STUTTGART -- DaimlerChrysler AG does not plan to shut down or sell its loss-making Smart brand of compact cars, the new head of Smart, Ulrich Walker, said in a letter to staff seen by Reuters on Friday.
He was reacting to DaimlerChrysler's finance chief, Manfred Gentz, who said in a conference call Thursday that the group was examining its options for Smart given what he called its "disappointing" financial performance.
"It is true that Smart is still not earning money, but the existence of Smart is not at stake," Walker, who took over as head of Smart on Oct. 1, wrote to his staff.
"Giving up the Smart brand or selling our business is not being discussed. (CEO) Juergen Schrempp and (Mercedes Car Group head) Eckhard Cordes confirmed this to me personally in conversations yesterday," he added.
Smart has not made money since it was launched in 1998 and its deteriorating performance helped drag down third-quarter operating earnings at Mercedes Car Group.
"Our profitability is still unsatisfactory," Walker acknowledged in the letter, adding the weak auto market and sluggish economies in many places had kept growth slower than planned while sales and marketing costs were high.
Smart remains far from its original target of 300,000 unit sales a year. Its former chief, Andreas Renschler, scaled back the 2004 sales target by 20,000 units to 155,000.
That means Smart will have to take a close look at its business model in its drive to make money. Renschler had pushed back the goal for making a profit by two years to 2006, when an SUV version of the tiny car was set to hit the United States.
Company sources said the Formore SUV model may now be brought forward to 2005 to make quicker inroads into the United States. The original two-seat Fortwo version is not sold in the United States for safety reasons.
DaimlerChrysler was counting on the four-seat version of the Smart, built in the Netherlands on a platform shared with the Mitsubishi Colt, to lend a sales boost of around 50,000 units this year, but its timing was unfortunate.
Incentives on compact cars were in full swing, led by discounts on the Colt. That made DaimlerChrysler spend more than it planned on marketing Smarts.
Walker wrote that the focus now was on improving its sales network. Daimler has kept Smart sales channels separate from its upmarket Mercedes brand to preserve Mercedes' premium image.
"Smart is a damned strong brand, but its biggest problem is the unclear sales structure," said Ferdinand Dudenhoffer, a professor at the University of Gelsenkirchen who studies the automobile industry. "The Smart brand alone has too little selling power."