UPDATE 1-Daimler says to pursue cost cuts beyond 2 bln eur initial goal

Tue Feb 11, 2014 3:52pm EST

* Daimler seeks cuts to offset lower margins on small cars

* Production of GLA compact planned for China, Brazil

* Daimler still on lookout for additional factory (Adds CEO comments on details of production of the Mercedes-Benz GLA)

GRANADA, Spain, Feb 11 (Reuters) - Germany's luxury auto maker Daimler will pursue deeper cost cuts than an initially targeted 2 billion euro in savings by 2014 as a way to raise profits at its Mercedes car division, Chief Executive Dieter Zetsche said on Tuesday.

The cost cutting effort will help Daimler reach an average annual return on sales of 10 percent for its Mercedes-Benz Cars division in the medium term, Zetsche said at a presentation of the Mercedes-Benz compact Sports utility vehicle, the GLA.

The rise in sales of lower-margin compact cars like the A-Class and B-Class vehicles make additional costs cuts necessary to ensure the Stuttgart-based auto maker can reach its profit goal, Zetsche said.

By 2020 compact cars will account for 30 percent of Daimler's revenues, up from around 15 percent at present.

Another way to raise the profitability of small cars was to raise the efficiency of production and by cutting manufacturing time down to 30 hours per vehicle.

Zetsche reiterated the auto maker was on the lookout for a new factory to build small cars.

"We are thinking about an additional factory, which in all likelihood will not be in Germany," Zetsche said.

Last month Zetsche said the Germany-based auto maker may build another factory in North America as a way to ramp up global production capacity for compact cars.

The GLA compact sports utility vehicle should be delivered to clients in Europe in mid March, Zetsche said.

The car, which is being produced in Rastatt, Germany and in Kecskemet, Hungary, will also be produced in China this year, Zetsche said. Production is also planned for Brazil in 2016. (Reporting by Ilona Wissenach in Granada; writing by Edward Taylor, editing by William Hardy)