A “new business model” for the Smart brand, announced by DaimlerChrysler’s board on Friday, will see the Roadster model line axed and the end of development of the ForMore SUV, a model that would have been built in Brazil and headlined the ‘official’ launch of the brand in the United States.
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“The new business model aims to put the small-car brand onto a financially sound basis, with the goal of breaking even in 2007,” DaimlerChrysler said in a statement.
DC’s operating profit in 2005 is, however, still expected to slightly exceed the previous year’s €5.8 billion, but that will exclude exceptional charges incurred from the Smart reorganisation – the company expects to spend up to €1.2 billion reorganising the brand.
The tiny ForTwo city car line with which Smart launched originally – currently being introduced into the US by an independent importer who sources them in Europe and modifies them to meet Federal regulations – will be redesigned and the new model will fulfil “the requirements for the US market”, Daimler Chrysler said.
It will also share the next generation three-cylinder petrol engine line with “other manufacturers, with resulting economies of scale that will substantially improve the cost position of this engine project”.
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By GlobalDataSmart already shares some components and petrol engines for its larger ForFour line with Mitsubishi’s European market Colt and both are built in the Japanese automaker’s factory – a one-time Volvo facility – in The Netherlands.
“Cooperation with Mitsubishi Motors on the Smart ForFour will be continued. Measures to be taken to improve profitability mean that this product will break even in the future,” DaimlerChrysler said.
But production of the smart roadster – well received by the motoring media but still a rare sight on European roads two years after launch – will stop at the end of 2005.
DaimlerChrysler said a key component of Smart’s new business model is a restructuring programme to increase earnings by some €600 million in 2007.
It will be possible to reduce fixed costs by around 30% within the next two years, while substantially improving productivity, the company claimed.
The new business model also includes organisational change. Key tasks in development, sales, procurement, after sales and service will be integrated into the respective areas of the Mercedes-Benz Passenger Cars operation.
“This will allow substantial synergy effects to be realised,” the company said.
Additional sales and market potential will be explored. For example, to boost unit sales, the number of smart outlets in the Mercedes-Benz sales organisation will be increased by about 25% using the ‘shop-in-shop’ concept.
Overall, DaimlerChrysler has assumed that restructuring expenses incurred in 2005 will total up to €1.2 billion.
This figure includes exceptional write-downs on plant and equipment, the settlement of obligations to third parties, and other value adjustments.
The programme, unfortunately, also includes unspecified “significant” workforce reductions.
“The management of smart GmbH aims to achieve these reductions in a socially acceptable manner. Talks are planned with the works council on this issue in the coming weeks,” the company said.
“The substantial exceptional expenses in connection with the new smart business model will impact DaimlerChrysler’s earnings forecast for 2005.
“Excluding the exceptional charge from Smart, DaimlerChrysler, after a weaker first and second quarter, still expects a slightly higher operating profit for full year 2005 compared to 2004,” the statement concluded.
