Mercedes Benz Struggles with Quality Issues and Sales Volume

Mercedes’ Struggles with Quality Control and Sales Volume

Luxury German Car maker Mercedes Benz has been having a bad time of it recently. For many years, the company’s cars were well -known for its quality and reliability but in the last few years, Mercedes’ famous three-pointed star has become a little tarnished in the eyes of many buyers. These days Mercedes lags behind former arch rivals BMW in terms of sales and profits and some argue, image. Its problems seem to stern from the tie-up between Mercedes parent company, Daimler-Benz and American’s Chrysler in 1998. The Merger created the world’s fifth biggest car manufacturer, employing 385,000 workers worldwide.

At that stage Chrysler was the struggling third placed volume manufacturer in the US behind general motors and Ford. By 2005, however, efforts to turn around Chrysler’s fortune seem to paying dividends as the company reported a 5% annual increase in unit sales and 10% increase in revenue in its results for 2004. Meanwhile, Mercedes Benz’s operating profits fell in 2004 on the back of poor sales of the luxury brand and restructuring costs at its Smart car divisions; the ultra-small ’Citycar’ division had failed to perform as expected since, its launch in 1998.

Mercedes itself has been struggling with quality control problems on many of its vehicles and increasing numbers of its previously loyal customers have been moving to competitors such as Audi or BMW. In 2005, the company even had the embarrassment of having to issue thebiggest product recall in its history. Problems with batteries, alternators and brakes on a number of models made since 2001 necessitated 1.3 million cars having to be returned to dealers to be fixed. The move is likely to costs many millions of Euros, hampering efforts to improve its product image, and hitting profits.

Many analysts believe that many initiatives being undertaken at Da imlerChrysler have detracted from the management of its previously highly profitable Mercedes business. Some accuse the company’s managers of ‘taking their eye off the ball’ as far as Mercedes operations are concerned. Some question whether the highly technologically sophisticated gadgetry on its latest top on the range S-Class cars can be trusted to perform. They fear that any electronic gremlins could further damage the entire marque’s image and further alienates its customers. In an effort to improve performance and financial results, Mercedes is cutting more than 8500 jobs at its Sindelfingen plant in Germany. DaimlerChrysler’s newly appointed Chief executive; Dieter Zetsche said the firm is determined to retain Mercedes’s position as the world’s most successful luxury brand. He said efforts to improve productivity, which is well behind rivals such as BMW and Toyota’s Lexus, would not be allowed to compromise efforts to tackle Mercedes’s recent quality problems. As the newly appointed Operations Manager for the Mercedes Benz, you have been askedby the Senior Management Team to prepare a 3000-word report to:

i) Explain how you would introduce a companywide operations improvement strategy. This improvement strategy must include the tools and techniques that you have learned in this module UGB 165 (70 marks).

ii) Advise on the operational strategies that BM and Ferrari can implement to gain market share from Mercedes-Benz (30 marks).