Costs to be slashed as DaimlerChrysler bids to make ailing Smart brand pay.

DaimlerChrysler will administer a harsh dose of medicine to its Smart brand in a bid to jolt the ailing city runaround into financial health.

The automotive group will stop production of the Smart Roadster sports model by the end of the year and axe the Smart SUV project, which aimed to create a new class of small off-road vehicle.

Instead DaimlerChrysler will focus on the core two-seater Smart car and development of a four-seater model in conjunction with Mitsubishi Motors of Japan.

Economies of scale

A key part of the company’s plans is the development of an engine that can meet the requirements of the US market.

DaimlerChrysler said the next generation of three-cylinder petrol engines built for the Smart would also be used by other manufacturers.

‘The resulting economies of scale will substantially improve the cost position of the engine project,’ the company said.

The drastic surgery, which will cost DaimlerChrysler up to e1.2bn (£820m) in restructuring expenses and involve significant job losses, shows what an uphill struggle Smart has been for the group since launching eight years ago.

The company admitted it had toyed with the idea of closing the loss-making Smart down altogether before announcing the cost-cutting programme, but claimed the car brand could break even by 2007 as a result of the changes. ‘The new business model aims to put the brand on a financially sound basis,’ the company said.

Though a relatively common sight in Europe, the Smart has yet to go on sale in the US despite being promoted in the world’s biggest car market. It has also seen its thunder well and truly stolen in the small vehicle sector by arch-rival BMW’s Mini.

Some of the vehicle’s commercial problems have resulted from its stand-alone distribution network and associated high costs. DaimlerChrysler said a major part of Smart’s development, procurement, sales and service operations will be integrated with Mercedes, allowing economies of scale to be achieved.

Mercedes recall

News of the Smart shake-up capped an uncomfortable few days for DaimlerChrysler, which also announced the biggest product recall in the history of Mercedes. More than one million vehicles will be called back worldwide, including 60,000 in the UK, after the company said a few ‘minor incidents’ had led to possible issues with brakes, battery and alternator systems.