Daimler looks to China as engine of growth The first Daimler board member to be based in China has some catching up to do. Hubertus Troska, who took the reins at Daimler's Greater China operations earlier this year, inherited an operation that has lagged far behind German rivals Audi and BMW. On Tuesday he began the fightback by unveiling a €2bn investment programme aimed at accelerating the luxury carmaker's growth in the world's largest car market. "We fully understand the importance of the China market," Mr Troska said. For Daimler's worldwide strategy, to be number one [globally] we need to improve our position in China. Daimler has been under investor pressure to improve its performance after sales and profits fell behind competitors BMW and Audi, not least because of troubles with its sales operation in China. In the first seven months of the year Mercedes-Benz's sales in China rose 3.5 per cent, compared with an increase of 18 per cent for BMW. After a disappointing first quarter, Daimler was forced to cut its full-year guidance that it had issued barely two months earlier, leaving it well adrift of its goal to surpass BMW and Audi as the world's biggest premium automaker by sales by 2020 Nevertheless, Daimler's promises of better times ahead, driven by cost-savings and new model launches, have helped its shares rise 30 per cent over the past year. The Stuttgart-based company's second-quarter earnings beat expectations, and sales are expected to improve further in the second half of the year after the launch of the revamped E-Class and luxury S-Class saloon. The China investment programme revealed on Tuesday includes bold plans to double annual capacity at Daimler's Beijing joint venture, Beijing Benz Automotive, to about 200,000 units by 2015. The carmaker is also building its "first fully fledged engine factory outside Germany," which will export key engine components back to factories in its home country, along with a new compact car plant targeting more cost-conscious car buyers. "There is no doubt in my mind China will become the biggest market in the world for Mercedes-Benz," Mr Troska said, adding that he expected that milestone to be reached in 2015 or 2016. However, Daimler's growth offensive is coming at a time when the Chinese market has cooled slightly. BMW has cautioned that it does not expect to see a repeat of the very big double digit growth rates it saw in the past. Moreover, of the 206,150 Mercedes-Benz cars that Daimler sold in China last year, less than half were manufactured locally with its joint venture partner Beijing Automotive. Its ambition is to boost China sales to 300,000 units by 2015, with two-thirds manufactured in China. Audi and BMW have been more aggressive in manufacturing locally and designing models tailor-made for Chinese consumer preferences. These include longer vehicles providing more leg room in the rear seat for wealthy owners who prefer to hire drivers. "[Daimler] were relatively late in localising their product here," said Ivo Naumann, managing partner of AlixPartners, a Shanghai-based consultancy. That positioned them at quite a price disadvantage versus BMW and Audi. Audi was the earliest one who went into localisation and Mercedes came much much later. In addition to producing more cars in China, Daimler also hopes to boost the percentage of locally produced components from half at present to as much as 70 per cent, although Frank Deiss, president and CEO of Beijing Benz Automotive, insisted there was no fixed target. "Behind each and every localisation project there must be a good business case," Mr Deiss said. We are bundling each and every quote together with our colleagues in Stuttgart . . . before making any decision on suppliers. Mr Troska also said Daimler successfully navigated its way around a longstanding roadblock earlier this year when it merged two previously separate China distribution arms and began to bulk up its distribution network in the country. The establishment of the company's Beijing joint venture created an overlap with a Hong Kong-based distribution partner, which had previously handled much of its China business. "We partly confused the market and our customers when we had these two organisations go to dealers with conflicting messages - that's over," Mr Troska said, noting that Daimler would sign up 75 new distributors in China this year. We know what we have to do [in China] and some of those things will be fixed but not overnight. This is why I'm saying yes, we'll grow but we're not sticking a big number out for this year.