MB reliability

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But that, arguably, applies to all Germany-based manufacturing.
Merc produces abroad, e.g. South Africa and the US.
BMW is, labour-wise, in a similar boat, but is the brand under similar
attack?
Manufacturing in developed countries will continue as long as it is efficient and adds value. Just because you pay an Bangladeshi labourer tuppence a day doesn't mean you can manufacture EVERYTHING cheaply.
If product quality in a poor country rises the cost will also rise, maybe not quite to 'western' standards, but in same ballpark. An excellent example in my mind is Japan and its development from 1945 to now.
DAS
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Dori A Schmetterling wrote:

Yes.
Not enough

Yes, but this isn't a brand problem it is a production problem, and they are different things. And VW and Audi. As for other manufacturing, margins in the car business are usually quite thin due to powerful global competition.

Price of labor does not mean good labor. Just because an assembler is expensive doesn't make him better than a less expensive laborer. Take Skoda for example who is very good and quite cheap. Labor costs are driven by general economic conditions and social values of the market in which the manufacturer is located. Priced a house in Germany lately? Mercedes doesn't pay more for German labor because it is getting a better quality of labor, or in other words, they aren't making a conscious choice to pay for more expensive German manufacturing because they think it is better. It pays more because of the connection of labor to government to management in Germany and the social contract which exists in Germany causes a more expensive labor market, which is a negative. They do not move all of their manufacturing from Germany because they can't, and they don't want to. There are more variables that go into the decision of where to manufacture than the cost of one plant over another, but they have made the decision to start manufacturing globally later than most manufacturers and their foot print in other economies is smaller than most manufacturers.

Yes. This is also true for Germany who was equally poor after World War two, but the dynamics of this change come from an influx of wealth into the economy from sales both domestic and foriegn, which raise the standard of living for the inhabitants who buy more products who create inflation who need to be paid more for their labor to afford the things that they need. However, the cost of doing business in Germany is higher than other developed nations due to tax based social programs such as but not limited to socialized medecine and education.
I know that Mercedes says that the source of its problems come from new technology in their cars, but that isn't the whole story. If one starts to look at the parts that Mercedes has been putting in their cars for the past fifteen years everything including the window switches have been reengineered with an eye towards cost instead of quality. Things like the plastic oiler caps over the cam shafts that replaced the old steel tube. The caps can crack and fail leaving cams unlubricated and quickly destroyed, whereas the old oiler never failed, however, the caps are cheaper to produce and install. It isn't just new electronic equipment that is failing where equipment never failed. The old systems have been replaced with systems that are cheaper to manufacture and install to cut costs, because labor is a cost that they have been unable to control. That is the driving force behind the decision at Mercedes fifteen years ago to extend the brand, reach for higher sales volumes and new markets with a lower cost to produce product. That decision is a short term decision which devalues the brand today for higher profits today, and the hope that they can reorient the brand for the future by building more manufacturing plants in other labor markets, which will give them the margins to rebuild the quality in the product later and rebuild the brand. Remember that it was in the early nineties that Mercedes Benz's losses caused Daimler Benz to take a red quarter leading to the firing of half of their officers. The new regime needed a new plan, and the quality issues today are the result of that decision fifteen years ago.
That's how I see their current problems.
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See below.
DAS
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H: You erroneously inferred that it was. I was trying to move on to another topic because the whole brand debasement thing is not actually a problem from a business sense. It is a problem for the consumer since it creates a lower quality product, but for the business it is good. It is a way of unlocking short term value. The problem for Mercedes is the cost of production of the vehicle, which for them is too expensive, and I beleive that that is because of labor costs which are much higher than other industrialized nations. Compared to the US, Mercedes pays 30% more for the same work in Germany than in the US even when they are paying the same actual wage to the employee because of the cost of health care, vacation, and labor based taxes. Mercedes chooses to pay nearly twice what the same US UAW labor makes so they could still get the same labor for less.

H: I disagree. The hourly rate of a laborer can be the tipping point to unprofitability when margins are thin and competition keeps driving selling prices down. Yes, a plant which is inefficient in the way that it manufactures will never compete in a global arena in which manufacturing processes are similar. More expensive labor markets use more robots and fewer people to keep costs down, which again may lower quality if those robots are ill equipped for the tasks which they must perform. Of course the great example of an inefficient plant which could never compete on the open market was the Rover plant in Birmingham, which didn't even use a stuff up. No manufacturer could have made that plant competitve.

H: It's a point.

H: I got your point, but I didn't particularly agree with it. It isn't the raising of the inate "quality" of the product that makes the cost of production more expensive. It is the increase in wealth due to increased sales that makes an economy inflate. That raises the wealth of an area and the costs of good made there. The finest good in the world can be made in a place which is cheap and the increase in its inate quality is great, but if it does not sell then there is no increase in wealth and no inflation.

