A Tarnished Mercedes
05-09-2005, 03:22 PM
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A Tarnished Mercedes
I saw this article about Mercedes bad quality and the drop in sales (From NewsWeek).
May 16 issue - These days auto giant DaimlerChrysler is a two-family house divided between function and dysfunction, with all the trouble on the side everyone thought was perfectly well adjusted. In the United States, former money pit Chrysler is hot. After years of red ink, including an incredible 5.3 billion loss in 2001, Chrysler is lean and healthy. As rivals Ford and GM lose market share, Chrysler has gained for six consecutive quarters, and earned more than 250 million from January to March. Last week it reported a sizzling 9 percent rise in April sales, led by popular new models like the 300 sedan and the Dodge Viper. While the rest of Detroit lives off the SUV, Chrysler is now the only member of the Big Three automakers that makes even one popular car in the U.S. market.
Meanwhile, DaimlerChrysler's flagship German brand and erstwhile cash cow, Mercedes-Benz, is in deep and serious trouble. Sales are down. Worse, once standard-setting Mercedes now scores near the bottom in consumer quality tests. In late March, Mercedes recalled a record 1.3 million of its E-Class sedans after discovering problems with alternators and batteries. In the first quarter, the Mercedes-Benz Group (which includes niche brands Maybach and Smart) lost a whopping 950 million.
Certainly the last thing anyone expected was that a booming Chrysler would be propping up a hemorrhaging Mercedes. Yet this is not the first time the conventional wisdom has been dead wrong on a giant merger—and the $38 billion deal that created DaimlerChrysler remains one of the largest industrial mergers ever. That the historic union would be struggling at all—dragged down first by problems at Chrysler, then by DaimlerChrysler's disastrous linkup with a near-bankrupt Mitsubishi, now by troubles at Mercedes itself—seems to be the result of one of the worst cases of collective bad judgment in recent corporate history.
After all, CEO Jurgen Schrempp called the merger "a marriage made in heaven," auto executives and analysts agreed, and the financial media hyped it as "Global Auto Inc." Daimler-Benz and Chrysler seemed a perfect fit, a model of global synergies and diversification. "We were all blinded," says Jurgen Pieper, auto stock analyst at Metzler Investments in Frankfurt. "We thought one plus one would make three, but instead one plus one made more like zero." The combined company has lost more than half of its 1998 market cap.
How come the experts got it so wrong? At the moment of the merger, says Pieper, both companies were at the peak of their product and market cycles. Chrysler had emerged from its early-1990s brush with bankruptcy on the strength of hot-selling minivans, and few saw the extent of lingering problems with aging models and soaring costs that would soon put it back in the red. The tie-up looked blindingly good on paper, which is why the consensus view on giant mergers is so often wrong (recall the hype for AOL Time Warner?). This is not an argument against auto-industry mergers, as successful tie-ups such as Volkswagen and Audi or, more recently, Renault and Nissan show. Yet even here the market cognoscenti have often been wrong. When Renault bought Nissan in 1999, the Japanese automaker was a basket case and Renault an inexperienced newcomer in closed-shop Japan. Analysts and the media were scathingly skeptical. Yet Renault's Carlos Ghosn's revamping of Nissan turned out to be the auto industry's most successful turnaround story in years. Mergers are not executed on paper.
DaimlerChrysler, however, is still paying for its ill-designed deal. "Management's efforts and focus on fixing Chrysler has been a distraction from problems at Mercedes," says Adam Jonas, an auto-industry expert at Morgan Stanley in London. CEO Schrempp, analysts say, has been so busy attending to disasters in his far-flung conglomerate that he let things at Mercedes slide too long. The turnaround specialists Schrempp sent from Stuttgart to Detroit and Portland, Oregon, to fix Chrysler and the Freightliner trucks subsidiary were missing when Mercedes itself turned out to be the patient.
That's been rectified now. Last October, Schrempp sent former Freightliner chief Eckhard Cordes to turn Mercedes around, and he has promised to get quality problems under control. Sales could see a boost from a slew of new models out later this year—including a fresh version of the successful M-Class SUV and an entirely new R-Class SUV-minivan hybrid. Part of the red ink at Mercedes covers aggressive write-offs of past problems, such as the closing down of unsuccessful model lines to cut further losses. As Cordes jockeys with Chrysler chief Dieter Zetsche to succeed Schrempp when he retires as CEO in early 2008, both "have every incentive to perform well over the next year or two, as success at Chrysler or Mercedes may be the key to winning the CEO succession," says Commerzbank Securities analyst Adam Collins. Judging by a 12 percent drop in DaimlerChrysler's stock price so far this year, the market consensus seems pessimistic. But we know it's been wrong before.
