In light of poor sales, DaimlerChrysler has announced a $US1.6 billion programme to restructure its Smart brand. However, rather than continuing to invest in an ailing niche brand, the company would do better to focus investment in its more mainstream Mercedes marque.
DaimlerChrysler has announced a $1.6 billion plan to revamp its loss making Smart brand. The company hopes that as a result, earnings will have increased by around $680 million come 2007.
Over the next two years the firm hopes that its restructuring plans will help to reduce fixed costs by 30%. In order to make the savings, the company will eliminate 700 jobs. Furthermore, its Smart mini-SUV will not be introduced as planned to the US market, and the roadster model will be discontinued from the end of 2005. However, rather than drop the Smart business, DaimlerChrysler remains resolute that the division will grow its way out of the current predicament.
The upshot is that DaimlerChrysler is seeing its reputation tarnished. Over the last few years the company has had various financial problems: it initially fought to restructure its US division, and then saw its Asian alliances fall apart while sales of its Mercedes models have been hit as customers wait for new models. To make matters worse, the company has been further hampered by the need to recall 1.3 million Mercedes vehicles – teething troubles that can arguably be attributed to the over zealous use of complex technology on board.
Given Smart’s recent history, the logic behind the decision to bail out the brand once again seems somewhat difficult to fathom. The company needs to cut costs as soon as possible, which will now not happen. DaimlerChrysler originally expected an improvement in profits this year but this will now only remain valid if the costs of the restructuring program are excluded. Indeed, many argue that the company would be better served by abandoning the Smart brand altogether.
DaimlerChrysler needs to concentrate on its flagship brand Mercedes. Given that the Smart brand will always be aimed at a limited market, DaimlerChrysler should probably concentrate on those models that have a broader appeal.