time to market of products and product integration in and onto vehicles. Mercedes-Benz USA can through close cooperation with Mercedes-Benz Accessories, offer high quality products that are competitively priced, in line with customer demand and offer seamless integration in and onto vehicles. These product strengths are recognized at the department and incorporated in the promotion of accessories.
Dealer Analysis
In the internal analysis it was established that the Mercedes-Benz USA accessories department is dependant on the Mercedes-Benz dealerships in the US for the sale of its products. Comparing the sales records of all of these dealerships revealed large differences in performance. In order to determine the best practices employed at dealerships that result in high performance, the characteristics of dealerships that influence performance were identified. These characteristics, also known as Critical Success Factors, were identified through the analysis of operations in twelve Mercedes-Benz dealerships. Based on the information gathered the following factors were identified as Critical Success Factors in the marketing and sale of accessories:
Presence of accessories in the dealership, dealership employee knowledge of accessories and the way in which a dealership perceives accessories. Having established the factors in a dealership that need to be given appropriate attention in order for a dealership to perform well made it possible to identify best practices in dealerships that are able to positively influence these factors.
Test Case
Based on the differences found between the Mercedes-Benz dealerships in the dealer analysis, a determination of the method best suited for the implementation of the best practices needed to be made. The choice was made to test three different implementation methods over a period of four months at different sized dealerships located at various locations in the US. In the first method the focus was on getting the dealerships to utilize the processes and procedures that were in place, and the tools that were offered to the dealerships, in the way intended by Mercedes-Benz USA.
The second method utilized, in addition to the support received in the first method, was to designate an employee of the dealership who would function as the central point of contact for customers and other dealership employees in matters concerning accessories. The third method utilized a similar approach as the previous one with one person being the central point of contact for accessories. The difference between this method and the previous was that, instead of having the dealership commit to this accessories person, Mercedes-Benz USA would provide the dealership with a person dedicated to the marketing and sale of accessories.
Based on the results gathered during the test case it could be concluded that the method in which the dealerships were provided with a person from Mercedes-Benz USA who was responsible for the sale and marketing of accessories was the only method in which significant performance improvements were achieved.
It could also be concluded that establishing change in the performance of a dealership is increasingly more difficult when the size of the dealership increases.
When attempting to change performance the size of the dealership should, therefore, be taken into consideration.
Recommendations
Based on the findings of the research the conclusion was drawn that, improvement of the performance of the accessories department at Mercedes-Benz USA is achieved when the revenue received from the sale and marketing of accessories is increased.
This increase in revenue can be established through the implementation of changes to the current accessories marketing and sales processes and procedures. Through the implementation of the following recommendations the accessories department at Mercedes-Benz USA should be able to realize changes in the marketing and sales processes and procedures in such a way that performance is increased:
Use an external person to implement change in dealerships
Dealership size should be taken into consideration when attempting to implement change at dealerships.
Establish presence of accessories in the dealership
Dealership employees involved with the sale and marketing of accessories should be knowledgeable about the products, processes and procedures.
Establish a positive attitude towards accessories at dealerships.
Change the formal structure of the MBUSA organization in such a way that accessories become part of the sales organization instead of service and parts.
Formulate goals that are in line with and show commitment to the achievement of a situation.
A result of the scope of the research and the method used to conduct the research was that situations were encountered that, if researched further, could generate additional opportunities for the improvement of performance of the accessories department. It is therefore, recommended that further research is conducted in the following areas:
Benchmark best practices at dealerships that are considered to be the best performing dealerships.
Research how the people involved with accessories marketing and sales at MBUSA and dealerships can be motivated to improve current performance.
Conduct further research in the opportunities that additional marketing and sales channels offer the accessories department at Mercedes-Benz USA to improve performance.
