Chrysler & Mercedes

[HarleyEarl]

Tuesday, September 27, 2005 Chrysler, Mercedes to team up more Incoming DCX chief Zetsche says partnership is crucial to boost luxury profits, bolster U.S. brand. By Christine Tierney and Brett Clanton / The Detroit News Todd McInturf / The Detroit News Dieter Zetsche believes Mercedes and Chrysler can benefit from sharing costs. "We have to spend less. We have to do more," he said. AUBURN HILLS -- Dieter Zetsche dismissed speculation that Mercedes would be better off without Chrysler and said DaimlerChrysler AG's German and U.S. auto divisions will work together more closely in the future. Zetsche, former head of the Chrysler Group and now head of the Mercedes Car Group, said both carmakers would benefit from sharing costs and technology in the face of rising competition. "There's no doubt that the speed and sustainability of bringing Mercedes back to very good profitability can only be increased by being able to work with Chrysler, versus on a stand-alone basis," he told The Detroit News in an interview. Zetsche, who turned around Chrysler before taking over Mercedes on Sept. 1, was back in town this week for a high-level review of the Chrysler Group's new vehicles. As part of an offensive dubbed internally "Full Throttle," Chrysler will roll out at least 10 models next year, including some small and mid-sized sport utility vehicles. The smallest of Detroit's automakers, Chrysler returned solidly to profit last year after introducing nine models, including the popular Chrysler 300 sedan. It has maintained its momentum with the launch this year of the Dodge Charger sedan, the Jeep Commander SUV and other models. "Now we want to take it to the next level," Zetsche said. In July, the company appointed him to succeed Juergen Schrempp, who engineered the 1998 merger of Daimler-Benz with the Chrysler Corp. Relations between the U.S. and German divisions were strained at times, especially when Chrysler was losing money. But the relationship has changed now that the shoe is on the other foot and Mercedes is the company's problem child. From Chrysler's standpoint, "as far as the psychology is concerned, it seems to me that many employees at Chrysler feel that one of them, a Chrysler guy, is taking the helm," Zetsche said. So there's "a good balance" now, he said. But Chrysler's recovery hasn't quashed recurring speculation that investors would benefit from a sale of the U.S. automaker. Analyst John Buckland at Daiwa Institute of Research estimates DaimlerChrysler's stock could gain as much as 50 percent from such a move. Zetsche doesn't see that as the way to restore Mercedes' profitability and once-sterling reputation. In the past three years, its reliability ratings have tumbled, according to J.D. Power and Associates -- and the carmaker's results have suffered. In the first half of this year, the Mercedes Car Group has lost more than $1 billion, partly reflecting big restructuring costs at its Smart minicar brand. The U.S. Securities and Exchange Commission is investigating allegations that Mercedes managers bribed foreign officials. In addition, DaimlerChrysler has concluded its own investigation into allegations of wrongdoing, including kickbacks, in the sales operation. Asked how Mercedes could have taken such a wrong turn, Zetsche said: "Some people couldn't imagine that there could be problems at Mercedes. They were in denial before the problems became full-blown." Part of the trouble was that favorable exchange rates had buoyed Mercedes' earnings, masking the impact of a widening productivity gap with its global rivals. Now, "we have to spend less. We have to do more," he said. He wants to apply lessons learned from Chrysler's turnaround experience, such as setting a few clear targets. In addition, he wants to bring to Mercedes some low-cost, lean manufacturing methods that Japanese automakers pioneered and Chrysler was quick to embrace. To cut costs, he also intends to step up cooperation between the two divisions. For instance, the company decided two months ago to combine the advanced engineering for vehicle electronics. Like his predecessors, Zetsche draws the line at parts-sharing that might damage either brand. But some intangible factors, such as pride, that had limited cooperation are now receding. "Pressure from the outside and the fact that both sides face significant challenges (have) overcome" some of those barriers, he said. "Whatever we can do to help each other is good for all of us." With rivals stepping up development of fuel-efficient areas, Chrysler and Mercedes will save big sums by cooperating in the development of fuel-efficient engines and components. "It's not that we got a wake-up call with Katrina," Zetsche said, referring to the hurricane's impact on gas prices. "This has been a top priority for about two years." Chrysler stands to benefit from Mercedes' expertise in building fuel-efficient diesel and gas engines in Europe, where gas costs more than twice as much as it does in the United States. DaimlerChrysler has teamed with General Motors Corp. and BMW to develop hybrid components, and DaimlerChrysler expects to launch a hybrid SUV in late 2007 or early 2008. But Zetsche stressed the need to press ahead with other fuel-saving alternatives, such as diesel power, which is more fuel-efficient in long-distance, highway driving. Next year, Mercedes expects to decide whether it will introduce the quirky Smart two-seater, the Fortwo, to the U.S. market. Signaling that the company is seriously weighing the possibility, Zetsche said the successor to the Fortwo will be built to meet U.S. safety and other specifications. Zetsche is spending the bulk of his time boring into Mercedes' operations, including Smart, but he and Schrempp are also preparing for the transition at the end of the year. "I couldn't ask for a smoother or more relaxed transition," he said. As head of Mercedes and DaimlerChrysler in 2006, Zetsche will have his hands full. But he expects to return often to the United States, where two of his children are pursuing their studies. "A good portion of our business is located in the United States. It's not just Chrysler but Freightliner and Mercedes-Benz's U.S. activities," said Zetsche, who also headed Freightliner in the early 1990s. You can reach Christine Tierney at (313) 222-1463 or [email protected]