Blog: DCX: Mercedes cars is the issue
Dave Leggett | 7 April 2005
Things are in a bit of a sorry state at DaimlerChrysler right now and some shareholder discontent is hardly surprising.
Juergen Schrempp, architect of the great merger of 1998, will be coming in for some stick. The problem is not so much with the troublesome Smart brand (which, arguably, should be jettisoned or at least face more radical surgery rather than be half-heartedly ‘fixed’) or Maybach (just plain expensive for little obvious gain) or the apparent derailment of the company’s long-term Asian growth strategy with the decision to stand back from the Mitsubishi Motor rescue package.
Even the languishing DC share price is not, in itself, the most serious issue facing DaimlerChrysler. No. The big problem is what has happened to the reputation of Mercedes-Benz cars. You know, the luxury ones with the three-pointed star that don’t quite have the reputation they used to.
Let’s step back to the late ‘90s and early noughties (I’m still not sure how we refer to this decade we are in). The Chrysler division of DC was losing money hand over fist and restructuring was prescribed. To be fair, the financial turnaround at Chrysler was impressive and better products emerged eventually too.
But at the same time, Mercedes-Benz cars – the hitherto healthy high-margin earner in the Group – started to see problems. Industry surveys of reliability showed that Mercedes cars were not nearly as good as they used to be. The brand reputation for great innovation suffered as new electronics-based enhancements on cars failed. Warranty costs were rising. At the annual DC results conference last year, Schrempp himself acknowledged that ‘there are some [Mercedes] cars in the field that do not meet our standards.’
And, as Mercedes cars have faltered, great rival BMW has been at the top of its game, rubbing salt into the DC wounds.
In short, DC’s management seems to have taken its eye off the Mercedes ball as it has had to deal with a multitude of issues that have bubbled up. The appropriate word may even be neglect.
Now the question is how to put that right. The trouble is, you don’t easily put these things right and brand perception in the marketplace is a notorious lagger. Just recently a big Mercedes recall was announced that will not have helped one jot. And how do you keep the pressure on costs and at the same time improve quality?
The central issue for DC right now is undoubtedly sorting out Mercedes-Benz cars. That said, there are clearly other uncomfortable issues for DC’s management – such as the heavily loss-making Smart brand (the four-seater ‘ForFour’, made with Mitsubishi in the Netherlands, is underperforming horribly and announced restructuring costs for projected breakeven in 2007 sounds like a pretty poor return).
Mr Schrempp may need to duck and dive for a while yet.
I'm starting to get a small idea of the scale of things here in China, but really, I'm only scratching the surface of this vast country....
Given the startling complexity of obtaining a journalist visa for China - the code 'J2' is now indelibly stamped on my mind - it was with some surprise how swiftly I managed to sail through airport im...