Table of contents
Executive Summary ...7
Index of Figures ...14
Index of Tables...14
Introduction ...15
1 Overview ...17
1.1 The US auto market ...17
1.1.1 Market Evolution ... 17
1.1.2 Current Characteristics ... 19
1.2 The US accessories market. ... 21
1.3 Mercedes-Benz USA LLC Organization ... 23
1.3.1 DaimlerChrysler AG ... 24
1.3.2 Mercedes Car Group ...25
1.3.3 Mercedes-Benz USA LLC. ...28
1.3.4 Customer Services...31
1.3.5 Accessories... 31
2 Research problem and methodology...35
2.1 Problem Background ... 35
2.2 Research typology... 37
2.3 Research Objective ... 37
2.4 Scope/ boundaries of the research...37
2.5 Research question ... 38
2.6 Research Model ... 38
2.7 Sub-Questions and Methods ... 42
2.7.1 Problem Background ... 42
2.7.2 Internal Analysis ... 43
2.7.3 Dealer Analysis ... 45
2.7.4 Test Case... 46
2.7.5 Conclusion and Recommendations ... 48
3 Research Problem...49
3.1 Performance definition... 50
3.2 Performance of the MB accessories department...50
3.3 Performance of the accessories department vs. industry ... 53
3.4 Performance improvement... 56
4 Internal analysis ...57
4.1 Policy ...57
4.1.1 Mission...57
4.1.2 Goals ...58
4.1.3 Strategy ...58
4.2 Logistics ... 59
4.3 Marketing and Sales... 63
4.3.1 Product... 63
4.3.2 Price ...64
4.3.3 Place ... 64
4.3.4 Promotion ... 65
4.4 Services ... 65
4.5 Strengths and Weaknesses ... 68
5 Best Practices ...71
5.1 Dealership Performance... 71
5.2 Identification of Critical Success Factors ...75
5.3 Critical Success Factors ... 79
5.4 Best Practices ... 80
6 Implementation of the Best Practices ...82
6.1 Change and the MB dealer network... 82
6.2 Test Case Set-Up... 84
6.2.1 Dealership selection... 85
6.2.2 Test case scenarios ... 86
6.3 Pre launch phase ... 90
6.3.1 Dealer Selection... 90
6.3.2 Scenarios...91
6.3.3 Test Case Duration ... 93
6.3.4 Dealer cooperation ... 93
6.4 Results...94
6.4.1 Overview ...94
6.4.2 Empowered ... 96
6.4.3 Committed ... 97
6.4.4 Outsourced ... 99
6.4.5 Results Large Dealerships ... 101
6.4.6 Results Medium Size Dealerships ... 102
6.4.7 Results Small Dealerships... 103
6.4.8 Comparison... 104
6.5 Conclusion ... 105
7 Conclusion and recommendations ...107
References ...112 Appendices ...Error! Bookmark not defined.
Appendix 1 US Car Brands... Error! Bookmark not defined.
Appendix 2 US Vehicle Models ... Error! Bookmark not defined.
Appendix 3 Cars vs. Light Trucks Sales... Error! Bookmark not defined.
Appendix 4 Number of New Car Dealerships in the US ...Error! Bookmark not defined.
Appendix 5 Vehicle Sales and Price ... Error! Bookmark not defined.
Appendix 6 Accessory and Automotive Growth Rates ...Error! Bookmark not defined.
Appendix 7 Accessories Outlet Type Market Shares ...Error! Bookmark not defined.
Appendix 8 Camp’s 10 Step Benchmarking Model Error! Bookmark not defined.
Appendix 9 Porter’s Value Chain ... Error! Bookmark not defined.
Appendix 10 Dealer Visit Report ... Error! Bookmark not defined.
Appendix 11 Topic List Performance Interviews .... Error! Bookmark not defined.
Appendix 12 Accessories Scorecard... Error! Bookmark not defined.
Appendix 13 Departmental Goals... Error! Bookmark not defined.
Appendix 14 Top 15 Global Brands ... Error! Bookmark not defined.
Appendix 15 Mercedes-Benz USA Dealer Base PNUR Analysis Error! Bookmark not defined.
Appendix 17 Dealership Likert Scores ... Error! Bookmark not defined.
Appendix 18 Results per Dealership on Month to Month Basis .. Error! Bookmark not defined.
Appendix 19 Accessories Seasonality ... Error! Bookmark not defined.
