Mercedes Car Group profit in the fourth quarter of 2004 (R158 million) was at its lowest level for more than a decade, a figure DaimlerChrysler chief executive Jurgen Schrempp has labelled “unacceptable”, adding that ’Benz’s turnaround would have “absolute priority”.
Mercedes Car Group profit in the fourth quarter of 2004 (R158 million) was at its lowest level for more than a decade, a figure DaimlerChrysler chief executive Jurgen Schrempp has labelled “unacceptable”, adding that ’Benz’s turnaround would have “absolute priority”.
Schrempp said management would regain control of the situation in the next 12 months, but cautioned that the next two quarters would be weaker because every effort had been employed to improve quality, a focus that analysts estimated had cost about R3,95 billion. DaimlerChrysler launched an efficiency plan, called Core, to restore Mercedes’ margins to 7 per cent from the 0,16 per cent it made in the fourth quarter, said.
However, some analysts – such as those from Morgan Stanley – have suggested Mercedes could fall into a loss situation in the first and second quarters. The company has also been hindered by losses posted by the Smart small-car brand – estimated to be about R3,16 billion a year.
Morgan Stanley has urged DaimlerChrysler to dump the loss-making Smart line-up. “We believe the market will reward DaimlerChrysler for improved fiscal discipline,” a bank spokesman said, estimating that the cost of closing Smart would be equal to losses it would have incurred over the next two years.
Just 155 000 Smarts were sold last year; by most independent estimates, Smart would need to sell more than 200 000 to break even – a target it had planned to reach this last year, but now hopes to achieve in 2006.
Despite hints from various company executives that an exit strategy is under consideration, Mercedes Benz boss Eckhard Cordes continues to stand by Smart. However, Cordes this week refused to rule out job cuts as part of the Core programme.
The problems at Mercedes overshadowed the continuing resurgence of Chrysler, which reported that it had more than doubled operating profits to R3,05 billion. Overall group operating profit was a third of the previous year’s level at R6,2 billion, meaning earnings for the full year crept slightly higher to R45,82 billion.
A US-based analyst at Morgan Stanley said Mercedes should avoid concentrating on improving labour productivity and instead seek to cut costs through purchasing and reducing complexity.
“It appears to be that non-labour costs are the greater disadvantage compared with BMW,” he said.
Schrempp offered a highly cautious outlook for the current year, with a slightly higher operating profit, forecasting an upswing only in 2006, said.
