Daimler cuts Smart Car production

EMBATTLED car giant Daimler-Chrysler, which yesterday said it was recalling more than a million Mercedes, today unveiled plans to axe parts of its loss-making Smart Car operation at a cost of almost £1bn.

The restructuring will involve axeing the Smart roadster and shelving the Smart sport-utility vehicle project, and will result in 'significant' job losses - although the brand will not be scrapped.

The news came one day after a worldwide recall of 1.3m Mercedes cars for lighting and braking faults to be remedied.

It is the company's biggest ever recall of vehicles which - while not affecting safety - underlines the drop in quality at Mercedes. A recent US survey placed Mercedes 34th out of 36 for reliability.

DaimlerChrysler declined to say how much the recall would cost but Georg Stuerzer, an analyst at HVB Group in Munich, estimated it could be in the hundreds of millions of euros.

'On this kind of scale I expect the cost to run into the three-digit million-euro range. The quality campaign will weigh further on the company's first quarter,' said Stuerzer. Chief executive J¸rgen Schremp has now given the nod to an extensive overhaul of the Smart division, setting a target of break-even by 2007. The group wants annual savings of €600m on production costs while pursuing aggressive sales programmes.

Engines are being modified to comply with strict emission rules for the US. It is also seeking substantially to improve worker productivity on the line, and after-sales service.

Smart will also use the Mercedes dealership network to increase outlets by 25%.

DaimlerChrysler still hopes operating profit in 2005 will slightly exceed the prior-year result of €5.8bn, excluding the exceptional charge from Smart.

The business plan will be submitted to the supervisory board of DaimlerChrysler for a decision at the end of April, when it is expected to be rubber-stamped.

'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 a company spokesman.

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

Co-operation with Mitsubishi Motors on the Smart will be continued.

Mercedes Car Group chief Eckhard Cordes earlier this month said losses at the Smart business were 'simply unacceptable'.