Index of Figures
Figure 1-1 US Market Shares Vehicle Manufacturers... 20
Figure 1-2 2003 New Vehicle Distribution ... 20
Figure 1-3 2003 Market Segments... 21
Figure 1-4 Growth Accessories Industry vs. Automotive Industry ... 22
Figure 1-5 Organization Pyramid ... 24
Figure 1-6 DaimlerChrysler major brands ... 25
Figure 1-7 Mercedes Car Group Brands ... 26
Figure 1-8 Daimler and Benz... 28
Figure 1-9 Ashridge Model... 29
Figure 1-10 Formal Structure Accessories Department... 33
Figure 1-11 Product Examples... 34
Figure 2-1 Research Model... 41
Figure 3-1 Dimensions of a Problem ... 49
Figure 4-1 Accessories Flow Chart... 62
Figure 4-2 Mercedes-Benz USA Business Units... 66
Figure 4-3 Region Structure... 67
Figure 5-1 National PNUR Spread ... 72
Figure 5-2 Total Accessories PNUR vs. Current Accessories PNUR ... 73
Figure 5-3 PNUR of dealerships used in data collection ... 77
Figure 6-1 Test Case Phases ... 84
Figure 6-2 Test Case Setup ... 89
Figure 6-3 Overview Test Case Results... 95
Figure 6-4 Overall Test Case Results ... 96
Figure 6-5 Test Case Results Empowered Scenario ... 97
Figure 6-6 Empowered Scenario Results per Dealer ... 97
Figure 6-7 Test Case Results Committed Scenario ... 98
Figure 6-8 Committed Scenario Results per Dealer ... 99
Figure 6-9 Test Case Results Outsourced Scenario ... 100
Figure 6-10 Outsourced Scenario Results per Dealer... 100
Figure 6-11 Large Dealerships Results per Scenario... 101
Figure 6-12 Medium Dealerships Results per Scenario ... 102
Figure 6-13 Small Dealerships Results per Scenario... 103
Index of Tables Table 1-a Market Shares Accessory Outlet Types... 23
Table 1-b DaimlerChrysler Figures ... 24
Table 1-c Mercedes Car Group Figures... 26
Table 1-d Mercedes-Benz USA LLC. Figures ... 28
Table 1-e Customer Services Business Unit Figures ... 31
Table 1-f MBUSA Accessories Department Figures... 31
Table 3-a PNUR Accessories Industry vs. MBUSA ... 55
Table 5-a Correlations of tested variables ... 78
Table 6-a Test case results ... 105
Introduction
The research described in this thesis was conducted at Mercedes-Benz USA LLC.
located in Montvale, New Jersey. It was performed as part of the graduation project of the curriculum of the International Business cluster of Management and Organization at the University of Groningen. The objective of this thesis is to give a detailed description of the research conducted. By doing so it will provide insight in the methodology used, the decisions made, the argumentation behind those decisions and the conclusions drawn. The reason for this is twofold; on the one hand, as mentioned above, it is part of the graduation project of the university and on the other it can support the management of the accessories department at Mercedes- Benz USA LLC. in improving the performance of accessories marketing and sales.
Throughout the management of the accessories department at Mercedes-Benz LLC.
the view was shared that the department was underperforming and that actions needed to be taken to improve the performance of the department. In light of this problem, this research was initiated with the following central research question:
To generate an understanding of the research problem and its environment the first chapter will provide a description of the US auto industry, the accessories market, Mercedes-Benz USA LLC. and the accessories department at Mercedes-Benz LLC.
In the second chapter the problem situation will be outlined followed by the research objective and the research goal. Furthermore, the sub questions and methodology used to achieve the goal of the research and answer the central question will be covered. This information will then be combined into a model which will provide a schematic representation of the central elements of the research and the relationships between these elements.
After having outlined the research the first steps will be taken to analyze the problem and problem situation. To be able to provide recommendations for change, first the elements of the problem statement will to be analyzed. In order to improve the performance of the department a clear definition of performance needs to be formulated. After having determined what performance is, the performance of the department can be analyzed. This will be covered in chapter three.
What changes can the accessories department at Mercedes-Benz USA LLC make that will increase the performance of the department?
Chapter four analyzes the primary activities of the accessories department in order to determine the strengths and weaknesses of the internal organization. The activities that will be covered are: the policy, logistics, marketing and sales and services.
In the next chapter the situation at Mercedes-Benz dealerships will be analyzed. First the Critical Success Factors of the marketing and sales activities will be identified.
That information will than be used to identify best practices concerning the marketing and sales of accessories at dealerships.
Utilizing the information described in the previous chapters, in chapter six the formulation and implementation of a test case will be described in which different methods were tested in order to determine how a successful implementation of the best practices can be realized. By comparing the differences in results between the methods tested, it will be possible to determine what best practices achieved improvement in performance and what method(s) was/ were most suited for the implementation of the best practices.
The final part of this thesis will be the concluding chapter in which the conclusions drawn, based on the research performed, will be presented. In addition to establishing whether improvement of performance is possible, the chapter will also provide recommendation to the management of the accessories department at Mercedes-Benz USA LLC. on how, if possible, an increase in performance can be achieved. In addition to these recommendations, recommendations will also be made on what further research is recommended in light of the results attained in this research.
1 Overview
To be able to reach a thorough understanding of the research problem and the reasons why the research is conducted, it is important to know more about the background and structure of the organization and the market the organization operates in. This chapter will, therefore, start by giving an overview of the US auto market. The next part of the chapter will cover the market for accessories. Both of these parts will not go into the specific position Mercedes-Benz USA LLC. has in either one of the markets. Specifics of the MBUSA (Mercedes-Benz USA LLC.) organization and the accessories department will be the focus of the next part of the chapter. Following a top down approach the organization in which the accessories department of MBUSA operates will be explored.
