Eckhard Cordes inherits one of the hottest seats in the automotive industry on Friday when he becomes head of DaimlerChrysler’s flagship Mercedes Car Group, Reuters reported.
The news agency noted that 53-year-old turnaround expert who whipped the group’s trucks and buses business back into shape will need all his management skills to improve depressed margins and fix quality hiccups that have dented the car division’s elegant image.
Reuters said Mercedes shows up brightly on analysts’ radar screens after the division warned in July it would not match 2003 earnings this year as planned given a changed model mix, the cost of new launches, currency headwinds and stepped-up spending on quality.
So how does an executive kick off the era after the legendary Juergen Hubbert, who ran Mercedes for over a decade? The nes agency asked.
“We are going to go drive cars,” Cordes told Reuters, noting he and other top managers were off to the Alps to get a better feel for just what Mercedes and its rivals had on offer.
The report said it is a challenging beginning for the manager from northern Germany whose performance at Mercedes may well decide if he will one day succeed his mentor Juergen Schrempp, due to step down as chief executive of DaimlerChrysler in 2008.
“It is the toughest job in the group right now,” Morgan Stanley analyst Adam Jonas told Reuters. “If he can find a bottom for the Mercedes margin – let’s say keeping their margin above 5% – get the quality improved and get the profitability in the 6 or 7% range which we were used to at Mercedes, he would have definitely improved his standing for taking over from Schrempp eventually.”
Reuters noted that Cordes has imposed a 100-day moratorium on publicly discussing his challenges at Mercedes, insisting he will break his silence only at the Detroit car show in January.
But his record at DaimlerChrysler’s market-leading commercial vehicles division gives some clues to his approach, the report said.
Cordes took over the division in 2000 when it was in bad shape due to price erosion, falling volumes and a US unit not focused on the bottom line, he recalled to Reuters last week.
He focused strongly on costs, pushed through unpopular wage cuts and plant closures, and zeroed in on quality and products. The efforts have boosted the division’s efficiency, via costs cuts and streamlining, by well over €1 billion ($US1.23 billion) so far.
“It’s all about implementation,” Cordes reportedly is fond of saying.
Helped by a recovering economy, the division’s operating margin swelled to 5.2% in the second quarter, within hailing distance of a record 5.6% margin posted in the second quarter of 1998, Bank Sal. Oppenheim analysts noted, according to Reuters.
“In our view this yields impressive proof of how lean the cost structure has become as compared to the past,” they said in a recent note to clients.
Reuters said Cordes had focused on trucks sharing more parts to exploit Daimler’s huge scale, including creating a global heavy-duty engine family to be used from 2007.
This may not translate well to Mercedes, however, given the pains the company takes to avoid blurring the lines between upmarket Mercedes cars and mass-market Chryslers, the news agency noted.
“Even a 1% deterioration of pricing at Mercedes would more than offset the potential purchasing benefit they could get by sharing with Chrysler,” Jonas reportedly said.
Reuters said Cordes, who joined the Stuttgart-based group as a trainee in 1976, may find it hard to make his mark quickly at the division that groups luxury Mercedes-Benz cars, the Smart compact series and prestigious Maybach limousines because Hubbert has already launched a new model offensive designed to perk up sales and clinched a deal with German unions in July to save €500 million a year in labour costs.
Improving quality takes time and money – Jonas reportedly estimated the drive could cost $300-500 million – and will weigh on Mercedes operating margins that at 5.4% in the second quarter lagged archrival BMW’s 8.4% return on car sales.
Reuters noted that Mercedes is also entering a heavy new model launch phase, is moving into new products and segments, and has to ramp up production at its US plant in Alabama.
“His task is to manage the brand as it depends less on what has been its traditional luxury segments and at the same time try to improve quality,” Jonas told the news agency. “It is not an easy task, especially at a time their (currency) hedges are rolling off.”