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An American Success Story

Karl Ludvigsen
The enviable position of Mercedes-Benz in the contemporary American market is the outcome of the firm's repeated struggles with early business partners. Daimler-Benz managers proved to be good learners in a New World that many found alien and frustrating.

An American Success Story
by Karl Ludvigsen
Photos courtesy Daimler Archives

 
The enviable position of Mercedes-Benz in the contemporary American market is the outcome of the firm’s repeated struggles with early business partners. Daimler-Benz managers proved to be good learners in a New World that many found alien and frustrating
 

The 1954 New York Auto Show Introduced the 300SL and 190SL

The technological lead that Germany’s motor companies gained in the 19th century wasn’t wasted in the world’s other markets – including America. After their display at the Chicago World Exhibition of 1893, demand for Benz cars proliferated. To meet this demand, the Mannheim company joined with American interests to form the Benz Motor Company in New York City. But with European demand draining the company’s output, the alliance proved premature.

Benz rival Daimler bypassed the production problem – and punitive import duties – by producing its Mercedes cars in the New World. That started in 1891 by establishing industrial engines in Hartford, Conn., in partnership with piano manufacturer William Steinway. Eager to add cars to his Daimler Motor Company portfolio, Steinway exhibited a Daimler product at Chicago in 1893 and started the local assembly of autos in 1895, but his death a year later suspended the project.

Restructured as Daimler Manufacturing, the Stuttgart company’s American daughter began assembling the current 45PS model at its factory in Long Island City from largely imported parts. “The American Mercedes is the car for speed, power and noiseless running,” the company proclaimed. “It is the acme of reliability.”

After celebrating its premiere in January 1905 at New York’s National Automobile Show, the first 45PS was delivered the following year, with a price tag of $7,500. Red was the standard color, but other colors were available.

As Rolls-Royce would discover later, buyers preferred the authentic, imported model. The project was rendered moot in mid-February 1907 when a fire consumed the factory, destroying eight road-ready vehicles, as well as 40 under construction. Production never resumed.

Benz wasn’t slow in responding. Jesse Froelich, head of the Times Square Automobile Company, revived the dormant U.S.-import company in 1909. In January of 1910, the Benz Auto Import Company produced a prize exhibit at its Manhattan showroom: The 200PS Benz – the world’s fastest car. Go-ahead salesman Froelich, who understood the benefits of racing, ensured the car and its later twin were in the hands of America’s most aggressive competitors. As Blitzen Benzes, the cars set several new records. Buffeted by economic turbulence, the decades between world wars saw the majority of sales chiefly of the most expensive Mercedes-Benzes through independent importers.

“Though one or two of the oldest established concerns, like Mercedes-Benz, retained showrooms in New York, the rest had given the United States up as a dead loss, and the foreign-car dealers had retired to fifth-floor warehouses on the East Side,” wrote Lord Montagu of Beaulieu during the Depression.

Not until 1948 did Daimler-Benz make preliminary plans to move back into the American market – after World War II. Those plans only became concrete in 1952, when head of exports Arnold Wychodil mooted selling Mercedes-Benz cars “in the U.S. in two or three cities with good dealers.” A business trip to America suggested that the new 300 and 300S models had excellent prospects with potential yearly sales of 800 to 1,000 units. However, only one importer showed appreciable interest.

Max Hoffman

This was Max Hoffman, who made “a less than favorable impression,” according to the minutes of a 1952 management-board meeting. The feeling was mutual. As a dealership partner in Vienna before the war, Hoffman supplied wealthy Austrians with Rolls-Royce, Bentley, Alfa Romeo, Talbot, Delahaye, Volvo and Hotchkiss autos. Mercedes-Benz was not included.

“Before the war, Mercedes was a trucky car,” Hoffman said, preferring more lively mounts. Having immigrated to the United States before the war, Hoffman set up a car-importing company in peacetime.

“I didn’t have much money for advertising, so I decided to open a showroom right on Park Avenue,” he said. “It was the best thing I could have done.”

Hoffman Motor Car Company on Park Avenue

The high-ceilinged showroom of the Hoffman Motor Car Company at Park Avenue and 59th Street opened for business in early 1947, with a single car on the floor – a Delahaye coupe bodied by Figoni et Falaschi.

