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Death for Smart ForFour

2006-03-31 11:21

Michael Shields

DaimlerChrysler's supervisory board approved on Thursday a plan to scrap the four-seat Smart car model in yet another costly overhaul of the loss-making minicar unit, it said.

The world's fifth-biggest car maker had said on Saturday it planned to halt output of the Smart ForFour and focus solely on the two-seat model in a reorganisation that will cost around $1.20bn and 300 Smart jobs in Germany.

That remains the plan, a spokesman said. It will book about 80 percent of the expected costs in the first quarter of 2006.

DaimlerChrysler has said pruning Smart's model line-up once again would ensure Smart swings to profit for the first time next year, when a new version comes out of the snub-nosed two-seater with which Smart made its debut in October 1998.

"The governing bodies of DaimlerChrysler AG have approved measures related to the company's focus on the Smart ForTwo, including the intention to cancel production of the Smart ForFour," a brief statement on Thursday said.

Now it has to negotiate compensation for suppliers and Japan's Mitsubishi Motors Corp (MMC), which makes the ForFour model at a plant in the Netherlands.

"DaimlerChrysler and Mitsubishi Motors Corporation have signed a non-binding terms sheet as the basis for formal negotiations, with the goal of entering into a binding agreement regarding the cancellation of the Smart ForFour," it said.

MMC produced around 40 000 ForFours last year at the NedCar plant, which also made 75 000 Mitsubishi Colts.

Margins in focus

"MMC will continue building its Colt B-segment car at its NedCar plant in the Netherlands," Mitsubishi said in a separate statement, noting the model was its top seller in Europe.

It aims to boost Colt sales in Europe to 80,000 units in 2006, the first year in which it will be available in three-door, five-door and coupe-cabriolet versions.

Mitsubishi's NedCar employs around 3 000 staff after cutting 1 800 jobs over the past two years. It has lots of extra capacity in the plant that can make up to 280 000 units a year.

Sales of the four-seat Smart fell by a quarter last year to just 43 700 units in a cut-throat market segment. Daimler hopes that dropping the ForFour model will help premium division Mercedes Car Group hit its target of a 7 percent operating margin next year, a goal Chief Executive Dieter Zetsche has staked his reputation on meeting.

Zetsche has already pushed through 8,500 job cuts at the premium Mercedes-Benz brand in high-cost Germany and is slashing the group's white-collar staff by a fifth.

Smart has lost money ever since it was launched. It will now be completely integrated into the Mercedes organisation, ending a parallel structure that proved too expensive for a brand that delivered only 143,000 units to customers last year.

DaimlerChrysler shares had eased 0.4 percent to 47.01 euros by 1413 GMT, when the DJ Stoxx European car sector index was up 0.3 percent.

A year ago Smart dropped its roadster model and abandoned plans for a Smart offroader. It cut around 700 jobs last year, when restructuring charges of 1.1 billion euros dragged Mercedes Car Group to an annual loss of 505 million euros.

Smart narrowed its operating loss in 2005 from a deficit of around 600 million euros in 2004, company officials have said. Analysts estimate Smart lost around 400 million euros last year, due mainly to the slow-selling four-seat model.

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