Smart looks for cost cuts at French plant

Hambach, France. DaimlerChrysler AG's Smart unit plans to significantly reduce production costs at its main plant in France.

"We are aiming to achieve yearly cost-reductions of 5 percent in Hambach," plant manager Klaus Fischinger says. "Last year we reached that target exactly. This year it will be a little more than that."

He was referring to Eckhard Cordes' revitalization plan. The boss of the Mercedes Car Group hopes to achieve breakeven for Smart by 2007.

Hambach's 920 employees built about 100,000 ForTwo coupes and convertibles and about 20,000 Smart roadsters last year.

By comparison, the Born, Netherlands, plant -- Smart's second production site that is owned by Mitsubishi -- built about 60,000 ForFour models in 2004.

Fischinger has big hopes for the second generation of the ForTwo.

"Once we start planning for the successor, the cards will be dealt anew and we will be able to expect significant cost improvements from our systems suppliers," he said.

Fischinger declined to name the production start date for the new ForTwo. He said Smart needs a so-called model change area inside the plant 18 months before production begins, and that such an area has not been installed yet.

Company insiders say that the new model, which will be a few centimeters longer than its predecessor, will be manufactured starting in 2007.

Investments for the model change will "remain very cost effective thanks to the plant's unique concept," said Fischinger. Other sources set the investment at about 50 million euros, or $66.7 million at current exchange rates.

Fischinger says that the plant's fixed costs are already competitive.

"Our employees' average wage is 30,000 euros ($40,000) a year. In German Mercedes plants, it is twice as much."

Plant staff work about 1,600 hours a year with a 35-hour week. The absenteeism rate is 3 percent.

"That is by far the lowest rate within the Mercedes Car Group," Fischinger said.

Hambach also is flexible, Fischinger said. Up to 30 percent of the 420 employees within the assembly operation are temporary workers, subject to only one week's notice of layoff. Using flexible working hours, the plant can vary its annual production between 90,000 and 130,000 units without incurring any additional labor costs.

Beyond that, plant management has reached an agreement with the French government. It allows a transfer of up to 100 working hours to the following year.

"It is possible that we will need this kind of flexibility in 2006 if the economic situation doesn't improve," Fischinger said.

He compared his plant's hours-shifting agreement with a 200-hour agreement Mercedes has at its Rastatt plant, but noted that for France, this is "a small revolution."

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