Now Hoffman had Mercedes-Benz in his sight. Contacts at the Untertürkheim firm, including friendships with its racing manager, Alfred Neubauer, and Günther Wiesenthal of the Daimler-Benz AG Austrian (DBAG) office, helped him. Circa 1950, Wiesenthal helped Hoffman explore the U.S.-export possibilities with the head of Daimler-Benz, Wilhelm Haspel. However, Haspel was reluctant to launch the effort with only a humble 170V.

After launching the new 220 6-cylinder model at the Frankfurt Show in 1951, Haspel agreed to an American campaign and in 1952, Hoffman was invited to Stuttgart to discuss final details with export chief Wychodil. That July, Hoffman was appointed as U.S. distributor for Mercedes-Benz passenger cars in the eastern United States, where he had established a dealer network. By December 1952, there were two more distributors: International Motors Inc. for Southern California and Riviera Motors Inc. for Northern California, as well as Nevada, Washington and Oregon.

Surprisingly soon, Wychodil asked Hoffman to visit California to assess the Los Angeles importer. “I had never been to the West Coast, not even as a tourist,” Hoffman said before the 1953 trip.

He found the importer in serious financial difficulty. “He was a car enthusiast and not a businessman, you know what I mean?” Hoffman said.

Hoffman took over the Los Angeles market – later, other territories in San Francisco and Texas – at Daimler-Benz’s behest. For the first time, Hoffman was selling cars coast to coast.

Heinz Hoppe

In 1954, Heinz Hoppe joined DBAG from component-maker Freudenberg to represent the company in America. As a base, Daimler-Benz of North America Inc. was incorporated in Delaware with an office in Washington, D.C. Recruited by Carl Giese, but reporting to Wychodil, Hoppe was “expressly forbidden any form of contact with Hoffman” by Giese. Nonetheless, Hoppe was tasked with monitoring Hoffman’s activities and “dealing with complaints from dissatisfied customers.”

“If Maxie Hoffman’s sales organization had a major flaw, it was that it was set up primarily to serve his own interests and tended to disregard those of his 40 or so sub-agents, the customers and the manufacturer back in Germany,” Hoppe observed. “By running his own branches in the main-sales areas – New York, Chicago, Los Angeles – he made sure that most of the profit ended up in his own pockets, while the build-up of an organization that would cover the entire territory efficiently was neglected. Customers suffered badly from Hoffman’s sales structure, which landed them with a luxury automobile but offered them no prospects of reliable servicing for it.”

Hoffman promoted Mercedes-Benz with racing models - 300SL at Bridgehampton

In the summer of 1955, Hoffman found himself welcoming an emissary from Daimler-Benz, Giese himself. A Switzerland resident whose management style Hoppe described as neurotic, Giese obsessed over potential alliances with major companies that could create new and lucrative roles in his career. Having failed to convince management that the future laid in cars produced abroad, Giese hoped to create joint ventures in engine manufacture with companies such as General Electric and United Aircraft.

One such company was New Jersey’s Curtiss-Wright, a focus of his attentions in 1956. Having neglected its turbojet development, Curtiss-Wright saw value in an alliance with DBAG, which had an advanced turbine design on the stocks. Giese attempted to attract the company’s interest to Mercedes-Benz cars, but the American engine maker was reluctant.

Events in August 1956 brought a dramatic change. In search of an alliance with potential to increase Curtiss-Wright’s borrowing power, Chairman Roy T. Hurley signed an agreement assuming management control of struggling auto-maker Studebaker-Packard. This created a dream result for Giese: A potential tie-up with an American firm that could provide not only an aero-engine license, but also auto distribution through 2,500 Studebaker and Packard dealers and an opportunity for Mercedes-Benz passenger-car production at the South Bend, Ind. factory.
Hoppe did everything in his power to scupper such a bizarre marriage.

“I pointed out that none of us had scrutinized the Studebaker-Packard dealer organization closely,” he said, persuading a colleague “to visit Max Hoffman’s imposing showroom on Park Avenue and the dreary premises of the Studebaker dealer on 11th Avenue, [both within a few blocks of the offices DBNA had opened in New York’s Rockefeller Center earlier in 1956] to ponder the difference between them and work out for himself what was awaiting us after signing up with Studebaker.”

Typical Studebaker model - the Golden Hawk

Expressing reservations too often and too loudly, Hoppe’s objections prompted Giese’s demands to stay away from the involved parties in the days before the contract signing to ensure the deal was not jeopardized.