May 16 issue - These days auto giant DaimlerChrysler is a two-family house divided between function and dysfunction, with all the trouble on the side everyone thought was perfectly well adjusted. In the United States, former money pit Chrysler is hot. After years of red ink, including an incredible 5.3 billion loss in 2001, Chrysler is lean and healthy. As rivals Ford and GM lose market share, Chrysler has gained for six consecutive quarters, and earned more than 250 million from January to March. Last week it reported a sizzling 9 percent rise in April sales, led by popular new models like the 300 sedan and the Dodge Viper. While the rest of Detroit lives off the SUV, Chrysler is now the only member of the Big Three automakers that makes even one popular car in the U.S. market.
Meanwhile, DaimlerChrysler's flagship German brand and erstwhile cash cow, Mercedes-Benz, is in deep and serious trouble. Sales are down. Worse, once standard-setting Mercedes now scores near the bottom in consumer quality tests. In late March, Mercedes recalled a record 1.3 million of its E-Class sedans after discovering problems with alternators and batteries. In the first quarter, the Mercedes-Benz Group (which includes niche brands Maybach and Smart) lost a whopping 950 million.
Certainly the last thing anyone expected was that a booming Chrysler would be propping up a hemorrhaging Mercedes. Yet this is not the first time the conventional wisdom has been dead wrong on a giant merger—and the $38 billion deal that created DaimlerChrysler remains one of the largest industrial mergers ever. That the historic union would be struggling at all—dragged down first by problems at Chrysler, then by DaimlerChrysler's disastrous linkup with a near-bankrupt Mitsubishi, now by troubles at Mercedes itself—seems to be the result of one of the worst cases of collective bad judgment in recent corporate history.
After all, CEO Jurgen Schrempp called the merger "a marriage made in heaven," auto executives and analysts agreed, and the financial media hyped it as "Global Auto Inc." Daimler-Benz and Chrysler seemed a perfect fit, a model of global synergies and diversification. "We were all blinded," says Jurgen Pieper, auto stock analyst at Metzler Investments in Frankfurt. "We thought one plus one would make three, but instead one plus one made more like zero." The combined company has lost more than half of its 1998 market cap.
How come the experts got it so wrong? At the moment of the merger, says Pieper, both companies were at the peak of their product and market cycles. Chrysler had emerged from its early-1990s brush with bankruptcy on the strength of hot-selling minivans, and few saw the extent of lingering problems with aging models and soaring costs that would soon put it back in the red. The tie-up looked blindingly good on paper, which is why the consensus view on giant mergers is so often wrong (recall the hype for AOL Time Warner?). This is not an argument against auto-industry mergers, as successful tie-ups such as Volkswagen and Audi or, more recently, Renault and Nissan show. Yet even here the market cognoscenti have often been wrong. When Renault bought Nissan in 1999, the Japanese automaker was a basket case and Renault an inexperienced newcomer in closed-shop Japan. Analysts and the media were scathingly skeptical. Yet Renault's Carlos Ghosn's revamping of Nissan turned out to be the auto industry's most successful turnaround story in years. Mergers are not executed on paper.
DaimlerChrysler, however, is still paying for its ill-designed deal. "Management's efforts and focus on fixing Chrysler has been a distraction from problems at Mercedes," says Adam Jonas, an auto-industry expert at Morgan Stanley in London. CEO Schrempp, analysts say, has been so busy attending to disasters in his far-flung conglomerate that he let things at Mercedes slide too long. The turnaround specialists Schrempp sent from Stuttgart to Detroit and Portland, Oregon, to fix Chrysler and the Freightliner trucks subsidiary were missing when Mercedes itself turned out to be the patient.
That's been rectified now. Last October, Schrempp sent former Freightliner chief Eckhard Cordes to turn Mercedes around, and he has promised to get quality problems under control. Sales could see a boost from a slew of new models out later this year—including a fresh version of the successful M-Class SUV and an entirely new R-Class SUV-minivan hybrid. Part of the red ink at Mercedes covers aggressive write-offs of past problems, such as the closing down of unsuccessful model lines to cut further losses. As Cordes jockeys with Chrysler chief Dieter Zetsche to succeed Schrempp when he retires as CEO in early 2008, both "have every incentive to perform well over the next year or two, as success at Chrysler or Mercedes may be the key to winning the CEO succession," says Commerzbank Securities analyst Adam Collins. Judging by a 12 percent drop in DaimlerChrysler's stock price so far this year, the market consensus seems pessimistic. But we know it's been wrong before.
05-09-2005, 08:21 PM
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A Porsche, BMW or Audi?
This Wednesday will mark six weeks since our brand-new 55 broke down with a computer module failure. Still not fixed. At some point one feels like they don't care: "We've lost this guy anyway". Their only concern, I'm afraid, is beating the 90 day lemon law clock. Not a happy camper over here.
Last edited by Rascal; 05-09-2005 at 09:02 PM.
05-10-2005, 10:15 AM
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2016 C63
A troubled company but they seem interested in fixing the problems - they better or they will be history. I am confident that they will come back.
Note the great reviews that the SLK55 has received. I am looking forward to receiving mine. I think my C55 is the best car I have ever owned.
TEAShea
Note the great reviews that the SLK55 has received. I am looking forward to receiving mine. I think my C55 is the best car I have ever owned.
TEAShea
