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DCX moves quickly to find partners, cut Smart losses

Old 02-22-2006, 09:05 AM
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Default DCX moves quickly to find partners, cut Smart losses

DCX moves quickly to find partners, cut Smart losses
Detroit News

"For a little car, the Smart has run up a huge tab at DaimlerChrysler AG and last year dragged the Mercedes Car Group deeply into the red.
But DaimlerChrysler is moving quickly now to cut its losses, which exceed $4 billion for the Smart business since the 1998 launch of the first model, its iconic, boxy two-seater.

On Monday, DaimlerChrysler said it had signed a preliminary agreement to sell the production rights and equipment to build the Smart roadster and coupe to a British consortium, which is also negotiating the purchase of the British MG Rover brand from its new Chinese owner. DaimlerChrysler hopes to draft a final contract within a few months.

The news will come as a relief to investors, who want DaimlerChrysler to focus on keeping the Chrysler Group competitive in an increasingly cutthroat U.S. market and restoring the prestige and profitability of Mercedes-Benz.

Last year, the Mercedes Car Group -- which includes the Maybach and Smart brands -- lost $598 million after taking a $1.3 billion charge to restructure the Smart business.

Unworkable strategy

"The whole strategy on Smart has just not worked," says Nigel Griffiths, London-based auto analyst for the forecasting firm Global Insight.

The original ForTwo minicar is popular in Rome, Paris and other congested capitals. The car sells well in Canada, and many Americans are asking when DaimlerChrysler will bring it to the United States.

But the minicar, which was priced at a premium in that segment, never attained the sales volumes that DaimlerChrysler anticipated when it built a plant in Hambach, in eastern France, to produce the cars.

"Every manufacturer has a core product in that segment with a lower cost-base than Smart would ever have," Griffiths said.

In the small market for premium minicars, BMW AG's Mini brand has gotten off to a stronger start since its re-introduction in 2001. BMW sold more than 200,000 Mini cars last year, compared with 143,000 Smart car sales.

Output halted in Hambach

In November, DaimlerChrysler halted production of the roadster and coupe in Hambach after selling barely half as many as it had anticipated.

It had previously cancelled plans to expand the Smart lineup and build a compact sport-utility vehicle called ForMore.

DaimlerChrysler has not announced whether it will produce a successor to the ForFour, but it could drop the small sedan without too much fuss. The ForFour shares a platform with Mitsubishi Motors Corp.'s Colt and is built under contract alongside the Colt at a Mitsubishi-owned factory in the Netherlands.

That leaves DaimlerChrysler with an eye-catching and fuel-efficient minicar, the ForTwo -- and a factory in France designed to build more than twice as many cars as it now produces.

The company has retained investment bank Goldman Sachs to assess manufacturing partnership offers to help it cut costs and attain break-even for the Smart business in 2007 -- and an attractive profit margin for Mercedes.
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