The tornado of Mercedes has a way of driving a hard bargain


As he looks at you over a pair of half-moon spectacles, Helmut Werner, the white-haired, conservatively dressed chief executive of Mercedes Benz, looks as though he has just stepped out of an advert for one of his own cars.

But the 60-year-old's radical transformation of Mercedes belies his old- fashioned image and the traditional aura that has for so long surrounded the company itself. "For decades we set our game plan according to the market. But after the Eighties, as Mercedes' enormous profits came to an end, we had to make an abrupt change," says Mr Werner.

Increasingly tough competition for luxury cars, the worldwide recession and changing customer demands made the automobile giant reel. When Mr Werner took over as chief in 1993, with the company deeply in the red, clients were no longer prepared to wait more than two years for an order.

Spoiled with success over the past decades, he freely admits Mercedes became fat and sluggish: production costs of competitors were 20 per cent lower. But Mr Werner, a former German backstroke champion, was determined to give the company a new lease of life.

His first move to define a new strategy placed more emphasis on productivity, product planning and global markets. But it is when the conversation switches to Mercedes' future that Mr Werner gets excited. "Over the next few years you'll find us developing lots of new models and appearing in lots of new product sectors and markets where there's potential."

And the change is already under way. For a start there's the extraordinary joint venture with Swatch, the Swiss watch maker, to develop the so-called "Smart car", due to be launched in 1997. This motorised shopping trolley is expected to cost about pounds 6,000, a third of the price of the cheapest Mercedes cars.

"There is an enormous market for vehicles like the Smart car," Mr Werner claims. But the venture also involves huge risks. Mercedes lives off its exclusive reputation and cannot afford to devalue its brand image. Mr Werner's dilemma is that the projected growth in the market for big cars is minimal.

Mercedes also plans a small car of its own to compete in a higher price bracket with similar offerings from Audi and BMW. There's a four-wheel drive joint venture with Porsche which will take on the likes of Land Rover.

The innovative approach is not limited to products themselves. Mercedes is working on a leasing deal that will give existing leasing customers the chance to drive different models when they want. They could have an open-top car in the summer, a four-wheel drive in winter, a limousine for special occasions.

Mr Werner expects pool-leasing eventually to be as common as conventional leasing is now. Pilot projects have started in Britain and Germany.

Employees have nicknamed Mr Werner the tornado. He makes so many things happen, they say, that you never know what is coming next. But one thing that will definitely stay on Mr Werner's list for a while is the loss- making truck business.

"We expect the truck division to be back in the black in 1998, but there's still a long way to go to improve productivity."

Mr Werner's approach hasn't made him a lot of friends in the European businesses. In the past few years Mercedes has cut 30,000 jobs, most of them in its German heartland.

At present it makes 5 per cent of its passenger cars outside Germany, but Mr Werner estimates that in 10 years this could soar to 25 per cent. Significantly, the new Smart car will be built in France.

"The days of exporting everything are gone. In Brazil, for example, they have import duties of 70 per cent, which means that we can only sell a big number of cars there if we produce in the country," he explains.

There are pressing financial reasons for Mercedes to "go global" as well. The Alabama plant helps the company to manage its foreign exchange operations. Last year Mercedes had to face enormous currency losses due to the strength of the mark against the dollar. Perhaps this is one reason Mr Werner is such a convinced advocate of European Monetary Union.

"Last year's currency turbulence in Europe burdened Mercedes-Benz alone with extra costs of DM600m [pounds 255m], which means we have to cut our costs by the same amount because we can't put up our prices. This means for Germany 6,000 jobs are in danger, which tells us that we have more to fear from the present currency situation than from EMU."

And if his present form is anything to go by, Mr Werner will get his way on EMU, as he does with most other things.

Next week he meets Hans Tietmeyer, head of the Bundesbank, to discuss the single currency. Mr Werner drives a hard bargain.

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