Mercedes-Benz's Hubbert: "This Is the Important Year"


J?rgen Hubbert, the head of Mercedes-Benz, is co-chair, along with CEO J?rgen Schrempp, of DaimlerChrysler's new Executive Automotive Committee. The committee is charged with coordinating the auto-making operations of the Mercedes, Chrysler, and Mitsubishi businesses. The new team is dedicated to eliminating duplication and to saving money wherever possible. But Hubbert is also entrusted with protecting the venerable Mercedes brand's mystique -- and those two responsibilities won't always be easy to reconcile.

Making the job even harder is the rough patch that DaimlerChrysler has hit of late. The company's net income, excluding extraordinary items, fell 44% last year, to $3.3 billion, reflecting a 90% plunge in operating profit at the Chrysler business. The American unit ran up huge losses in the second half because of runaway costs, including high incentives to sell vehicles. Chrysler isn't expected to return to profit until 2002. DaimlerChrysler will also be taking a charge of around $370 million in the first quarter of this year for a restructuring plan at troubled Mitsubishi Motors (see BW, 2/26/01, "Mitsubishi and Chrysler: Riding Together").

That means Hubbert's Mercedes-Benz division is carrying the group through this difficult stretch. It was the biggest contributor to DaimlerChrysler's profits in 2000 after recording a 15% rise in revenue and a 6% increase in operating profit to a record $2.7 billion.

On Feb. 28, at the Geneva (Switzerland) car show, Hubbert sat down with BusinessWeek Frankfurt Correspondent Christine Tierney to talk about the future of DaimlerChrysler. Here are edited excerpts from their conversation:

Q: What's the biggest challenge the DaimlerChrysler group faces this year?

A: The car market. This is one of the most important prerequisites for success.... We're assuming 16 million units [total annual sales] in the U.S. market and a stable market in Europe.

Q: What's the biggest challenge before the Executive Automotive Committee?

A: The workload, because you have to put everything up -- all the projects we have at all three [Mercedes-Benz, Chrysler, and Mitsubishi] -- and then we have to make the right decisions. Then the work will begin, but for us, it'll be easy to control and to follow.

Q: What's the biggest management challenge?

A: For Dieter [Zetsche, president of Chrysler], it's to build a team and to make the American employees successful -- not going and showing them how good we are, because we aren't better [than them]. But we have to make sure that we have the right people in Auburn Hills, [Mich., Chrysler headquarters] capable of solving their problems. And that's something he'll do.

I know it from the response I get from some of the [in-house] town-hall meetings, which is different from what you read in some newspapers. People are saying, "We feel we have leadership for the first time in years."

On Mitsubishi, it's a bit more difficult. At the moment there's a top-down approach.... So it's important that Sonobe-San [Mitsubishi Motors President Takashi Sonobe] and [Mitsubishi COO] Rolf Eckrodt address the problems together.

Q: How do you see Mercedes' role in the new, more integrated DaimlerChrysler operations?

A: We start first with the brand...we defined the brand images, brand values and characteristics. And we look at the product portfolio to say what products we want to offer under what brands, in what segments, in what regions. There's one premium brand, which is Mercedes, and one of its characteristics is to be the innovator of automotive technology. We need the capability and the money to develop the new ideas and technical solutions, such as ESP [electronic-stability program].

In our past, we started innovations at the S-Class level [Mercedes top-of-line models], and by increasing volumes, we could reduce the cost and bring those innovations into the E-Class, C-Class [mid-range and entry level, respectively], and below. In this scheme, there's the innovator, which offers these technologies to nearly all the brands after having introduced it as first-to-market.

To do this, we'll need common electronic architecture. That's the first step. Then, you have plug-in technologies, and each division could say, "We want that," and they could just put it in.

Each brand has to look at its markets, at its competitors, and decide, "Should we introduce something like that into our cars, are our customers willing to pay for it?" If somebody takes that direction, it'll reduce the cost for the part. I'll get some money back to put into additional innovation and new developments, either through economies of scale or a payback of what I've invested.

Q: Can Chrysler and Mitsubishi afford Mercedes technology or components when they've just embarked on cost-cutting drives?

A: You can't really be successful just by cutting costs. We're absolutely convinced you need to do both -- cut costs, or at least get back some discipline in that area, and on the other hand, put effort

into producing new, attractive products.

We have to do both things at the same time. Our experience at Mercedes, when we had our crisis in the late '80s to early '90s, was to have cost reductions and a product offensive. Even though we announced it in 1989-90, it took three years before we came out with the first new product -- the C-Class that came out in 1993. We also talked about changing the mindset of our people to orient them to benchmarking and competition.

Dieter was involved at that time, and he's doing exactly the same thing now -- under more severe conditions, no question about that. It's really hard -- but I'm totally convinced they'll deliver.

Q: What Mercedes components could go into Chrysler vehicles without diminishing the Mercedes brand's prestige?

A: We've talked about diesel engines, and we'll have Mercedes diesel engines in [Chrysler] vehicles for the European market at the end of this year. They're also producing a gearbox based on one that we developed.

I see [Chrysler] cars coming in a few years which will carry components we've developed for Mercedes-Benz. But whatever we offer, even if there are some shared components, will be totally different. Whoever buys a Mercedes will get a Mercedes. Customers won't see any cheap components coming from Japan or anywhere else. And why should people buy a Mercedes if they can get a Chrysler with Mercedes technology?

Even if we had the same engine or the same gearbox or the same axles, Mercedes cars would handle differently and have different standards in technology and safety.

Q: With the establishment of the Executive Automotive Committee, is the fence you've erected around Mercedes more or less protected?

A: More protected. I don't understand it when I get questions about this. Is there anyone around who doesn't understand how important it is to protect the Mercedes brand value we have? It allows us to ask for a premium. Everybody's fighting for Mercedes, everyone's fighting for Chrysler, everyone's fighting for Mitsubishi, but at the same time they'd all avoid anything that could hurt Mercedes-Benz.

Q: Do you feel pressure from the less-fortunate divisions to part with components or technologies?

A: Not at all.

Q: Is the group's management stretched too thin?

A: We feel we have the right people. We all have to give some to the new teams, but we can bring in good replacements, and we have the talent in our company, especially at Mercedes, to fill the gaps. We can do what we've laid out in our plans and what we've promised, so we're more relaxed than some people might expect.

Q: This is the crunch?

A: This is the important year -- 2001. The confidence is there. Our share price was going up yesterday, which would be otherwise unbelievable. The public has accepted the plan, they've accepted what we've said, and they've said, "O.K., give them credit, let's see." And we have to deliver. There's no question about it. And we will.


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