Mercedes-Benz is Humming Once Again

A revived Mercedes-Benz focusing on price and quality is determined to be back on the auto industry's center stage along with other auto giants. The German brand name, which is now owned by DaimlerChrysler, is taking its time to recover from its losses.

Now, the automaker's officers can breathe calmly unlike in the past few months because Chrysler operating profit surged by 127 percent amounting to $1.2 billion. Sales increased by 9.3 percent and analysts in the automotive world are positive that the figures will stick. "The downward spiral has changed direction," says Dieter Zetsche, DaimlerChrysler AG chairman.

The prestigious brand is finally emerging from the debilitating stretch in its 127-year history. Its 3-year slump left its reputation for engineering and quality almost beaten. The fall was so steep that the automaker was not able to rise almost immediately.

The bumpy ride leading to a remarkable fall started in 2003 when Mercedes landed near the bottom of J.D. Power's quality survey, which is done every year. The following years Mercedes conducted several recalls. These events further dent the reputation of the automaker. "Mercedes is getting squeezed on all sides by very high-quality cars produced at half the price," says Jay Baron, head of manufacturing at the Center for Automotive Research in Ann Arbor, Mich.

When Zetsche took over DaimlerChrysler 14 months ago, power plan was made. As a result, approximately 9,300 jobs were slashed and Mercedes offered workers buyouts. Additionally, the automaker entertained a significant restructuring and organizing plan that focuses on Mercedes-Benz performance parts including chassis, motors, and electronics systems.

Mercedes is aiming to cut 226 door handle variants to 71, 99 cooling systems to 25, and 171 antenna designs to 53, and more. In addition, some Mercedes-Benz spare parts will be shared by several models so that production and assembly will move smoothly.

"But Mercedes still has a long way to go. Its costs per vehicle are as much as $3,800 higher than for comparable BMWs," says Ferdinand Dudenhöffer, director of the German Center for Automotive Research at the University of Gelsenkirchen. Parts BMW are now enjoying its reputation in the automotive market. Its standing can be a serious threat to Mercedes.

Given that electronics problems became sharp in 2002, the number of flaws has plunged by 72%, to about one per car. And warranty costs are behind by 25% this year. "It's about doing things right 1 million times over," says Mercedes Chief Operating Officer Rainer Schmückle.