MB collapse in profit as quality deterioration

09-13-2005, 04:10 AM

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cntlaw

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C55AMG W203; 330i E90

MB collapse in profit as quality deterioration

I still remember more than one guy had scolded me complaining the damn C55 starter problem after 11 months; the damn window wiper breakdown five days after my car on the ground. They were all so 'happy' to live with the problems and they are surely out date.

cnt

By MARK LANDLER New York Times, Published: September 13, 2005

FRANKFURT, Sept. 12 - The incoming chairman of DaimlerChrysler signaled on
Monday that he would impose a stringent cost-cutting regimen on the
company's flagship Mercedes division, which has had a collapse in profit
amid evidence that its quality standards have deteriorated.

Speaking at the Frankfurt international auto show, the executive, Dieter
Zetsche, said in an interview with reporters, "We have to learn to do the
same with less, or even more with less."

Mr. Zetsche, who will succeed Jürgen E. Schrempp in January, did not
specify how much he was seeking to save, or whether DaimlerChrysler would
eliminate jobs to do so. German companies typically negotiate with their
unions before announcing staff reductions.

In his last post at DaimlerChrysler, Mr. Zetsche turned around the American
Chrysler unit, which was hemorrhaging money, in part by laying off 26,000
workers. Such wholesale cuts are all but inconceivable in Germany, where
the unions and job-protection laws are much stronger.

Mr. Zetsche said he would not use Chrysler as a model for Mercedes, noting
that a "comparison would be misleading."

But as German carmakers struggle with global competition, they are being
forced to contemplate American-style cost-cutting. Volkswagen recently
warned that its German factories would require deep job cuts to stay
competitive with plants in Portugal and elsewhere.

Volkswagen "is a company in crisis," Wolfgang Bernhard, its No. 2
executive, said here. "People need to understand that. They have to
change."

Mr. Bernhard and Mr. Zetsche, who worked together at Chrysler, are perhaps
the two most closely watched auto executives in Germany these days -
returning home after years in Detroit to revive two troubled industrial
icons.

Mr. Zetsche, in particular, dominated the first day of this trade show. At
a news conference for Mercedes-Benz, he was driven onto the stage in a new
Jeep Commander. Exchanging a baseball cap and leather jacket for a suit
jacket, Mr. Zetsche pronounced himself right at home.

He then introduced several new Mercedes models, including a redesigned
S-class sedan, the top of the line. The S-class will be critical to
restoring Mercedes's operating profit, which fell 98 percent in the second
quarter, largely because of losses at the Smart minicar unit.

Some analysts have called on Mr. Zetsche to shut down Smart. But on Monday,
he said it was "only fair" to give the unit's new management time to stanch
the losses.

Fixing Mercedes will occupy most of Mr. Zetsche's time, even after he
becomes chairman of DaimlerChrysler. A few weeks after being named to
succeed Mr. Schrempp, he was given responsibility for the Mercedes-Benz car
group, after its chief, Eckhard Cordes, resigned. On Monday, he said he
viewed the Mercedes assignment as open-ended.

That could put pressure on Mr. Zetsche, who will also face demands to
increase DaimlerChrysler's share price. Hedge funds have added to their
Daimler stakes since the announcement of Mr. Schrempp's departure, and
analysts said they might press for deeper changes.

Mr. Zetsche said the company had not yet determined whether its shareholder
base had been significantly altered by hedge funds. But he added, "The more
parties that are interested, the better for us."

DaimlerChrysler will also have to deal with the impact of higher oil
prices. Mr. Zetsche said consumers had been resilient during previous oil
shocks, though he conceded the one now would have a dampening effect.

Despite the variety of challenges facing Mr. Zetsche, analysts said he was
right to focus on rebuilding Mercedes. "It's the underperformance of
Mercedes that is holding the whole empire back," said Garel Rhys, director
of the Center for Automotive Industry Research at Cardiff University in
Wales. "If you get Mercedes right, you go a long way toward getting all of
DaimlerChrysler right."

Mercedes ranked 27th of 37 brands in the 2005 vehicle dependability survey
conducted by J. D. Power & Associates, behind Mitsubishi. The survey
measures reliability after three years of ownership. It ranked fifth in the
initial quality test, which measures reliability after 90 days.

"Clearly, it's our objective to be No. 1," Mr. Zetsche said. Asked whether
he had a deadline for reaching that, he demurred, saying, "We will be in
the very top ranks in the next three years."

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