DaimlerChrysler orders cuts
at Smart, demands breakeven
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
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