Cordes' cost-cutting bites harder

Smart and repair shops under scrutiny

Stuttgart. Mercedes Car Group CEO Eckhard Cordes is driving ahead with his restructuring program.

Announced in February, the savings program called CORE, for "costs down, revenues up, execution", aims to improve the group's earnings by 4 billion euros ($4.83 billion at current exchange rates) by 2007. To reach the goal, Cordes is slashing whatever he can -- even the training budget was cut in half. That cut will save 100 million euros (about $120.7 million) this year, said Guenther Fleig, labor director.

"Over the long term, naturally, we don't want to save at the expense of continuing education," Fleig said. Flextime account balances will be cut in half by year-end, compared with last year, to avoid having to provide financial reserves in the double-digit millions. Managers are being instructed to make sure that all vacation time is taken by Dec. 31, according to documents from IG Metall, the German metalworkers' union. The company also expects savings in Mercedes' warranty costs.

Repairers will be targeted

Major improvements in service are necessary at Mercedes to reach a top spot in J.D. Power and Associate customer satisfaction studies.

To make this happen, Christoph Koepke, DaimlerChrysler's sales chief for Germany, has announced that the number of undercover tests at service outlets will be increased and the consequences for poor performance will be made more severe.

If more than three of the built-in flaws in a special, undercover vehicle are not repaired, the service center will receive a warning. After three warnings, the service contract will be "in serious danger," Koepke said.

In addition to CORE, Cordes has a program called TIP, for "turn ideas into profit."

"We are placing a value on small savings, such as office materials," said Pitt Moos, a works council head. One example is that Smart and Mercedes are reducing the amount of color printing they do.

Smart offices to be leased

Another place the Mercedes Car Group is trimming costs is by subleasing empty office space that used to be used by Smart.

"By the end of the year, we ought to have subleased one or two of the eight buildings at our (Smart's) Boeblingen headquarters," Moos said. He said the space won't be needed since Smart is reducing staff from more than 1,300 people to about 760.

On the sales side, things seem less rosy. Smart has scaled back production plans for the ForFour to about 40,000 units a year, according to media reports. But according to earlier statements from Cordes, a 90,000-unit level would be needed to reach profitability.

"Unfortunately, there continues to be no decision on a successor to the ForFour," Moos said. There has to be a green light by 2007, at the latest, if a successor is to be introduced in 2011 or 2012, he said.

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