Daimler Smart-ing from Minicar Losses

It was heralded as the future of urban personal transport when it was launched in 1998; the car which was environmentally-friendly, ergonomically appealing and space efficient. But in its seventh year of production, the Smart, DaimlerChrysler's unique minicar, has been revealed in the German media as a costly failure with 2004 losses recorded at around €600 million ($771.6 million), taking the overall dent in its creators pocket to the tune of €2 billion ($2.6 billion).

Quoting a senior DaimlerChrysler executive who wished to remain anonymous, the German news magazine Der Spiegel carried a report on Monday that revealed the extent of Smart's financial hemorrhaging and the confusion surrounding the project's immediate future.

With its parent company posting heavy losses year-on-year and subsidiaries being bailed like buckets of sea water from a listing ship, the Smart looks to be the latest albatross around the neck of the ailing German auto giant. DaimlerChrysler seems to be at a loss as to what it can do to save its minicar brand.

Source suggests future models to be scrapped

Although there has been no official response to the size of Smart's losses in 2004, the Spiegel report stated that the DaimlerChrysler source thought it likely that the company would most likely reduce the scale of the project, dropping plans for a sport-utility vehicle (SUV) while continuing with development of the next generation of its original two-seater Fortwo.

However, as recently as last week Jürgen Schrempp, DaimlerChrysler's chief executive, stated that fixing Smart was one part of repairing the damage done to Mercedes-Benz Group's profitability, which fell dramatically in 2004. "I am not promising too much when I say that we will be in control of the challenging situation at Mercedes-Benz passenger cars within the next 12 months," Schrempp said in an interview with the Frankfurter Allgemeine newspaper.

Schrempp added that losses had been substantial and that the issue of Smart's profitability would have to be addressed sooner rather than later. The company hoped to have a new plan in place by April or May. Schrempp also ruled out any move to shut down Smart permanently.

Partnerships a way to save Smart

The DaimlerChrysler CEO said in the interview that Mercedes-Benz was working on a "long-term business model" for Smart which included "reviewing possible partnerships". No other automaker, however, has expressed much interest in Smart, Schrempp added, except for Mitsubishi which is itself in dire financial straits.

The news of such huge losses comes at a time when Mercedes plans to bring the Smart to the United States although no firm date for the official introduction has been announced. During a conference call interview with analysts and journalists last week, Eckhard Cordes, the new chief executive of the Mercedes-Benz group, said the company was still considering the export of Smart cars to the United States despite the ill-health of the brand.

SUV future in severe doubt

Meanwhile, the SUV concept model was pulled from the 2005 North American International Auto Show at the last minute, adding to the confusion about DaimlerChrysler's intentions. The official line was that the vehicle was pulled because it wasn't ready but other reports also suggested the SUV, supposed to be the cornerstone of the marketing effort in the United States, had become a victim of some last-minute cost cutting.