1.1 The US auto market
The US auto market, just as any other market, is the place where supply and demand for goods and services related to the automobile industry meet3. Instead of operating in a static state, the industry is constantly changing as a result of the actions undertaken by organizations operating in the industry. Because of this dynamic characteristic, it is important to examine how the industry evolved over time in order to understand the way it is currently structured. Before an overview of the current market characteristics can be given, the history of the market will be reviewed.
1.1.1 Market Evolution
Although the automobile was becoming an increasingly familiar sight in Europe in the 1890s, it was considered a freakish contraption in the United States. The main reason for this was that roads were poor and few. Americans finally became receptive to the idea of the automobile when they realized that, with a car, they could go where they wanted to go without having to use the railroad.
Car designers came from all areas and occupations. Some succeeded, but most failed. Then, along came the son of a Michigan farmer, his name was Henry Ford. In 1879, Henry Ford was sixteen years old when he got a job in Detroit. In his spare time he built an internal-combustion engine from plans he found in a magazine. In
3 Heyne P., The Economic Way of Thinking, 2000.
1898, he built an improved version, but it failed in a year. Finally he produced an automobile that was bigger, more powerful, and much faster. A well-known bicycle rider drove the car in a race and won. The publicity got Ford financial support and allowed him to found the Ford Motor Company in 1903. In 1914, Ford opened the world's first auto assembly line. Production jumped to 472,000; a car could be produced in 93 minutes. The last "tin lizzy" (the 15,007,003rd) rolled off the production line in 1927. It was truly the "universal car," in every corner of the world.
The eighteen-year supremacy of the Ford caused the disappearance of many of the smaller car companies and the emergence of others. One of the consolidators was the General Motors Corporation. William C. Durant bought out the Buick Motor Company in 1904. He incorporated General Motors in 1908 and merged Buick, Cadillac, Oldsmobile and Oakland (Pontiac) into a single corporation. Ford's monopoly ended after WWI; other manufacturers began to make cheaper, more attractive cars. In 1916, the Chevrolet Motor Company put out a four-cylinder model that eventually passed the Ford as the best-selling car in America.
At the end of the 1920s the depression hit and slowed down the rise of the automobile. Another thing the depression also showed was the way people had gotten accustomed to having their vehicles. Despite the costs considered with owning and using a vehicle people were not prepared to give up their cars. Both the crash of 1929 and World War II caused a decrease in the number of manufacturers in the car market and saw many names either disappear altogether or be swallowed up by bigger companies4. However it remained a significant time in car production;
technology was fast developing and the engineering practices became more refined as, more than ever, cost cutting was essential in an increasingly competitive market.
After WWII the trend changed. The economy was growing again and so were the number of customers for vehicles. The increased demand spurred the automobile manufacturers to produce a greater diversity of models with, in most cases, engines of increase capacity5. This “muscle car era” came to an abrupt halt when the oil crisis hit in 1973. By this time the US, which accounted for about 6% of the worlds population, was consuming 33% of the worlds energy6. The resulting change in development focus from large and powerful to smaller and more fuel efficient cars opened the door for foreign vehicle manufacturers. Even though over the years more and more foreign manufacturers had entered the US market, the characteristics of
4 Appendix 1 US Car Brands
5 Appendix 2 US Vehicle Models
6 Wikipedia Encyclopedia
the market had restricted them from large successes. With the introduction of the Volkswagen Golf in 1975 the first foreign success was realized. The next milestone related to this trend was reached in 1989 when the Honda Accord became the first foreign vehicle to achieve “best-selling” car in the United States.
As a result of the ever increasing product differentiation7 and the fading attention for the oil crisis, sales of pickup trucks expanded in the 1990s to almost 20% of the total auto market. With the introduction of the Sports Utility Vehicles at the end of the 1990s this segment of the market grew even further to eventually surpass the sales quantities of cars in 20018.
1.1.2 Current Characteristics
In 2003, 16,634,700 new vehicles were sold in the US. This was a little less than the 16,817,500 sold in 2002. The main reason for this was the unfavorable economic situation with an increasing unemployment throughout the year, rising energy prices and the war in Iraq. For the approximately 21,725 new vehicle dealerships, the decline amounted to an average annual decrease in vehicle sales of roughly 5 vehicles. The reason for this relatively small decline in vehicle sales per dealership is that the cost of borrowing was relatively low, manufacturers offered large incentives and the number of dealerships had steadily been declining over the last decade9. The factors responsible for much of the disappearance of dealerships were: acquisitions by large dealer groups, manufacturers’ efforts to reduce or freeze the number of dealership points and the, above mentioned, unfavorable economic conditions10.
