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Dr. Dieter Zetsche: Mercedes-Benz to reinvent the automobile

by Zhou Shuyuan

 

After rumors of dismissal were cleared, Dr. Dieter Zetsche was offered a new contract to stay on his post till 2013. The rejuvenated Zetsche unveiled Mercedez-Benz’s future plans.

The company has weathered nearly 125 years of business since 1886 when Carl Friedrich Benz invented the world’s first automobile. The premium brand has survived rounds of consumption concept changes and financial crises which have knocked out many big-time auto giants over the years.

Surprisingly 125 years later, “Mercedes-Benz will reinvent the automobile,” remarked Zetsche during an interview with China Business.

 

Module assembly

CB: The auto community still trembles today at the thought of what happened during the world financial crisis in 2008. Sales of Daimler Group declined by 25 percent in the first quarter of 2009 with a $4.8 billion loss in pre-tax profit. However it seems that Daimler AG has survived those difficult days. What is your opinion on the past and present situation of your company? How did you manage to revive the company?

Zetsche: Daimler unloaded its remaining 19.9 per cent stake in Chrysler last April so that we could focus on the Mercedes-Benz and Smart brands. And we are also exploring collaboration opportunities with BMW.

Since 2009, our engineers, designers, product and purchasing managers have been meeting once a week to discuss a series of important issues at the Daimler headquarters in Stuttgart, Germany. The meeting is held in a conference room near the Untertrkheim engine plant. One of the most important issues discussed is how to boost Mercedes-Benz’s quality perception through the ski-boot test.

In a ski-boot test, we stamp on car doors with ski boots. Only those cars that survive the test with no dents on the car frames get mass produced and put on the market.

All in all, Mercedes-Benz registered two-digit growth for 11 consecutive months as of September 2010. It is safe to assume that our efforts are working.

 

CB: As far as I know, the ski-boot test is only a small part of Daimler’s vast scheme to restructure your product portfolio. Could you walk me through the big picture here?

Zetsche: Daimler AG’s COO Rainer Schmckle would be frequently spotted walking through the conference room carrying a pile of financial documents under his arm over the past three years. During that time, he and his team divided the Mercedes-Benz sedan into 90 separate modules and tried as many assemblies as possible. Initial results of their efforts are already reflected by the all-new Mercedes-Benz E-series sedans, which are the first batch to share modules extensively from other series of Benz cars. And in three years, when the new generation Benz C-series sedans are produced, the module assembly strategy will be 100 percent executed. Initial estimations suggest that the model will help us cut costs by close to $100 million.

And we are also looking to reduce costs in our collaboration with BMW. Every two weeks, we hold talks with BMW’s sourcing mangers to discuss details of joint sourcing in the future. Mercedes-Benz and BMW are already sharing many suppliers and we are seeking more joint technology interactions. 

CB: Besides cost reductions, we noticed that Mercedes-Benz is also experiencing changes on the level of brand positioning. What changes have you made, specifically? Does it concern you that a much younger customer base might hurt the brand image of Mercedes-Benz?

Zetsche: Daimler AG plans to launch an all-new low-price model in two or three years, targeting younger and more stylish customers. These people will replace the passe baby boomers that used to be our major customers.

Benz will continue to launch new A- and B-Class models during the next three years. We hope to show customers a diversified brand image of Mercedes-Benz in terms of marketing and sales strategy.

 

EV to enter mass production

CB: At Mercedes-Benz’s 125th anniversary, you said before global media, and I quote: “Benz will reinvent the automobile.” This is quite an exciting and interesting remark. Could you elaborate on that? What are the future plans of Mercedes-Benz exactly?

Zetsche: EVs are about to enter mass production, so the pure trade show era of EVs is coming to an end. All players are trying to grasp the opportunity to put EV technology theories into practice. This is because the more popular regular cars become, the more aware we are of the restrictions brought by its development. Depletion of scarce oil resources, traffic congestion, and exhaust emissions are all detrimental effects of the traditional automobile. Theoretically speaking, for developing countries to match developed ones in auto consumption, we would need two mother earths – to provide the resources and space for emissions. That makes bringing the EV to the forefront a must. We are now reinventing the automobile 125 years after it was invented. It is not because cars have lost their charm. Quite the contrary, they are radiating a new life. 

CB: We understand that Mercedes-Benz is shooting for another lead in the field of new energy vehicles. What is your source of confidence and method to realize that goal?

Zetsche: Sheikh Zaki Yamani, former Minister of Petroleum and Mineral Resources in Saudi Arabia, once said, and I quote: “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

Sheikh’s observation is quite telling. There are two prerequisites to successfully launching advanced, green, environmental-friendly and high-tech EV products – high-end customers with more disposable incomes and greater engineering know-how at the high-end automobile manufacturers. But there’s a risk that new technology development will be greatly retarded if the world is flooded with cheap low-end cars.

