Mercedes' Bernhard tackles production issues, keeps low profile
New Hungary plant for compact cars a key challenge for Zetsche's potential successor
BERLIN (Bloomberg) Wolfgang Bernhard, production chief at Mercedes-Benz, has made four trips to central Hungary since rejoining the Daimler AG management board a year ago. His career depends on a factory being built in the region.
The 800 million-euro ($1.1 billion) plant near the city of Kecskemet has received special attention from Bernhard, regarded by analysts as the most likely successor to CEO Dieter Zetsche, because it's the location where Daimler plans to build two compact cars.
The 50-year-old executive has kept a low profile since returning to Daimler in 2009, five years after being pushed out by former-CEO Juergen Schrempp. Bernhard's main challenge is making factories run more smoothly as Mercedes lags behind BMW AG and Volkswagen AG's Audi in filling assembly lines.
"Bernhard is the central candidate for the top job," said Stefan Bratzel, head of the Center of Automotive Management in Bergisch-Gladbach, Germany. "But he's got a lot to do. Daimler's results in recent years have resembled a rollercoaster ride. Continuity is a key challenge."
The lack of consistency was evident in the fourth quarter. Mercedes earnings before interest and taxes slipped to 8.3 percent of sales from 9.5 percent in the third quarter. The surprising drop in profitability contributed to a 4.4 percent decline in Daimler shares when it released earnings Feb. 16. The stock has gained 60 percent since Bernhard joined the board.
"It's clear that Mercedes was below expectations," said Stefan Bauknecht, a fund manager with DWS Investments in Frankfurt. "A 9 percent margin should have been possible."
Daimler's car unit, which includes Mercedes, the Smart city car and the ultra-luxury Maybach brand, targets consistent profit margins of 10 percent by 2013. The company is aiming for the boost even as it doubles the lineup of small cars, which are typically less profitable than big sedans like the E and S Class.
Keeping pace with BMW, Audi
Small cars are critical for Mercedes to meet tighter emissions standards and keep pace with BMW and Audi in sales. Mercedes also needs new models to attract younger drivers to the brand, with its average customer older than its competitors. A revamped B Class, the first of the line, will be introduced later this year. A compact hatchback, coupe and SUV are also planned.
The Daimler unit, which accounted for 65 percent of the group's 7.3 billion euros in 2010 operating profit, will probably use 88 percent of capacity at European factories this year, compared with 92 percent at BMW and 93 percent at Audi, according to data from IHS Automotive.
Mercedes in 2011 aims to beat record output of 1.21 million vehicles this year. Last year's production at an all-time high came even though the carmaker started the year with factories running on reduced schedules.
Despite improving Mercedes' fourth-quarter margins by 3 percentage points compared with last year, Bernhard has bigger challenges waiting, including making profitable cars at Kecskemet and its sister plant in Rastatt, Germany, and addressing sensitive issues like taking small-engine production away from the high-cost Stuttgart plant.
"If Bernhard's going to progress, then he needs to successfully implement long-term strategy," said Christoph Stuermer, a Frankfurt-based analyst at IHS Automotive. "The current A and B Class made only a marginal contribution to profitability."
After challenging Schrempp and subsequently losing his position as head of Mercedes in 2004, Bernhard led VW's namesake brand for less than a year before again losing a power struggle, this time with Chairman Ferdinand Piech. He also antagonized VW unions by threatening to relocate Golf assembly outside Germany.
Since returning to Daimler, he's stayed out of the public eye and taken on a more collegial tone, meeting foremen on the factory floor and extolling the virtues of teamwork in town hall meetings with workers, according to two people who worked with him. Zetsche, 57, has a contract running until the end of 2013.
"Bernhard had acquired a reputation as a ruthless cost-cutter, but now he has to make a name for himself in the more subtle art of people management," said IHS's Stuermer. "It's very important at Mercedes to become a good guy to work for, someone who's not going to bruise people with big egos."