DaimlerChrysler is restructuring, not scuttling, its money-losing smart business unit.
The new model, which involves major organizational and product changes, aims to put the city-car brand onto a financially sound basis, with the goal of breaking even in 2007.
Among the proposed changes:
The intensified development of the successor to the smart fortwo, including fulfilling the requirements for the U.S. market. The next generation of the three-cylinder gasoline engine will also be used by other manufacturers, with resulting economies of scale that will substantially improve the cost position of this engine project.
Cooperation with Mitsubishi Motors on the smart forfour will be continued. Measures to be taken to improve profitability mean that this product will break even in the future.
The production of the smart roadster will be terminated at the end of 2005.
The smart SUV project will be discontinued.
Key tasks in development, sales, procurement, after sales and service will be integrated into the respective areas of Mercedes-Benz Passenger Cars.
Additional sales and market potential will be explored. For example, to boost unit sales, the number of smart outlets in the Mercedes-Benz sales organization will be increased by about 25% using the shop-in-shop concept.
Plans to sell smart cars in the United States are on hold.
Overall, DaimlerChrysler assumes that the restructuring expenses incurred in 2005 will total up to €1.2 billion ($1.56 billion). This figure includes exceptional write-downs on plant and equipment, the settlement of obligations to third parties, and other adjustments. The program also includes significant layoffs.
The substantial exceptional expenses in connection with the new smart business model will drag down DaimlerChrysler’s earnings forecast for 2005. Excluding the exceptional charge from smart, DaimlerChrysler, after a weaker first and second quarter, still expects a slightly higher operating profit for full year 2005 compared to 2004.