COURTESY OF DAIMLERCHRYSLER PRODUCTION LINE Problems with the German-made E-Class sedan prompted the company to overhaul its quality-control management

( )  autos Mercedes: A New Model for Germany?
	The German automaker is in the middle of a massive overhaul to restore the quality of its vehicles and reinvent itself
	By PETER GUMBEL

Posted Sunday, October 16, 2005; 11.57BST
Angela Merkel looks set to win her struggle to be Germany's next chancellor. As she and her erstwhile political foes haggle over the final shape of a new coalition government, they should read the letter Dieter Zetsche wrote to the work force of the Mercedes Car Group last month, four weeks to the day after he took the helm at the fabled German automaker. Mercedes has long been the jewel of German industry, an immensely profitable brand that has grown into a colossus with annual sales of more than 1 million cars and revenues exceeding $60 billion. But these days, the reputation of the three-pronged Mercedes star has dimmed. The firm, now part of the DaimlerChrysler conglomerate, has been plagued by uncharacteristic quality problems while its manufacturing efficiency has declined. Rival BMW, once much smaller, now outsells it. Stuttgart-based Mercedes is struggling to make any money at all this year.

Zetsche's Sept. 28 missive — 10 days after the country's inconclusive elections — was the business equivalent of a political "blood, sweat and tears" speech. While saying that some measures the company had taken to get back on track were bearing fruit, he warned: "We should not let ourselves become overconfident. There is still a long and difficult road ahead of us before we can become truly competitive again." The company continues to drag around excess production capacity, he wrote, and its costs remain "significantly higher than those of the best competitors." To redress the situation, he announced, DaimlerChrysler's board was cutting 8,500 Mercedes jobs in Germany, or about 9% of the total. "Our most important task right now is to ensure that our excellent products can be made with less input," he says.

That's a mantra that applies to the whole of Germany these days. For years the nation could justify some of the world's highest costs by making world-beating products. But those days are over, as a host of lower-cost competitors from Asia and elsewhere push their way onto the scene with ever better-quality products. The German response to date has been hesitant; the outgoing government of Chancellor Gerhard Schröder acknowledged that Germany's international competitiveness was slipping, and introduced some labor and other reforms. But its steps were just a start, and not nearly enough to reverse the nation's high unemployment rate or jump-start the stalled economy. Merkel had campaigned on a tougher reform ticket, promising to slash the cost of labor and allow greater flexibility to employers. Saddled with a coalition, she'll likely have to rein back some of that ambition.

Continued ...

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