Posted Sunday, October 16, 2005; 11.57BST
But the cost to the firm's once stellar reputation has been devastating. Mercedes has slid dramatically in consumer rankings over the past two years, especially in the U.S., its biggest foreign market, accounting for 20% of sales. Four models show up in Consumer Reports' list of the worst used cars. And in J.D. Power's influential study of long-term vehicle dependability, which measures problems encountered by owners of three-year-old cars, Mercedes scored far below the industry average in the 2005 survey; Mercedes owners reported more than twice as many problems per 100 cars as top-ranked Lexus. "Mercedes' fall from grace has been especially severe," says Chance Parker, J.D. Power's executive director of product and research analysis.

Fixing the technical problems is just half the battle: Mercedes now has to win back customer loyalty. That's not so quickly fixed as a mechanical problem. In the first nine months of this year, the firm sold 9% fewer E-Class cars worldwide than last year. Sales of its other best-selling model, the C-Class, were down by 12%. The financial outlook is dreadful: even without counting $1.3 billion in losses at its Smart subsidiary (see Small Isn’t Smart), Mercedes managed only a tiny operating profit for the first half of the year after a loss in the first quarter.

And it's going to take a lot of patience and persuasion to bring longtime Mercedes fans like Gary Hurvitz back into the fold. Hurvitz, president of a financial firm in Rockville, Maryland, says reliability is a key issue — and he doesn't believe Mercedes is yet where it should be. "For every time I read of a DaimlerChrysler executive claiming that the problems are resolved, I see two more [online] postings by people whose cars break down within weeks of leaving the showroom," he says. He still owns a '94 Mercedes E320 wagon and a '98 E320 sedan, but last year, after taking a long hard look at the S-Class, he bought a Lexus instead. "European-car aficionados may look down at me when I pull up to them in my supposedly ever-so-boring-to-drive Lexus," Hurvitz says, "but I'll enjoy the last laugh when their transmission fails."

Those problems now belong to Zetsche, who sports a bushy walrus mustache and a big broom. He was once considered a dark-horse candidate for the top job, but his star rose over the past three years. Dispatched to Auburn Hills, Michigan, to sort out Chrysler, he has led a remarkable turnaround at the company, which swung back into the black in 2004 after years of heavy losses. In September, Chrysler reported its 18th consecutive month of sales increases. In the U.S., Zetsche quickly wielded that favorite American management tool: the hatchet. He axed 26,000 jobs and browbeat suppliers to lower costs, but he also introduced what he called "disciplined pizzazz" — a program to bring a focus on efficiency to the company's business operations without sacrificing its character.

The imperious Schrempp, by contrast, continued to lurch from crisis to crisis until the Daimler board showed him the exit, three years before his contract expired. DaimlerChrysler stock soared about 10% on the news. The change of leadership "dramatically alters investor perceptions," said Merrill Lynch's London-based auto analyst Stephen Reitman, who upgraded the stock to neutral. "In the land of the blind, the one-eyed man is king," says Schmidt, the British consultant. "Zetsche is a brilliant choice, but it will be very arduous to get Mercedes back to where it was."

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