Last year when the Smart Fortwo EV debuted, we also launched “Car2go” – a subsidiary of Daimler AG that provides car-sharing services. An extensive fleet is located throughout the greater downtown area of Austin, Texas and Ulm, Germany and can be accessed “on-demand” or booked 24 hours in advance. The members may punch their driver’s license to use the vehicle for as long as they like, without committing to a specific return time or return location. The program will be launched in other cities around the world.

Initial market feedback we received suggests Car2go has a very promising future. So far we already have 30,000 members, two-thirds of them are under the age of 36. Next we will launch a mass production model tailor-made for the program – the Smart Car2go special version. The new model will be equipped with advanced long distance telecommunication equipment and sunroof. The Smart Fortwo EV and A-Class EV will help further strengthen Daimler AG’s leading position in the field of EVs. 

CB: When you said “reinventing cars,” it was perceived by some people that Mercedes-Benz will gradually diminish its R&D, manufacturing and promotion efforts of conventional energy vehicles and shift its focus to new energy vehicles. Is this perception correct? And if popularization of new energy vehicles does not happen soon, how will you balance investments between conventional and new energy vehicles?

Zetsche: Just like the French Revolution, the automobile revolution will not happen overnight. That is why we have been making continuous efforts to reduce CO2 emissions across our entire product lineup.

We have successfully reduced the average CO2 emissions to 160 g/km since late 2009. And we aim to reduce the number to 140 g/km with cars launched in the European market in 2012. This means close to 40 percent reductions from 1995 levels. We will adopt multiple technological solutions to make that happen. For example, 50 models will be equipped with automatic start-stop control devices in the next 12 months.

 

Local R&D in China

CB: The China market has such huge potential in the field of new energy vehicles that every multinational automaker attaches great importance to it. We know that Mercedes-Benz and BYD signed a formal contract to forge a JV relationship not long ago. What propelled Daimler into making such a move? And how is your cooperation with BYD going so far?

Zetsche: We will work together with BYD to tailor make all-new EVs for the China market. The EVs will have new independent logos. We will combine Daimler’s know-how in electric vehicle architecture with BYD’s excellence in battery technology and e-drive systems to realize that goal. 

CB: Besides EVs, Benz’s car sales in China grew significantly this year. However, Audi seems to be moving even faster. It just announced plans to sell one million Audis over the next three years. Mercedes-Benz has never stopped chasing after Audi in China, yet the reality is that it seems to be falling further behind.

Zetsche: There are historical reasons that Benz is behind its fellow rivals in terms of sales volume. Audi entered the China market early and targeted varied customer bases. And it also has a leading advantage in terms of government fleet purchasing.

That said, Mercedez-Benz is catching up. Audi sales were five times the size of Mercedes-Benz three years ago. Now they’re only twice the volume. BMW’s China sales used to better ours two-fold, but 2010 numbers suggest its sales are only edging ours by 10-15 percent. So I’m very pleased with the overall development of Mercedes-Benz in China, as we further increase sales and market share in line with market growth in the country.

CB: What specific moves will Mercedes-Benz make to expand sales and market shares?

Zetsche: One important message I am trying to get across here is that we will show the customers how much we value the China market and how firm our resolution is to expand investment here. For example, we will elevate output capacity at our China factories and build an engine plant, the first Daimler engine plant to be built outside Germany. Mercedes-Benz also plans to invest €3 billion in China in the next few years.

The additional investment will go beyond the existing JVs to new JV or cooperation projects. For instance, our medium- and heavy-duty truck JV project with Beiqi-Foton was approved by China’s National Development and Reform Commission in mid-July. The JV deal also includes building an advanced engine plant. 

CB: If Mercedes-Benz wants breakthrough growth in sales numbers, passenger vehicles should be your top priority. Currently other luxury brands rely mainly on selling their locally assembled cars, supplemented by imports. It seems that Mercedes-Benz is doing exactly the opposite. Do you have any specific tools in mind to change the situation?

Zetsche: Currently Mercedes-Benz’s major passenger vehicle JV in China is Beijing-Benz. We will continue our efforts to increase local production. We did not set the ratio of imports and domestic makes at 3:7. That is the result of historical factors. Now we and our partner BAIC Group (Beijing Automotive Group Co., Ltd.) agree to boost production capacity at Beijing-Benz to 200,000 units as soon as we reach 100,000-unit capacity.

 

About Dr. Dieter Zetsche

Dr. Dieter Zetsche is chairman of the Board of Management of Daimler AG and head of Mercedes-Benz Cars.

He joined the research department of the then Daimler-Benz AG in 1976 and became assistant to the development manager in the Commercial Vehicles business unit in 1981.

Dr. Zetsche has been a member of the Board of Management of Daimler AG since December 16, 1998, and chairman of the Board of Management of Daimler AG since January 1, 2006. He is also head of Mercedes-Benz Cars Division which includes passenger cars of the brands Mercedes-Benz, Maybach and Smart as well as Mercedes-Benz AMG and Mercedes-Benz McLaren.

Rewritten by Louise Liu based on author’s interview

published in Zhongguo Jingying Bao or China Business

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