A Case Study of Mercedes Benz Cars

I. Identification of the major problemThe used of faulty electronics ( faulty fuel pump made by supplier Robert Bosch ) to some models of Mercedes Benz which resulted to a great issue of poor quality problem, unstoppable increase in labor cost, downsizing the workforce resulting to high unemployment rate and the rising international competition among its rival manufacturer.II. Potential Issues to ConsiderAmidst rising international competition, German companies and banks have been unwinding their traditional cross-shareholding for several years, but the fraying of DaimlerChrysler partnership is a powerful signal that Germany’s once-cozy business culture is increasingly untenable.

Now the path is very clear for any investor to take a large stake and push for restructuring. For now, fixing Mercedes has to be Zetche’s top priority regardless of whether the merged company is destined to stay together or split.That because Mercedes is beset by a swarm of problems, from poor quality to high labor costs and increasingly global competitive rivals. But it was the merger with Chrysler that diverted management attention from controlling cost and quality at Mercedes. Soon the Germans discovered that Chrysler, which has a long history of boom-and-bust cycle, was in much worse shape than they anticipated. It spun deeply into crisis in 2000, racking up $ 4.

7 billion in operating losses the following year alone. Mercedes has to make the ultimate sacrifice, squeezing its own cost to pump out better profit for the group.Mercedes is still reeling from a series of embarrassing recalls of prestige sedan, the E-class which starts at $50,000. In May 2004, the company suffers spate problems with its electronic brake control system and it recalled 680,000 cars for inspection. Way back 2005, in March; Mercedes announced the biggest recall in its history – $ 1.3 million cars with faulty fuel pump made by supplier Robert Bosch.

Software bugs and the complex interfaces that allow the myriad electronic system to talk to each other are to blame for many Mercedes defects. An analyst of the said industry had acknowledged that they spent over $600 million to cover warranty cost.But quality isn’t Zetches only worry. He also must whack Mercedes high manufacturing cost in Germany and boost productivity significantly. That means coaxing unions to work longer hours and limiting pay increases – something to Germany’s combative labor leaders are unlikely to agree.Another obstacle is the labor pact that Schrempp signed in 2004 guaranteeing the jobs of Mercedes’ 160,000 workers through 2012.

Only four weeks into the job, Mercedes Car Group chief Diether Zetche stunned employees by ramming through a program to cut 8,500 jobs at the Germany auto maker – 9% of its German workforce. Downsizing the workforce is just the first step. Zetche’s German plants lag generation behind rivals BMW and Toyota Motors Corp. in cutting edge factory design and processes and its labor and shift agreement are too rigid.A big worry for Mercedes is the conflict that arises from attempting to share technology across the brand divided that exist between Mercedes Benz and Chrysler. Such action is much easier especially when the brand value of prestige marquee ion at stake.

No one wants to see a badge-engineered Mercedes version of Chrysler. They underestimated the competition and down graded their own product to earn more and now they are paying for a big time. III. Alternative Courses of ActionImproving quality is also vital.

The drive to lead in new technologies has resulted in cars packed with different electronic system, which all must be integrated into a core system that functions harmoniously. The competition figured out that you don’t have to design an entirely new car to offer something new. Mercedes insist, its cars use the same electronic architecture that amidst that many components vary across the wide array of models. Redesigning and reengineering all Mercedes model for better quality could take two years or more. Mercedes needs new product that is engineered with new philosophies.Boosting profit won’t be easy, either.

One way to boost profit is to become an ever leaner manufacturer. Incoming Chrysler CEO plans to take Zetche’s focus on plant flexibility to an even higher level. The company should launch a new program to install new-technology plant that can allow the company to build several different type of vehicle.To find savings, Zetche will have to focus on high material costs, supplier agreements and streamlining manufacturing.

Pruning the number of models to reduce complexity would help as well.Zetche may also pare some of DaimlerChrysler’s operation to get the company back full of speed. Chinese auto makers are eyeing too purchase of the Smart business to tap its brand ans western product design. Smart would probably be the first to be sold.RecommendationsIn my humble opinion, I further recommend the following to Mercedes Benz to revert back to the old ways.

1. Get rid of Smart – It will not go nothing good for Mercedes for years to come. Even when they say that it will start being an asset, I think it will be too late. So better yet to sell Smart to the Chinese auto makers.2. I think Benz should focus on their core models instead of trying to expand to different categories.

Focus on the C-class and E-class and I think Benz will turn around; all these unnecessary classes B and R for example should go IMO.