Mercedes: Change & Turnaround

The Mercedes star is gleaming again. In 2002, it suffered as dramatic a fall as any luxury brand could, as it reported its first losses for nearly two decades and saw its quality slip so far that newspapers were full of stories of cars that kept on breaking down.

'Mercedes should not make losses. That is absolutely clear,' says Dieter Zetsche, who became Head of Mercedes in September 2005 and Chief Executive of its parent company, Daimler, three months later. 'But we have great results now and we are starting to change the culture in many ways.'

Indeed, so much has Mercedes changed in three years that it has gone from the worst-performing of the large luxury car makers to the trailblazer. Executives at its bigger-selling rival BMW look enviously at its 9.1-per-cent return on sales last year (and even more so at the 10.4 per cent it made in the fourth quarter – compared with BMW's 5.4 per cent in the third quarter).

Much of that turnaround is due to Mr Zetsche, famous for his walrus moustache. He was not the first automotive executive to take on two jobs, but he has been one of the most successful with it, using his operational experience at Mercedes to help him at Daimler. Mr Zetsche says that combining roles is essential for his management style. He is also keen to stress that Mercedes has a team approach.

Mr Zetsche was hard from the outset, cutting 14,500 jobs – 8,500 in production and 6,000 administrative staff. That broke the pattern of Mercedes providing a job for life to workers. But it had a dramatic effect on the bottom line. Mr Zetsche says: 'Productivity gains don't get you anything if you don't reduce personnel.' Mercedes' recent success is also linked to a big improvement in its product quality and the launch of some well-praised models, headed by the new C-Class saloon. 'Mercedes is building cars that people want to buy again and, for once, they even look better than BMWs,' says one London-based analyst.

The debate on reducing carbon-dioxide emissions could hit Mercedes hard. But the company, for now, is choosing to highlight the launch of 20 fuel-efficient models this year.

All of this has put a spring back in the step of a company that, in Mr Zetsche's words, also acts as a 'mirror on German society'. It has also restored lustre to Mr Zetsche's star, which was tarnished by the poor performance of Chrysler, the US car maker that was owned by Daimler.