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DaimlerChrysler at the IAA, Frankfurt, 2005

It’s been a rocky ride for DaimlerChrysler this year. Its main premium brand has suffered from severe criticism for poor product quality, and Smart has had to cut back severely, even halting the production of the distinctive Roadster, writes Nargess Shahmanesh Banks.

Not all is doom and gloom, though. Chrysler and Jeep have had an exceptional year with the launch of an array of interesting and unique products. Things will be looking up on the Mercedes front too with a strategic managerial change that has seen Dr Dieter Zetsche, former head of Chrysler, take on leadership of the premium carmaker. He replaced Eckhard Cordes who left the company at his own request in August after 29 years of service.

DC board members are probably hoping Zetsche can perform the same magic he did in his 6 years at Chrysler. More importantly at the beginning of next year he will become chairman of the board of management and CEO of DC.

Frankfurt was, in a sense, where DC proved to the world it still has what it takes. The vast construction, with its endless spiral staircase, built especially for the 2005 IAA Show, itself said a lot about the company. Next to BMW’s rather modest stand, it evoked exactly the reaction DC intended. Coupled with the cars on show, most notably the garish Maybach – dubbed Batmobile by one critic – the S-Class, ML 63 AMG SUV and Vision R 63 AMG, DC made itself loud and clear: “We are back,” it shouted.

“My last visit to the IAA was 6 years ago while I was still at Mercedes,” said Zetsche as he unveiled the S-Class. “For me today is a sort of coming home.” He said he is entering his new role as chairman of the Mercedes Car Group: “with 100 per cent commitment, a great deal of pleasure and for a time span which is open-ended. Our customers worldwide benefit from strong brands that offer distinctive, appealing products. Mercedes-Benz is the jewel in the crown of this portfolio and is excellently placed thanks to its unique model range.”

Rocky times

DC recorded an operating profit of €1.7 bn ($2 bn) in the second quarter of 2005, compared with €2.1 bn ($2.6 bn) in the same period the previous year, although significantly above what analysts had predicted. The realignment of Smart caused huge expenses during this period, but excluding these charges, the Group's second quarter operating profit amounted to €2 bn ($2.4 bn), which was close to the level recorded in the same period last year.

In the second quarter of this year, DC increased its worldwide unit sales by 4 per cent to 1.3 million vehicles compared with the same period of last year. The company’s second quarter revenues also increased by 4 cent to €38.4 bn ($46.8 bn).

The Mercedes Car Group’s second quarter unit sales decreased by 4 per cent to 308,100 vehicles due mainly to lower sales at Smart and because both the two profitable models, the S and M-Class had reached the end of their product cycle. Revenues were also down by 4 per cent.

The Chrysler Group increased its second quarter worldwide sales by 3 per cent to 783,000 vehicles. This increase was primarily due to the market success of new products launched in 2004 such as the Chrysler 300, the Dodge Magnum and the Jeep Grand Cherokee.

However mainly due to the appreciation of the euro against the US dollar, revenues decreased by 1 per cent to €13 bn ($16 bn). Chrysler did, however, post an operating profit of €544 mn ($664 mn) in the second quarter of this year, compared with an operating profit of €521 mn ($636 mn) in the same period in 2004.

Going green

Despite a mixed performance on the sales front, DC showed its commitment to innovation by investing a whopping €5.7 bn ($6 bn) in R&D last year, giving it a leading position in the industry. The Group invested over €1.6 bn ($1.9 bn) in environmental protection alone in 2004, compared to €1.5 bn ($1.8 bn) the previous year.

“Our achievements in the field of sustainable development are demonstrated by numerous activities and projects, which are documented in our Sustainability Profile 2005,” says Dr. Thomas Weber, member of the board of management with responsibility for research and technology as well as development at the Mercedes Car Group. “We are fully aware that only ecological and social responsible companies can be globally competitive and successful in the long term.”