Dealerships
The consolidation has not only changed the number of dealerships it has also affected the types of dealerships active in the market; fewer small unprofitable dealerships and more large profitable dealerships. For the dealerships the loss of income from this decline in new vehicle sales was counteracted by an increase in consumer purchase price. On average the net revenue received from the sale of new vehicles increased slightly per dealership.11
Competition
7 Appendix 1 US Car Brands
8 Appendix 3 Cars vs. Light Trucks Sales
9 Appendix 4 Number of New Car Dealerships in the US
10 NADA Services Corp., National Automobile Dealers Association Data Report 2004, Economic Impact of Americas New Car and New Truck Dealerships.
11 Appendix 5 Vehicle Sales and Price
An interesting fact in relation to the decline in vehicle sales is that not all dealerships experienced a decline. Asian vehicle brand dealerships saw a rise in new vehicle sales. It were predominantly the “Big Three”, DaimlerChrysler, Ford and General Motors that experienced a drop in sales numbers and consequently a decrease in market share. The current market shares of the major vehicle manufacturers are presented in the figure below.
13%
21%
30%
10%
7%
4%
3%
12%
DaimlerChrysler Ford
General Motors Toyota Honda Nissan Volkswagen Other imports
Figure 1-1 US Market Shares Vehicle Manufacturers12
Products
The trends mentioned in the previous paragraph of an increased number of products offered and increased market share of light truck in comparison to cars continued in 2003. As figure 1-2 shows, the current market share of light truck is 54%.
46%
54%
New cars Light-duty trucks
Figure 1-2 2003 New Vehicle Distribution13
12NADA Services Corp., National Automobile Dealers Association Data Report 2003, Economic Impact of Americas New Car and New Truck Dealerships.
13 NADA Services Corp., National Automobile Dealers Association Data Report 2003, Economic Impact of Americas New Car and New Truck Dealerships.
Besides this differentiation between cars and light trucks there are a number of segments within the US auto market. These segments and their respective market shares are represented in the following figure:
13%
22%
3%
26% 9%
18%
9%
Small Midsize Large Luxury SUV Pickup Van
Figure 1-3 2003 Market Segments14
1.2 The US accessories market.
The accessories industry has been around for approximately 50-60 years. In the growth phase of the automotive industry vehicles were produced for the upper class as a form of luxurious transportation. Because of this luxurious character and the small number of vehicles produced almost every vehicle was unique. It was Ford, and in a later stage the Germans with the “Volkswagen”, who started mass producing vehicles that were identical to one another. With vehicles becoming more common in the 50’s and 60’s the first large scale trend to personalize vehicles and distinguish them from factory models was seen in “Hot Rods”. Hot Rods can be defined as highly modified vehicles used for street travel and shows based on body types from the 20’s to 60’s.
From the Hot Rods the industry gradually moved in several directions. In the 50’s and 60’s performance was a popular market but that market decreased again with the rising oil prices in the 70’s and 80’s. More recently with interest rising for SUVs, the light truck market has increased significantly. Accessory sales wise, the light truck market currently represents the biggest market.15
Historically many of the owners and operators of the accessory industry are enthusiasts who themselves participate in the fields they serve. Because of this close connection, manufacturers are very well aware of what goes on in their industry.
14 Morgan and Company, US Auto Sales - Segment Overview 2003.
15 SEMA, Automotive Specialty Equipment Industry Update 2004.
Considering that they are their own target group, determining the right products to produce is relatively easy. However, the interests of these markets vary widely from one to the next. One might focus on speed, one on off road capabilities, the next on design etc. This resulted in small companies that served specific parts of the industry. Over the years the number of these small companies, run by enthusiasts, has increased and so has the industry. What started as a small industry has evolved over the years into an industry with retail sales in excess of US $26 billion16. Over the last 17 years the industry has shown an almost constant growth averaging 8.5% per year. Over the last ten years the average increase in sales of new vehicles was 2.83% while during this same period the average increase in accessory sales at manufacturer level was 7.37%.17 Figure 1-4 illustrates this difference in sales growth/
decline between the accessories industry and the automotive industry. What this graph illustrates is that the accessories industry has not grown at the rate it has as the result of more vehicles being sold; other factors contributed to the growth of the industry.
Change In Sales
-3,00 -1,00 1,00 3,00 5,00 7,00 9,00 11,00 13,00 15,00
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Year
% Change Accessorie Industry
New Vehicles
Figure 1-4 Growth Accessories Industry vs. Automotive Industry
Even though many differences exist between different parts of the automotive accessory industry, many of the products offered have a similar focus. Examples of this are areas such as: appearance, performance, interior comfort, etc. These sub
16 SEMA, Automotive Specialty Equipment Industry Update 2004.
17 Appendix 6 Accessory and Automotive Growth Rates
groups of products and the growth the industry has gone through has made the large players of the automotive industry, such as the vehicle manufacturers, aware of this niche market and the possibilities it offers. Unfortunately for the vehicle manufacturers, the industry, however young it might appear because of the growth figures it demonstrates, has been around for approximately 50 years. The result of this is that, as illustrated by Table 1.a below, there are a large number of other outlet types already servicing the industry.