But there was a small matter of the existing contract with Hoffman. Giese proposed a solution. He suggested to Hoffman that only the redesigned 220 model be offered through Studebaker outlets and Hoffman would receive $200 for each import. “I agreed to this, as I would still be able to sell all the Mercedes-Benz models, including the 220, to my own dealers,” Hoffman recalled.

Details of this arrangement were discussed during a trip to Germany. A month later, however, word came from Stuttgart for Hoffman to give up the entire franchise. Officially terminated May 1, 1957, Hoffman relinquished the line with great reluctance. “I liked Mercedes very much, and I was very, very sorry that it happened. But I also had five other agencies then,” he said.

Easing his separation pains was a $2-million compensation for his contract balance. And Studebaker was supposed to repay DBAG through a special fund: For each vehicle sold, $20 went into the fund.

The Studebaker-Packard Corporation obtained the exclusive right to sell Mercedes-Benz cars and trucks in North America, Cuba and Mexico. Daimler-Benz of North America held a 40 percent stake in the new joint company against Curtiss-Wright’s 60 percent. And though myriad agreements envisioned a life of 15 years, a provision entitled either party to terminate after Jan. 1, 1962, if annual sales were less than $50 million.

“This puts the sales organization of this company, including its service facilities, at our disposal,” the DBAG-management board stated in its annual report. Against Hoffman’s 1956 sales of approximately 3,000 Mercedes-Benz autos, the ebullient Roy T. Hurley envisioned 60,000 sales each year with dealers selling two cars every month.

Not all were believers.

“Many customers, bankers and influential personalities in the U.S. tended to be very skeptical because the most expensive and qualitatively best cars were going to be sold by, of all companies, the weak auto maker Studebaker and its rickety dealer organization,” Hoppe said, adding, on the positive side, “Most of the customers regarded our separation from Hoffman as at least a slight chance of future success in obtaining spare parts, processing warranty claims, etc., now that Daimler-Benz AG was in a position to exert its influence more directly.”

Just as they had struggled with moving Packards, most Studebaker dealers didn’t know what they were supposed to do with a Mercedes.

“I can’t sell a Mercedes-Benz unless some jerk drops in by accident and wants to have one,” said one dealer. “But I’ll leave the star up because it enhances my status in the community.”

A mere fraction of Studebaker dealers were awarded contracts with Mercedes-Benz – initially 200, reaching 430 at the peak of activities.

In 1957, Daimler-Benz delivered some 7,000 vehicles to the United States and Canada, a leap in deliveries that were primarily initial stock for the dealer network – not a genuine increase in demand. In fact, 1957 sales recorded 3,150 units while unsold stocks amounted to 3,500 cars. Giese, who was then vice president and general manager of the new enterprise, prohibited any contact between his American employees and Stuttgart headquarters to prevent transmission of the information.

“Furthermore, Studebaker-Packard was on the brink of bankruptcy, so there was an acute risk of every new car we delivered being included in the impounded assets if a receiver were to be appointed,” Hoppe told German colleagues through back channels.

In the wake of an all-out sales push by Hoppe and his team during the winter 1958 to clear the backlog, DBAG sent an investigating committee to America in February.

The result: Giese’s summary dismissal from all his many posts. His replacement: Günther Wiesenthal, who helped introduce Hoffman to DBAG. A dedicated sales organization was established in August 1958 and Mercedes-Benz Sales Inc. was formed with offices at Studebaker in South Bend.

This gave a stronger focus on car sales with the three-pointed star, which started a gentle, upward trend. Meanwhile, Studebaker’s condition wasn’t improving. Faced with survival, the company invested little in its service network and sales development. Moreover, Studebaker tried to filch funds from the Mercedes sales company.

Studebaker Golden Hawk -- typical Studebaker model

“Studebaker was never able to invest in the extension or change of the dealer organization in a manner that suited Daimler-Benz interests,” Hoppe said.

By the late 1950s, Hoppe considered himself and his hand-picked team strong enough to organize sales and service on their own. But Wychodil, management-board member in charge of the United States, still thought it impossible to sever the links with Studebaker.

“In the years 1958 through 1963, I found myself practically in constant conflict with Wychodil” Hoppe said of the subject.

Finally, management consultants concluded that Mercedes-Benz would have to part ways with Studebaker to be successful in the American market.

