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Last Updated: Friday, 29 September 2006, 13:24 GMT 14:24 UK
DaimlerChrysler says future healthy
By Jorn Madslien
Business reporter, BBC News, Paris Motor Show

Mr Zetsche with new Mercedes model
Mr Zetsche says all DaimlerChrysler units must be competitive

Less than a year after leaving Detroit, Dieter Zetsche is being forced to fix DaimlerChrysler's US unit - for the second time.

Dr Z, as he is sometimes known, has spent the last year sprucing up Mercedes-Benz.

DaimlerChrysler's German unit has bounced back from a $1.2bn (642m) loss during the first half of 2005 to profits of $162m during the first half of 2006.

"In 2006, Mercedes-Benz sales have improved on the figures of 2005, rising some 11% during the period from January to August," Mr Zetsche declares.

He was speaking as he unveiled the carmaker's latest CL 63 AMG, which is kitted out with a 514bhp, 6.3 litre, V8 engine.

Losing money

Such thirsty beasts may well still be attractive for Mercedes' buyers.

New Dodge model
Critics say Dodge does little to enhance the Mercedes brand image

But in the US, many of Chrysler's customers have been spooked by soaring fuel prices, and have deserted the company's gas-guzzling pick-up trucks and sports utility vehicles in droves.

Hence, while Mr Zetsche has been busy putting the Mercedes house in order, Chrysler's recovery has faltered.

Earlier this month, the company delivered an unwelcome surprise to investors by revealing that Chrysler was losing money again.

This year, a full decade after its merger with Daimler-Benz, Chrysler is set to clock up $1bn of losses.

Back in the black

"I would not attribute the problem Chrysler has to my absence," Mr Zetsche told BBC News in an interview in Paris.

Yet already, he has ensured that Chrysler cuts output by 16% for the rest of the year, and the company has reduced deliveries by about 25% to dealers' forecourts, since they are already full of unsold cars and trucks.

None of these measures should necessitate many, if any, job losses, and Chrysler should be back in the black next year, industry observers say.

But critics refuse to accept that this is a quick fix.

Selling cars

Mr Zetsche is equally loath to acknowledge that the rapidly-slipping demand for gas-guzzlers means Chrysler needs major surgery to wean it off its dependence on pick-up trucks and SUVs, which account for 71% of its sales.

Mercedes SL
Mr Zetsche insists it is not Mercedes' job to fly to Chrysler's rescue

"Nobody is in a position to know if this is permanent or a bump in the road," Mr Zetsche says, pointing out that still "more than 50% of US sales of 50 million vehicles are trucks".

Thus, rather than cutting back on its truck operation to "bring our sales more into line with the market", Mr Zetsche wants to raise sales of Chrysler's cars, including an entry into the B-segment with its Dodge Hornet that it would like to build in partnership with another carmaker.

"We are sure that we cannot be financially successful without a partner in this segment," Mr Zetsche says.

"So far [though], we've not been able to come to a satisfactory business case."

One company

If Mr Zetsche can help Chrysler recover once more, he will have made great strides in mollifying his critics.

However, there remains many who call for the dismantling of the DaimlerChrysler merger once and for all, since it is an unbalanced relationship.

"The Mercedes star shines on Chrysler which gains from being associated with a premium brand, but the reverse is not true," observes one industry veteran at the Paris Motor Show.

"It's not as if [Chrysler's] Dodge does anything for Mercedes' image".

That may be true, acknowledges Mr Zetsche, but Mercedes "does not and is not supposed to add to the brand value of Chrysler Jeep".

Being two parts of one company has been beneficial for both the German and the US units, he insists, even though such benefits are not always clearly visible.

For example, Mr Zetsche has put many of the lessons learnt during the Chrysler turn-around into practice at Mercedes during the last year, thus speeding up its recovery.

"We are one company. We have to make all parts of our company competitive," Mr Zetsche says.

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