Mercedes starts 3 billion euro austerity plan

Staff cuts are being considered

Mercedes Car Group CEO Eckhard Cordes

Stuttgart. A dramatic drop in 2004 earnings has triggered a 3 billion euro austerity plan called CORE (cost down, revenues up, execution) at automaker Mercedes-Benz.

The synergies between parent DaimlerChrysler's car brands should be improved. The number of vehicle architectures will be reduced to 16 by 2014 from the current 21. At the same time, the number of model variants should rise to 3.5 per architecture from 2.3.

"There will be tabula rasa here during the next few weeks. (New Mercedes Car Group CEO Eckhard) Cordes is probing everything," a DaimlerChrysler manager says.

Cordes promises: "We will get a grip on the challenges at Mercedes within 12 months." Staff reductions are no longer out of the question, he says.

DaimlerChrysler managed to increase group operating profit to 5.8 billion euros in 2004 from 5.1 billion euros a year earlier. But, though the Mercedes Car Group, which includes Mercedes-Benz, Smart and Maybach, still represents the biggest share of this, its operating profit plunged to 1.7 billion euros from 3.1 billion euros. The main reason: high transfers to reserve funds for quality measures.

At the same time, the Chrysler group managed a profit of 1.4 billion euros, swinging from a loss of 506 million euros a year earlier.

For Mercedes, "We hope to achieve a return on sales of 7 percent in 2007," DaimlerChrysler Chairman Juergen Schrempp said at the company's earnings press conference. That would mean a doubling from 2004, when that ratio stood at 3.4 percent.

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