After an extensive and finally successful persuasion of Stuttgart powers-that-be, negotiations began dismantling part of the Curtiss-Wright deal, supported by short-term loans by Daimler to its American partners. Studebaker-man Lon Fleener continued to head the new Mercedes-Benz Sales company, supported by the genial and savvy Heinz Waizenegger.

“We gradually familiarized ourselves quite thoroughly with the market situation and formed a clear picture of the number of dealers we needed in the U.S. in order to guarantee efficient after-sales service and parts availability,” Hoppe said of Waizenegger’s assistance. “After a few years, we knew that we were capable of running our own sales organization.”

On the public- and press-facing side, the Mercedes effort had the services of the imposing and formal Wolfgang Robinow and the impish and winning Marcus Clary, a German prince who wore his nobility lightly. Clary deployed his charm to solve a problem bedeviling his company’s customer appeal: Two separate and competitive owners’ clubs had been established in 1956, the Mercedes-Benz Club of America in New Jersey, and the Chicago Section of the Mercedes-Benz Club UK. Thanks to his negotiations, the two rival clubs merged in 1959 into one coast-to-coast group to which Daimler-Benz could give support and encouragement.

Meanwhile, sales of Mercedes-Benz cars from 1959 onward began declining from their modest four-figure peaks. Although the company’s products were better suited to the U.S. market, this wasn’t translating into sales. More problems than benefits came to the South Bend operation after its acquiring import rights for DKW cars made by Auto Union, which DBAG acquired in 1958. Into the 1960s, Daimler men began strategizing final separation from their American partner.

Beginning in 1962, the drop in turnover below  $50 million specified in the contract could trigger a complete and final break.

“Although giving notice to terminate a contract may be easy enough on paper, in practice it soon gives rise to questions of compensation and the threat of civil lawsuits, Hoppe told his colleagues.

While President John F. Kennedy’s America wasn’t as litigious as it later became, the situation presented a potential minefield for Germans. A major worry was that an aggrieved Studebaker would block vehicles and parts imports with an injunction, risking the entire sales organization.

Complicating final negotiations was the stance of export chief Wychodil, who had committed his reputation to the Curtiss-Wright deal and was adamant that the contract’s remaining seven years be completed. Pressure from above, engineered by Hoppe, brought Wychodil’s grudging consent. After a series of bruising meetings in New York and Stuttgart the sum of $3.75 million was agreed as compensation to Curtiss-Wright  for Daimler’s defection.

Effective Dec. 31, 1964, the contractual relationship between Daimler-Benz AG and Studebaker terminated and the Mercedes-Benz Sales subsidiary was dissolved.

The change was traumatic for customers and dealers. For both parties, the future of Mercedes-Benz in America was an unknown. But Hoppe and his team were learning by doing.

“For everyone concerned, this permanent confrontation with professionals from the local automobile industry was extremely instructive,” he reflected. “We got to know the practices and also the weaknesses of the American market. And we were able to build up a closely knit team of well-qualified employees who knew exactly what to do and how not to do it. This was the end of our apprenticeship.”

Ad Campaign of the 1960s

Advance preparations became reality with the commissioning of Mercedes-Benz of North America Inc., officially registered in the corporate-friendly state of Delaware as the new vehicle-sales company. Moving from Rockefeller Center to former Ford offices rented in Fort Lee, New Jersey, the staff was 600 strong by March 1965. In 1972, Mercedes-Benz of North America moved to headquarters in Montvale where it has remained ever since.

The opportunity wasn’t missed to enhance the dealer network. After the dismantled sales company terminated agreements with its 430 dealers, MBNA invited the best 210, which it had been monitoring, to join its new network. Of these, 195 accepted the offer to follow the star toward new horizons. Supporting the service departments was a sleeper cell of some four dozen master mechanics that had been in the United States since 1960, working with existing dealers.

“This outstanding after-sales team formed the backbone of our new organization,” Hoppe said of the technicians who elected to stay in the New World.

“Some of the mechanics were even helped by wealthy clients to open dealerships themselves, becoming prosperous businessmen.”

One can’t help but speculate about the 15 dealers who cold-shouldered the offer from MBNA to hitch their wagons to the star. What possessed them? The new future with Mercedes-Benz would be demanding – but eventually very rewarding.

 

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