Table 1-a Market Shares Accessory Outlet Types
Outlet Type Market Share
Automotive Chains 16.1%
Direct from Manufacturers 7.2%
Discount Chains 6.9%
Full-line Auto Parts Stores/Jobbers 6.3%
Import Auto Parts Stores 1.3%
Independent Repair Shops 1.9%
Machine Shops 0.7%
Mail Order Companies 14.4%
Specialty Product/Installation Outlets 21.8%
Speed Shops & Performance Retailers 5.8%
Tire Dealerships 4.1%
New-Vehicle Dealerships 9.4%
Wholesale Clubs 2.6%
Other Outlets 1.5%
The current market share of new vehicle dealerships is 9.4%. An explanation for this relatively small market share compared to the market shares of Specialty Product/
Installation Outlets, Automotive Chains and Mail Order Companies could be the late interest of the vehicle manufacturers in the industry. However, historical data contradicts this18. The explanation for the differences in market shares between the different outlet types must therefore lye in factors such as the differences in products offered, the differences in methods used to sell the products, the differences in promotion methods used, etc.
1.3 Mercedes-Benz USA LLC Organization
Mercedes-Benz USA LLC., hereafter referred to as MBUSA, is a wholly owned subsidiary of DaimlerChrysler AG. Within the DaimlerChrysler organization MBUSA
18 Appendix 7 Accessories Outlet Type Market Shares
is part of the Mercedes Car Group. Figure 1.1 illustrates these relations schematically.
Figure 1-5 Organization Pyramid
In this overview of MBUSA and the DaimlerChrysler organization, a top down approach is used to describe the different elements and relationships.
1.3.1 DaimlerChrysler AG
Table 1-b DaimlerChrysler Figures
2003 revenue $171.870 million
Operating Profit $7.163 million
Unit sales 4.3 million
Employees (Dec. 31) 362.063
As a result of the merger of Daimler-Benz and Chrysler on 17 November 1998 DaimlerChrysler AG emerged, headquartered in Stuttgart, Germany and Auburn Hills
Accessories Mercedes Car Group
Mercedes-Benz USA Daimler Chrysler AG
Customer Services
MI., USA. Operating as a global automotive company with subsidiaries all over the world, the goal is to “make DaimlerChrysler the worlds leading automaker”19. This broad perspective towards auto making and the auto market is nicely illustrated by the following figure that shows the major brands and divisions that are part of DaimlerChrysler AG.
Figure 1-6 DaimlerChrysler major brands
Even though the company operates in other transportation related industries, the focus in the future will shift more and more towards the automotive industry. This is illustrated by the sale of MTU Aero Engines to the investors Kohlberg, Kravis and Roberts & Co. Ltd. and Lenkungen GmbH to ThyssenKrupp Automotive.20
1.3.2 Mercedes Car Group
19 DaimlerChrysler website
20 DaimlerChrysler annual report 2003
DaimlerChrysler
Mercedes Car Group
Chrysler Commercial
vehicle Division
DaimlerChrysler Services
DaimlerChrysler Bank
DaimlerChrysler Services Freightliner
Mercedes-Benz
Setra
Sterling Trucks
Western Star Trucks Chrysler
Dodge
Jeep Maybach
Mercedes-Benz
Smart
Table 1-c Mercedes Car Group Figures
2003 revenue $64.807 million
Operating Profit $3.938 million
Unit sales 1.216.938
Employees (Dec. 31) 104.151
The brands that make up the Mercedes Car Group are: Maybach, Smart, Mercedes- Benz AMG and Mercedes-Benz.
In 2003 this premium passenger car focused group sold 1,216,938 vehicles which is 15396 short of 2002 sales. A relatively small decline considering that important markets such as the German21 and US22 experienced a decline in demand. The goal the Mercedes car group has set is to further strengthen market positions and increase market presence in currently undeveloped segments.23 To
achieve this, large investments in plant capacity, research and development and product development were made.
Figure 1-7 Mercedes Car Group Brands
Maybach
The newest addition to the Mercedes Car Group has a rich history of building the most exclusive vehicles ever produced by the German car industry. Even though Wilhelm Maybach was responsible for the development of the first Mercedes as chief engineer at DMG (Daimler-Motoren-Gesellschaft) he did not start production of cars
21 European Automobile Manufacturers Association
22 NADA Services Corp., National Automobile Dealers Association Data Report 2004, Economic Impact of Americas New Car and New Truck Dealerships.
