FRANKFURT German auto group Daimler (DAIGn.DE) expects profit margin at its Mercedes-Benz luxury car business to improve further next year thanks to a rejuvenated model range, its chief executive told Reuters on Tuesday.
"We will see a continuation of our steady improvement in profitability," Dieter Zetsche said in an interview during the Frankfurt auto show, adding that this had already begun in the second quarter.
Mercedes is enjoying the sweet spot in its product cycle, having recently launched a refreshed E-Class and an all new S-Class flagship, both big contributors to earnings. Next year it follows with the next generation of its best-selling model, the C-Class.
The Daimler CEO declined, however, to say when Mercedes would eventually reach its declared goal of a 10 percent operating profit margin.
The target was originally set for this year, but Daimler was forced to shelve it in October due to weak European markets.
After a 7.1 percent margin for the whole of 2012, the return on sales at Mercedes fell to just 3.3 percent in the first three months of this year before improving to 6.4 percent in the second quarter.
While Zetsche reaffirmed his goal to be the largest premium carmaker in the world by the end of the decade, he said he would not buy market share at the cost of profit margin.
"What is relevant is that you are playing in exactly the same ballpark - better if you lead, but we would not sacrifice our profitability for the last three units," he said, referring to cars sold.
"It can be that we're 100,000 or 200,000 units behind. We want to be at least there where the others are," Zetsche added.
The current leader, the BMW (BMWG.DE) brand, leads the Mercedes-Benz marque with nearly 200,000 more cars sold last year thanks in large part to the success of its X1 compact crossover.
The Daimler CEO said reaffirming the 2020 goal was important not just to convince investors of a growth story that can drive the stock, but also to reassure his own workforce on the company's future.
"There were a number of years where Audi and BMW were growing faster than we did, and it was perceived almost as a kind of law of nature - it is the way it is and that is fine," he said.
"That is a dangerous position to be in and I think it took a wake-up call."
(Reporting by Christiaan Hetzner, Jan Schwartz and Ilona Wissenbach; editing by David Evans)