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Daimler Rediscovers Its Best Asset

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Daimler CEO Dieter Zetsche is pointing the Mercedes brand in the right direction again.
  • Why it matters

    Why it matters

    It took a series of false moves for Daimler to acknowledge Mercedes is its ace in the hole.

  • Facts

    Facts

    • Dieter Zetsche, Daimler’s chief executive since 2006, has a contract through 2016.
    • Potential successors include Ola Källenius, executive board member in charge of sales, and Wolfgang Bernhard, who heads the truck division.
    • Without new alternative drive systems, Daimler will not reach emission targets set by the European Union to reduce greenhouse gases.
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  • Audio

    Audio

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When Daimler AG reported earnings on Thursday, there was a feeling of satisfaction in Stuttgart. Business was booming, profits increased and chief executive Dieter Zetsche offered shareholders the prospect of an increased dividend.

The figures suggested the sluggish years were over – years when no one knew how to revive Daimler. For the first time in ages, management and employees were now pulling together, and Mr. Zetsche promised “the automobile’s best time is yet to come.”

In 2014, more Mercedes cars were sold worldwide than ever before – even though Mr. Zetsche’s predecessors lost faith in car manufacturing long ago.

Already thinking about the end of the “oil age,” Edzard Reuter, chief executive from 1987 to 1995, acquired the electrical goods and engineering company AEG to experiment with “integrated technology.”

Daimler was ill-prepared for the financial crisis, and only a cash injection from oil sheiks saved the historic company from a worse fate.

Jürgen Schrempp, who headed the company from 1995 to 2005, went on to invest heavily in the aerospace sector. He also launched the global venture “Welt AG,” whose moribund subsidiaries, Chrysler and Mitsubishi, nearly destroyed the company. 

That Daimler and its core Mercedes brand survived these risky experiments is testimony to the robustness of the Swabians from southern Germany.

But first the pragmatic Mr. Zetsche had to clear up the mess created by his predecessors. After leaving Chrysler, he had his hands full divesting the very U.S. subsidiary he headed. 

In the process, Mercedes cars fell by the wayside. Projects to develop new compact SUVs and update existing models suffered. So did work on the Smart car concept and plans to expand in the Chinese market.

First BMW and then Audi overtook Mercedes. Daimler was also ill-prepared for the financial crisis, and only a cash injection from oil sheikhs saved the historic company from a worse fate.

All these developments helped the company understand that in the end, its most important asset is a car by the name of Mercedes.

It has taken Daimler a while to retool its strategy but the results are now visible. The company has put new people on board and established a younger generation directly under the executive board level. 

Mercedes renovated the A-Class to C-Class models, and is putting SUVs on the road  to give BMW a run for its money. New chief designer, Gorden Wagener, has made the cars brasher – they’re being noticed again. This is all good news for the Mercedes brand, which will soon have its own in-house ad agency. 

But that isn’t enough. Mercedes has caught up with Audio and BMW in the battle for prestige but it’s not out front yet. Sales of the compact A-Class cars are strong, but large luxury cars earn the real money. The Smart car is still losing money and cooperation with Renault is proving difficult.

While Daimler is catching up in China, Audi is still well ahead. There is plenty to do on the production side, too. BMW plants, for example, are more flexible when it comes to reacting quickly to market trends. 

Mercedes must move faster to hit the carbon emission targets set by the European Union. Failing to do so would be fatal, for the company’s image and its finances. Without broad deployment of alternative drive systems, Daimler will not reach the targets. 

Daimler had a good partner in Tesla for the “electric age,” but recently sold its shares in the U.S. company. Now it has no convincing electric car prospect in the pipeline. The production of battery cells by the subsidiary, Li-Tec, has also been closed down. Daimler has been researching fuel cell technology for some two decades, but it looks as if Toyota will be first to market with products.

Mercedes is at the forefront of autonomous driving. But its venture to develop future transport models – in partnership with Google, Uber and Apple – has only begun.

Overall, the chances of Daimler being successful are better than they have been for a long time. Mr. Zetsche’s focus is back on cars and customers. His contract runs out at the end of 2016, and could be extended again.

Potential successors include Ola Källenius, executive board member in charge of sales, and Wolfgang Bernhard, who heads Daimler’s truck division. It will be essential to find the right timing for the transition. 

To contact the author: fasse@handelsblatt.com.

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