23 DaimlerChrysler Annual report 2003
under his own name until 1921. Until that time the focus had been on the production of engines for airships. Since this was not allowed under the Treaty of Versailles they switched to the production of cars and later on to ship and train engines. It was in the years of producing cars between 1921 and 1941 that “Maybach Motorenbau”
established a name for itself.
In 1960 Mercedes-Benz acquired a majority holding in the company but did not start production of cars until the first Maybach rolled out on June, 26, 2002. The new Maybach cars are just like the first Maybach, designed and engineered to be the best the automotive industry has to offer in the luxury segment.
Smart
Smart is the product of a joint venture between (then) Daimler-Benz AG and the Swatch group (then SMH). The concept behind Smart was to develop, produce and sell a small, energy efficient, compact car to be used in metropolitan areas. Following the launch of the Smart City Coupe, Daimler-Benz AG took complete ownership of Micro Compact Car AG in November 1998. Currently five models make up the product range. As a result of the disappointing results, future expansions of the model range are halted and production of the Roadster models will be stopped at the end of 2005. Market introduction for the US is planned in 2006.
Mercedes-Benz AMG
In 1990 Mercedes-Benz and AMG signed a cooperation agreement which extended their cooperation beyond motor racing. The first result of this was the C36 AMG, the first car to be jointly developed by Mercedes-Benz and AMG. By that time AMG had been in the business of designing and testing racing engines for 26 years. The success of the cooperation lead Mercedes to acquire a majority share in AMG in 1999. Since then the range of AMG models has extended to an AMG version for almost all Mercedes models available.
Mercedes-Benz History
Figure 1-8 Daimler and Benz
The technological developments in the 1880’s formed the foundation for the invention of the high-speed internal combustion engine. In the region around Mannheim, Germany two pioneers of the automotive industry, assisted by automotive industry legends such as Wilhelm Maybach and Ferdinant Porsche, independently of each other developed the first automobiles. One was Karl Benz who in October 1883 founded the firm Benz & Cie. The other was Gottlieb Daimler who in November 1890 founded the Daimler-Motoren-Gesellschaft. Just like Benz, Daimler first sold his vehicles under his own name. The name of the Daimler automobiles changed when Emil Jellinek, Daimler’s biggest customer who had achieved great success in races with his Daimler car, ordered 40 vehicles under the condition that they where named after his 10year old daughter “Mercedes”.
The economic conditions in the period after the First World War had a large impact on luxury goods such as the vehicles produced by automotive industry. The result was that only financially strong companies survived. For Daimler and Benz the harsh economic environment forced them to join forces. And so in June 1926 the oldest motor manufacturers in the world merged to form Daimler-Benz AG.
1.3.3 Mercedes-Benz USA LLC.
Table 1-d Mercedes-Benz USA LLC. Figures
Vehicle Sales 218.717
Employees 1450
MBUSA (Mercedes-Benz USA), situated in Montvale, New Jersey, is a wholly owned subsidiary of DaimlerChrysler North American Holding Corporation based in Auburn Hills, USA. MBUSA is responsible for purchasing, import, distribution, service and marketing of all Mercedes-Benz products in the United States. The majority of these products are sold via dealerships. Currently 313 of these dealerships are independently owned and one, Mercedes-Benz of Manhattan, is owned by MBUSA.
To get a better understanding of what the company is about, a closer look will be taken at the company’s mission by using the “Ashridge” mission model by Campbell and Yeung.24
This is important because the mission plays an important role in the direction the company is going in, what the company is pursuing and the mission can motivate the people active in the company.25
Figure 1-9 Ashridge Model
Mission MBUSA:
Each of us will deliver excellence in all facets of our business, while creating an environment that inspires world class performance, achieves customer advocacy, ensures profitable growth, and strengthens the Mercedes-Benz brand.
Purpose
When looking at purpose, Campbell and Yeung define three categories of purpose definition: the single purpose definitions the multi purpose definitions and the higher purpose definitions. The mission MBUSA has stated has characteristics of the multi
24 Campbell, A. & Yeung, S., ‘Creating a Sense of Mission’, 1991.
25 Wit, B., de, & Meyer, R., Strategy, Process, Content, Context, An International Perspective, 1998.
“Why the company exists”
The Policies and behaviour patterns that underpin the distinctive competences and the
value system Purpose
Values Strategy
Behavior standards The competitive position
and distinctive competence
“What the company believes in”
purpose- and the higher definition category where it addresses a large part of the stakeholders and tries to commit and inspire employees.
