* Mercedes GLA fills hole in Daimler's product lineup
* Rival BMW X1 accounts for bulk of sales gap
* Premium small SUV demand to grow one-third by 2015
* Peak annual GLA production seen at 130,000 vehicles
By Christiaan Hetzner
FRANKFURT, Sept 10 The severe winters and rugged landscape of England's northeast should make it prime SUV territory, but Newcastle-upon-Tyne dealer Jeremy Simpson has yet to sell a single Mercedes GLA.
The problem? Although Daimler's compact sport utility vehicle debuted on Tuesday at the Frankfurt auto show, the first deliveries won't reach customers until early 2014.
A few more months seems a long time to Simpson, regional sales director for luxury car retailer Sytner, who has watched BMW, Audi and Land Rover clean up in a European car category showing consistent, slump-defying growth.
"Demand for the BMW X1, Audi Q3 and Range Rover Evoque is massive, and we haven't been on the shopping list," he said.
That is about to change.
Plugging the small SUV-sized hole in its lineup will help Daimler's Mercedes-Benz catch local BMW and Audi dealers on overall sales, Simpson believes.
"The GLA is the biggest gap in our range, and I have a very rich target audience ready and waiting for it," he said.
If the assessment proves correct on a broader scale, the GLA could be a big step towards Daimler Chief Executive Dieter Zetsche's goal of overtaking Audi and global luxury car market leader BMW to reclaim the industry crown by 2020.
Sales of the X1 alone accounted for three-quarters of BMW's 194,000-vehicle lead over Daimler last year, with Volkswagen's Audi between them in second place.
"For a long time I was a Daimler sceptic, but I'm starting to change my mind," said Metzler Bank analyst Juergen Pieper.
"They've done a nice job with the Mercedes GLA, and there's a good chance it will become the segment leader."
After a slew of profit warnings on his seven-year watch, Zetsche has encouraged investors to expect improved underlying earnings in 2014, following a second straight decline this year.
This time, the former Chrysler boss with a distinctive bald pate and walrus moustache might just deliver the goods.
In July, Daimler published second-quarter results that held up better than expected and scored high on quality - supported by robust cash generation rather than accounting gimmicks or one-offs.
A broad revamp of the Mercedes small-car range appears to be paying off. Sales of the A-Class hatchback, CLA coupe and B-Class tourer jumped 60 percent in January-August to 228,000 vehicles, despite a two-month moratorium on French registrations sparked by a dispute over a banned coolant.
REJUVENATING THE BRAND
Daimler is also stepping up efforts in China, where it lags its two archrivals. Zetsche dispatched a senior lieutenant to take charge last year and recently announced a 2 billion euro ($2.6 billion) investment to add more models, plant capacity and sales outlets.
Long eclipsed by its Chinese problems, the gaps in Mercedes' compact lineup have hobbled its sales performance and efforts to attract younger buyers by rejuvenating the staid brand.
Daimler finance chief Bodo Uebber told reporters last October that Mercedes was struggling to hold its own because "we don't have the BMW X1 in our portfolio". His unusually candid remarks were widely quoted by the German press.
"The GLA is Uebber's model," a company insider told Reuters. "He knew that once we had it, we'd no longer be having this constant discussion" about underperformance.
Like the CLA coupe, the GLA is a derivative of the A- and B-Class made possible by their new MFA modular architecture, which allows a greater variety of vehicle shapes and sizes to be assembled from common parts. The technical platform underpinning the previous A- and B-Class models was not designed to accommodate other variants.
Pricing has yet to be announced for the GLA, with order books opening in November for delivery in the first quarter. Like most other so-called crossovers - SUVs designed for mainly on-road driving - it comes with two-wheel drive as standard or all-wheel drive as an option.
Market forecasters expect GLA production to reach 120,000- 130,000 vehicles in 2015, slightly lower than the peak output recorded for the Audi Q3 and BMW X1, reflecting an expected higher price and growing competition in the category.
But even with global demand for small premium crossovers expected to grow to 800,000 in 2015 from 600,000 this year, IHS Automotive analyst Christoph Stuermer warns that Daimler will have to fight for its share as the latecomer.
"Audi and BMW have a much stronger footing among the younger premium car buyer crowd," Stuermer said. "BMW isn't going to stop moving, so Mercedes has to do more than just play catch-up - they must further expand their reach into each segment."
Still, Mercedes dealer Simpson remains confident the GLA will make serious inroads into BMW and Audi territory.
"It's a tremendous opportunity to enter that market and finally eat their lunch," he said. "I've never been more excited about a new model launch in my 20 years selling Mercedes."