H: The ashtray cover doesn't really work as an example since 1) it won't "fail", it will only feel cheaper than the old one (personally, I really hated the change to Japanese style door lock plungers instead of the old silver tipped black ones, which spoke Mercedes to me. They reinstated those as well.) and 2) when we are discussing quality, I bring up the cam shaft thing since that cost a friend of mine around three thousand dollars when his oiler caps failed. As a matter of brand debasement, the ashtray cover is an excellent example, but it is not a quality problem.

H: That is an interesting question, and it is unanswerable. I think that the company would be in much, much worse financial shape than it is now, but I think that I would have made my last car a Mercedes (assuming it was still in business) than the Mazda that I did buy. The Mazda has all the luxury goods in it that I want without the goo-gawery, and it works much better than a new Mercedes for half the price. Mercedes to me is my '72, and if I had one, the greatest Mercedes of all time in my opinion, a 1980 300SD. Those cars were tanks and drove like tanks. The choices that Mercedes have made in the past fifteen years concentrating on gadgetry to sell cars and cheapening the actual assembly of the car has turned them into a 1974 Cadillac to me, and that is a very, very bad thing.
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Below.
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The '74 Caddy comment was directed more at the last model S Class. I have yet to drive the current S Class and therefore have no comment about it. To me the lack of recirculating ball steering, the over boosted power steering and the too insulated air ride suspension reminded me of the Cadillac. The W140 S600 that I've been driving around lately really makes me think of a Mercedes even though it too has an air ride suspension and over boosted steering yet somehow it comes across with that teutonic feeling in a big way when it digs into a corner or hauls butt up the highway. The model CLK you have I have driven as a 2004 CLK 55, and I love it as a driver (reliability not so much, but it drives great [accepting the brakes]). I think that that is a fabulously lithe car and quite comfortable. My personal feeling is that it's the best driver in the mercedes line up right now, but I have not driven all of them, and of course it is just being replaced.
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Thank you for the discussion. It has been very interesting, and at this point I think that we have beaten the horse dead. I find your points in the last post true enough. All the best - H
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On Mon, 11 Sep 2006 10:51:38 +0100, "Dori A Schmetterling"
<snip>

Re post-WW2 recovery in W Germany
Late 1980s found me working for a year in Dusseldsorf in the offices of Mannesmann. I asked several of the local workforce about their 'miracle recovery' in the 1960/70s. The only new thing I learned was that all overtime worked by W Germans then was tax-free. Quite an incentive to get the country on it's feet again!
Re pricing
Not cars I know, but my daughter works in Book Publishing. I asked her once why a book imported from the US priced at $US20, was being sold in the UK at 20.
She told me that 'this price is what the local market will stand'.
My understanding is that is the principle of the sales pricing for all goods everywhere.
David
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That may be true but the bottom line is cost (calculated one way or another). If your costs are GBP 18 you cannot sell at USD 20 for any sustained period. Which is why the mass garment industry has largely disappeared in the 'rich countries'.
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It could be, though it's not easy to imagine that M-B's managers did such a perverse trade-off on purpose.
But supposing that they did it, more than marginally: Today, fifteen (!) years later, IMO the companys profitability would be already showing the damage, in spite of the resilience of the brand. Profitability could be achieved that way, but not maintained as much time.
The Mercedes Car Group had operating profits of EUR 2.9 billion in 2001, 3.0 billion in 2002, 3.1 billion in 2003, and of 1.7 billion in 2004.
Although in 2005 The MCG posted an operating loss of EUR 505 million, they say that this result was negatively impacted by expenses related to the "continuation of measures initiated within the quality improving program" (!). It is also the effect of "EUR 570 million incurred last year relating to the headcount reduction program, which had been accepted by approximately 5,000 employees (5%) by the end of 2005".
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I agree with DAS. A company like M-B must incur higher costs to deliver a product for which customers are willing to pay more. Such way of competing comes from performing activities in a different way from its competitors, and it is as successful as the size of the wedge between willingness to pay and total costs. The greater this wedge, the strongest its competitive advantage compared to rivals.
One can think in terms of the tension between this two linked parameters: costs and willingness to pay.
The reliability drop is slowly lowering customers willingness to pay for M-B cars, narrowing that wedge, that allowed the company to command a premium price, achieving superior profitability and outperforming competitors in the past.
On the other hand, there could be some room for lowering labor costs by cutting jobs and reductions in wages and benefits of M-Bs highly skilled labor force, or producing more abroad. But limited to the point in wich those reductions begin undermining the company's differentiation, and therefore again, its customers willingness to pay more.
Anyway, M-B managers say that the loss of reliability is due to the addition of unproven technology to their vehicles too quickly, and that in the future Mercedes will devote more time to testing. It seems simple, just more testing. I dont know, we have to wait and see.
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