Benz Issue

In: Business and Management

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In the early 1990s, Mercedes Benz was experiencing declining profit margins as a result of the increasing value of the German Deutschmark (BMW, 2007). The competitive environment for MB at the time was characterized by other leading European automobile manufacturers undergoing the same effects of high labor costs and weakening monetary exchange rates (BMW, 2007).The sales stats for 1993 proved to be the only year that Mercedes Benz has ever showed negative profits. The monetary exchange rate and high production costs for materials and labor were decisive factors in the directive to implement foreign production facilities (Mercedes, 2007). German automakers were the highest paid on the Earth at that time. In 1992 Mercedes Benz made the decision, following the lead of BMW the previous year, to build a production facility in the United States – specifically in Alabama. Corporate management was convinced that international market conditions would remain consistent for a sufficient time period necessary to recoup the investment costs required for these facilities (BMW, 2007). MB conducted research that exposed American demand for luxury sports utility vehicles. This was the beginning of an effort to develop the exploding market for sport utility vehicles in the US, although Mercedes named theirs AAVs; All Activity Vehicles offered in the A-class or the M-class models (Albright Case Study). Non-standard techniques of cost targeting were engaged and the analysis of benefits compared to costs proved feasible. Globalization schemes and atypical production strategies coupled with the superior quality and perceived value of products offered ensured no repetition of profit loss for the corporation (Mercedes, 2007). This document explores the target costs and cost analysis strategies utilized to turn the automaker back to good and solidify its position as a world leader in the…...

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