DaimlerChrysler cuts costs at Smart division

1st April 2005, Comments 0 comments

1 April 2005, STUTTGART - DaimlerChrysler said on Friday it was slashing costs at its troubled Smart division and insisting that the micro-car, which was launched in 1998, reach break-even point by 2007.

1 April 2005

STUTTGART - DaimlerChrysler said on Friday it was slashing costs at its troubled Smart division and insisting that the micro-car, which was launched in 1998, reach break-even point by 2007.

Despite rave reviews, the original two-seater Smart urban runabout has never made a profit. Sales of Smart's second model, the miniscule four-door ForFour sedan, have also disappointed, dragging down the profits of the parent, Mercedes Car Group.

DaimlerChrysler said restructuring expenses of up to EUR 1.2 billion at Smart would tear a huge chunk out of earnings at the German-American automotive conglomerate, which the previous day ordered the biggest recall of Mercedes cars ever.

Previously it had forecast a slight increase this year over the 2004 DaimlerChrysler operating profit of EUR 5.8 billion. That expectation remained in place, "excluding the exceptional charge from Smart". The executive board adopted the changes late on Thursday.

Not only will Smart lay off an unspecified number of staff at its factories in Boeblingen, Germany and Hambach, France but it will also cancel two models.

A project to build a Smart sports utility vehicle will be discontinued. The 'ForMore' SUV had been intended especially for the US market. Production of the Smart Roadster will be terminated at the end of 2005.

DaimlerChrysler said cooperation with Mitsubishi Motors on the Smart ForFour will be continued, adding, "Measures to be taken to improve profitability mean that this product will break even in the future."

Ulrich Walker, chief executive of Smart, told Deutsche Presse-Agentur the drive was effectively a fresh start for the brand with the target of reducing fixed manufacturing costs by 30 percent within the next two years so as to raise productivity.

Auto industry analysts say Smart's biggest problem, especially in its home German and French markets, has been the sparse network of dealerships, with Mercedes outlets reluctant to display a cheap and cheerful car alongside expensive executive limousines.

DaimlerChrysler has now ordered many of its own retail showrooms to build annexes to display Smarts. In 2004, only 140,000 Smarts found buyers, well short of the pruned target of 155,000.

"The new business model aims to put the small-car brand onto a financially sound basis, with the goal of breaking even in 2007," said DaimlerChrysler.

The group has not given up hopes of launching the classic Smart, the ForTwo, in the United States, saying there would be "intensified development of the successor to the smart ForTwo, including fulfilling the requirements for the US market".

"The next generation of the three-cylinder gasoline engine will also be used by other manufacturers, with resulting economies of scale that will substantially improve the cost position of this engine project."

On Thursday, DaimlerChrysler had recalled 1.3 million of its Mercedes cars to tackle persistent electronics problems that have undermined that brand's reputation for reliability in recent years.

New software is to be installed to regulate batteries and generators of E-class and CLS cars made since January 2002, while brake-pressure units in E-class, SL and CLS cars made since June 2001 must be replaced.

DPA

Subject: German news

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