Back in September, DC and Ford announced that they were officially taking over the fuel cell system business of the Canadian company Ballard Power Systems. The two automotive giants now own equal shares in their joint company, NuCellSys and will continue to work closely with Ballard in the development of fuel cell systems.

Through NuCellSys, DC and Ford will focus on ways to best integrate fuel cell drives into vehicles, while Ballard will continue to develop and manufacture fuel cells and electric drives for fuel cell vehicles. With a total of 100 cars, buses and vans, DC has put the world’s biggest fleet of fuel cell vehicles on the road.

Frankfurt was also the site for signing of a deal between DC and two of the world’s most powerful carmakers for the joint development of hybrid drive systems, the technology that DC sees as the preferred stopgap until a fuel cell future. Through the new company, DC, archrival fellow German, BMW and General Motors will pool their expertise for the accelerated and efficient development of hybrid drive systems.

“By pooling the development expertise of the three carmakers we are making it possible for all companies to bring to market appealing vehicles with convincing performance, comfort and environmental features for the benefit of our customers,” says Weber.

Located in Americas motoring heartland, Troy, Michigan, the new Hybrid Development Centre will develop the overall modular system and the individual components. In addition, the centre will be responsible for system integration and project management.

Global vision

“Without a doubt, the automotive industry’s greatest potential for growth in the next ten years is in Northeast Asia,” says Dr. Rüdiger Grube, member of the board at DC and the man responsible for corporate development and China operations. “And DC intends to be there with a major presence.”

Just two weeks after starting his new role as president and CEO of the Chrysler Group, Tom LaSorda reviewed the company’s plans in China and Taiwan early last month unveiling three product programmes representing an investment of $350 mn ($427 mn). Chrysler hopes to produce Minivans and the 300C all for local markets. This brings the total investment from DC and it's partner to $1.5 bn ($1.8 bn) in the region.

“Chrysler vehicles are known around the world for their combination of eye-catching design and outstanding value,” says LaSorda. “From fashion to architecture to cars, take a look at urban China today and it is obvious that successfully combining bold design and superior value is a winning formula. Following the success we have had growing our business in the hyper-competitive US and European markets, Chrysler is embarking on a new product offensive for Northeast Asia, led by our new flagship, the 300C, along with the world’s most popular minivan, the venerable Jeep.”

Grube adds: “Chrysler’s plan to add minivan and 300C production to the region further complements DC’s overall strategy to expand production and sales of passenger cars, commercial vehicles as well as vehicle financing.”

The Chrysler 300C will be built at the new joint venture, BeijingBenz-DaimlerChrysler Automotive (BBDCA), in late 2006. The equal joint venture between DC and Beijing Automotive Industry Corp (BAIC) is an expansion of Beijing Jeep Corporation, which produces and sells Jeep and Mitsubishi SUVs. BBDCA will also produce the Mercedes E and C-Class at a new facility in the Beijing Development Area.

Planning ahead

DC has set some tough targets for its ‘jewel in the crown’. By 2007, Mercedes should improve its earnings by €3.5 bn ($4.3 bn) as well as achieve a return on sales by 7 per cent. Increase in profit for the remainder of the year should come from new models, in particular the new S and M-Class as well as a wider choice of engines. Completely new, bold and younger models like the new R-Class and the not-so-new B and CLS-Class should also help attract a wider audience to Mercedes.

Smart, as expected hasn’t had a great year but, according to DC sources, the realignment plan is going ahead as planned. The most important milestones were the agreement achieved with the employee council on the planned job reductions and with the European Smart dealer organisation on an optimised distribution system.

For Chrysler, DC is expecting a continuation of the tough competition in the US market during the rest of this year with total market volume there estimated to be around 17.2 million vehicles. Over the coming years, Chrysler will aim at improving its manufacturing flexibility and modernise its production equipment announcing major investments at selected plants.

DC’s problems are simple. With a little clever management and a more critical eye on product quality as well as someone like Zetsche on the case, who knows DC may even surpass its own goals