DaimlerChrysler came close to shutting down its Smart car business, the company admitted yesterday as it announced it was taking a â,¬1,2-billion charge on the heavily loss-making range and cutting up to 700 jobs.
In what was in effect a profits warning for the group as a whole, Daimler’s move came just a day after it said it was recalling 1,3-million Mercedes because of electronic problems in the vehicles that used to be renowned as the essence of German engineering and design.
Mercedes, where profit in the final quarter of 2004 plunged to just â,¬20-million, has seen persistent quality problems damage sales, especially in America. Senior managers in its sales and distribution business have also been investigated by criminal prosecutors for malpractice.
Daimler has only just succeeded in turning around its American Chrysler arm, and overcoming a financial crisis at Mitsubishi, its Japanese partner. It said the huge restructuring costs at Smart would ”impact” its earnings forecast for this year.
The group, which has come under strong pressure from analysts and investors to get out of Smart, said it expected to make a ”slightly higher operating profit” this year than in 2004, when it made â,¬5,8-billion — before taking into account exceptional costs.
Daimler, headed by Jürgen Schrempp, who has had his contract extended despite the crises at the carmaker, said the aim was to achieve break-even at Smart in 2007.
Under the new business model for the ultra-compact car, which is designed with Swatch, the Swiss watchmaker, production of the roadster will be abandoned at the end of this year, as will plans for an SUV.
The group said it would speed up development of a successor to the Smart Fortwo, the original two-seater, with a new three-cylinder petrol engine to be offered to Mitsubishi and Nissan as well.
Mitsubishi will continue to build the four-seater Smart Forfour at its Dutch plant as part of measures designed to increase earnings by about â,¬600-million in 2007 and cut costs by 30%.
These include ”significant” job cuts — likely to be 700, mostly at the group’s German headquarters at Böblingen, near Stuttgart. – Guardian Unlimited Â