FRANKFURT - DaimlerChrysler may kill the 2004 replacement for the Mercedes-Benz A-class at a management board meeting later this month, senior DCX sources say.
DaimlerChrysler's segment-busting small car is selling well, but its profitability is disappointing.
Furthermore, the A-class will be squeezed in the future by new models from inside DCX, including a four-seat Smart to be developed on a Mitsubishi car platform.
DaimlerChrysler's small-car strategy is expected to be decided at the meeting in Stuttgart. Presentations on future product plans will be made by Jurgen Hubbert, head of Mercedes-Benz and Smart; James Holden, head of Chrysler brands; and Dieter Zetsche, who runs the DCX's commercial vehicles business.
The board is expected to give the go-ahead to the Smart roadster, which first appeared at the September 1999 Frankfurt auto show. The car has strong support from Chairman Jurgen Schrempp.
Schrempp recently said that a four-seat Smart would be produced on a Mitsubishi platform. Both Smart and Mitsubishi cars would be jointly produced at the NedCar factory in Born, the Netherlands, he said.
The board is expected to officially approve these projects at the June meeting. But the most crucial issue to be discussed will be the A-class successor, sources say.
The next-generation car, due for launch in 2004, will come under close scrutiny because of its lagging profitability and product overlap inside the group.
The future four-seat/four-door Smart could be slightly bigger than the current A-class. An overall length of just below 3700mm is expected - about 100mm longer than the A-class and only 100mm shorter than A-XL, the long wheelbase A-class derivative due next spring.
The A-class also will be under pressure from the family version of the Vaneo, a light-commercial vehicle based on an extended A-class platform and due for launch in 2002.
'There is not a lot of room left for successfully positioning that car, especially as competition is pretty tough and profit margins are pretty tight in this segment anyway,' a DCX manager said.
'Jurgen Hubbert will fight for the A-class successor,' a DCX insider said, 'but he will have to present a business plan that convinces all management board members - especially Chief Financial Officer Manfred Gentz.'
Sources say that profitability of the A-class is an increasing problem. Indeed, at the Detroit auto show in January, then-DCX Co-chairman Bob Eaton said: 'The A-class will not be profitable in its whole first life cycle.'
The outlook is made worse by the highly-competitive small-car market in Europe, where customers are used to negotiating rebates and attractive financial packages. Even Mercedes-Benz dealers can't avoid that trend, company sources admit.
Various sources say that the management board could decide in favor of a small-car strategy that involves Smart and Mitsubishi only.
'If this is the case, it would leave some people unhappy - but at least it would delight the financial analysts,' a DCX insider said.
The A-class ran into trouble soon after its launch in autumn 1997, when it famously toppled over after failing a magazine's high-speed 'moose avoidance' test.
But sales quickly recovered. Last year, DCX sold about 180,000 A-class units in Europe, up from about 120,000 in 1998.
Through January-April this year, sales in Europe were down about 8 percent to 59,300 from the year-ago period, according to market researcher JATO Dynamics. But DaimlerChrysler's A-class assembly plant in Rastatt, Germany has been running at full capacity.
Mitsubishi and Chrysler
Sources at DCX say the management board must take into account Mitsubishi's expertise at making small and compact cars when setting its small-car strategy.
'They (Mitsubishi) are very good in these areas,' said one source. 'The major question for DaimlerChrysler now is: 'Does it really make sense for us to be represented in the highly competitive small-car market with more than two brands - Smart and Mitsubishi?' '
There is also concern at DCX board level about compromising profitability if the company enters the small-car segment with the Chrysler brand. That was the original plan after the Daimler-Benz/Chrysler merger and before DCX bought a stake in Mitsubishi Motors in March.
In fact, there could be relief at Chrysler's European operations if development of a subcompact model below the Neon for European markets was canceled.
'There would be no objection to our brand not competing in the mass segment but instead establishing an image for high-class niche models in Europe,' said a senior Chrysler manager in Europe.
'The PT Cruiser is an excellent ambassador for this strategy in the passenger car sector,' he said. 'With the Voyager, Chrysler created the minivan segment. And Jeep is the unbeaten trademark for off-roaders. There's a lot we can build on if we pursue this strategy in Europe.'