Strategy
The strategy defines where the company wants to go and what actions will be taken to get there. Looking at the mission statement formulated by MBUSA it is hard to determine the direction and actions. In order to provide information about this, strategic objectives were formulated. These objectives can be used as an addition to the mission statement and provide insight into the direction MBUSA is going and how it believes it will get there.
Develop our People with benchmark human resource practices
Create a Marketing presence which differentiates us and strengthens the desirability of the brand and its products
Establish an effective Sales organization that results in an exclusive and profitable dealer network that delivers on targets and customer expectations
Provide Services which are customer focused, timely and profitable
Develop transparent processes that are measured, monitored, and improved upon to ensure profitable growth
Create cross functional Communication processes which generate the consistent flow of information
Values
The previous aspects of the mission statement were concerned with the rational part of the mission while “values” deals with the more emotional part of the organization.
People are not solely guided by the statement that the goal is “profitable growth”. The part of the mission statement “creating an environment that inspires world class performance” is a value that people are able to use in their day to day actions in such a way that the behaviour standards are met even when no specific guidelines are present.
Behaviour Standards
The aspects of the mission covered above were concerned with the rational and the emotional part of the organization and the people in it. The goal of these guidelines is to achieve certain behaviour standards. As Campbell and Yeung put it: ‘Purpose and strategy are empty intellectual thoughts unless they can be converted into action,
policy and behavioural guidelines that help people to decide what to do on a day to day basis’.26 In the MBUSA mission statement the standard is for all employees to deliver excellence in all aspects of the business.
1.3.4 Customer Services
Table 1-e Customer Services Business Unit Figures
Employees (Dec. 2003) 671
The Customer Services business unit encompasses al departments involved with customer services. For MBUSA these are Engineering Services, Classic Center, Customer Assistance Center, Parts and Services and Accessories.
The large total number of employees that work in these departments illustrates that offering and delivering services is an important part of the business MBUSA conducts. These services range from offering a customer assistance centre that answers questions customers might have, to a roadside assistance centre that offers assistance to customer while on the road.
1.3.5 Accessories
Table 1-f MBUSA Accessories Department Figures
2003 Revenue $134.992.423
Employees (Dec. 2003) 17
26 Campbell, A. & Yeung, S., ‘Creating a Sense of Mission’, 1991, pp. 14.
The accessories department is concerned will all the products and services offered by MBUSA that are described as being accessories. Because of the arbitrary character in which products and services are categorized as accessories it is not so much the characteristics of the products that determine what accessories are as much as the goal these products and services aim to fulfil. The fact that the accessories department is part of the customer services business unit illustrates this.
The best way to describe accessories is as products and services that offer customers that opportunity to adapt the Mercedes-Benz vehicles to their personal preferences.
The Accessories department’s mission is to: Generate revenue, contribute to profitability and enhance the brand for MBUSA and our dealerships by selling U.S.
relevant products and offering services that improve our customers’ ownership experience.
By using the Ashridge model,27 used before in paragraph 1.4 to look at the MBUSA mission, a better understanding of the accessories department’s mission can be created.
Purpose
In the statement MBUSA, the dealerships and the customers are addressed. The department does not just look at the internal goals set by the organization; it also looks at the customers. The mission can, therefore, be characterized as serving multiple purposes.
Strategy
The mission statement provides some insight into the strategy the department is pursuing by mentioning selling U.S. relevant products and offering services that improve customers’ ownership experience. “Strategic Objectives” stated by the department offer additional insight into the strategy.
Provide quality products in a dynamic way that are: timely, market accurate, priced competitively, and certified to Mercedes-Benz standards
Optimize processes & relationships and define responsibilities with all internal and external stakeholders
27 Campbell, A. & Yeung, S., ‘Creating a Sense of Mission’, 1991.
Develop communications for our dealerships and customers that support our products and promote brand advocacy
Support dealer sales, marketing, and distribution efforts by providing customer focused services and industry expertise
Values
There are no departmental values clearly demonstrated by the mission statement.
This does not mean that these are not present in the department; they are not made explicit in the mission statement.
Behaviour Standards
A standard for the department is that all products and services are offered to improve the customer ownership experience. This means that improving the customer ownership experience is one thing all products and services should have in common.
The accessories department is divided into three different areas. (Figure 1-10) These different areas are the three groups the department uses to categorize accessories based on product characteristics.
Figure 1-10 Formal Structure Accessories Department
An illustration of the different types of products associated with the three different product areas is provided by the figure below.
Accessories Department Manager
Ralf Hug
Supervisor Ed Piehler
Telematics Automotive
Accessories
Personal Accessories
Supervisor Anthony Landamia
