Resurrecting Mercedes

While the marque may have been blemished by recent quality problems, there is a dedication to making that badge shine with improved processes and new products.

The headlines were bleak in April 2005, when Mercedes-Benz was hit with another blow to its lagging quality image. The Detroit News blared: “Big Recall Tarnishes Mercedes-Benz”. Electrical and brake system faults on several Mercedes car lines (including the E-Class) forced the automaker to recall 1.3 million cars, dating from the 2001 to 2005 model years. Its back already against the wall after several disappointing years in the annual J.D. Power and Associates Vehicle Dependability Study, where Mercedes hit a low point of 327 problems per 100 vehicles in 2004 (ranking below Oldsmobile and Plymouth), the negative press was beginning to take its toll. Once one of the most valuable and respected brands in the auto industry, Mercedes had fallen. Hard. Interbrand, which conducts an annual ranking of the top 100 brands across the globe, reported Mercedes came in below Toyota, with a total brand equity value of $20 billion dollars, a 6% decline over the prior year’s $21.3 billion-level. Could things get any worse?

Late in ’05, the leaders of Mercedes’ parent, DaimlerChrysler AG, decided it was time to make a significant change and appointed Dieter Zetsche, who was instrumental in reversing Chrysler Group’s falling fortunes, to the top of Mercedes (and the entire corporation, as well). Zetsche wasted little time in making changes, slashing Mercedes’ cost structure by laying-off thousands of German factory workers and installing several quality provisions from Chrysler (gasp!) into the luxury marque. “Our quality organizations work together on both sides and look for opportunities to enhance both of our systems,” Zetsche says, referring to the luxury brand and Chrysler. Insiders at Chrysler say their former leader has been heating up the phone lines between Stuttgart and Auburn Hills to generate increased sharing of quality initiatives. “He’s keeping us very busy over here,” says a Chrysler insider. 

One initiative that is shared is dubbed “the tag process.” Similar to processes used at the Centers for Disease Control and Prevention to identify potential health crises, systems constantly monitor vehicle warranty claims and repair orders to recognize any potential anomalies that need to be resolved quickly. “If anything goes beyond your normal noise level, it immediately pops a red light in the organization. You have one week to have the root-cause identified,” Zetsche says. “If it continues into a second week, the issue goes to the vice president level, and the third week it goes right to the CEO level. It provides a built-in sense of urgency.” While the “tag” concept will help Mercedes better respond to problems in the field, it does little to provide any proactive attempts to kill potential quality issues before they reach the end of the assembly line and the showroom floor. “You can only get to top-notch quality if you engineer in and build quality in the first place. We have to do that,” he says.

 

GL to the Rescue

The latest product to lead the improved quality push is the ’07 GL-Class full-size SUV, which made its world debut at the 2006 North American International Auto Show. After more than five years in the development phase, the GL begins rolling off Mercedes’ Vance, Alabama, assembly line in March ’06. The GL, which was originally slated to replace the aging G-Class until it was given a 5-year reprieve, shares its underpinnings with the R- and M-Class models. The launch of the GL marks the end of a $3.5-billion investment plan for Mercedes, $600 million of which went into a new final assembly line and extensive changes at the Alabama plant. William Taylor, president and CEO of Mercedes-Benz U.S. International Inc., says the M- and GL-Class SUVs utilize common body shop operations, while the R-Class has its own dedicated body shop. All three vehicles can run down either of the plant’s dual final assembly lines. Ramp-up will continue at a snails pace until all of the GL’s quality targets are met. “We’re not going to have a discussion on quality. I will take the heat if we do not hit volume targets. We’ll get the volume later,” Taylor says. Production launch of the GL comes just months after Alabama workers added the R-Class to the production mix, which itself was launched just a few months after the all-new M-Class hit the line. “Nobody within Mercedes knew how to do three cars in one plant in one year. I can tell you it is an interesting process without a roadmap,” Taylor says. The plant itself was basically gutted, making way for the installation of new workstations, body shop fixtures and welding systems. Before the modernization, the plant had as few as 30 robots in the body shop, whereas the new operation consists of close to 800. Automated welding operations jumped from 35% in the previous-generation M-Class to 100%, utilizing both resistance and MIG welds. The paint shop was also given a complete revamp, with spray applicators installed in place of the old bell reciprocating systems. That meant workers had to go through extensive periods of training for as long as 18 months. While it was suggested the plant ramp-up all three products in a quicker timeframe, Taylor says he wanted to space the program out over 12 months in order to assure workers could face the unique challenges ahead. “Common sense told me to break it up into pieces and keep the people dedicated to specific pieces of each product and not let any of the knowledge get diluted. We needed to keep all of our strengths in order through startup,” he says. Unlike the previous generation M-Class, these new products have gone through the Mercedes “quality gate” process (also used at Chrysler Group), which calls for an immediate stop to all operations if a problem is recognized and not continue until the issue is resolved. “Recently, during one of our production trials, we had a headliner problem: it didn’t fit into one of the sunroof areas. We stopped everything, brought the supplier over and pulled the headliner at the station and demonstrated the issue right there and did not continue until it was fixed. It may end up costing us 45 minutes or an hour, but it is time well spent,” Taylor says. With M- and R-Class production running at full-rate, Taylor says he’s proud of what his team has accomplished and he’s well aware that his team cannot lose focus when it comes to quality. The wounds from the launch of the first M-Class still hurt: “The one personal regret, and I do take it personally, I have is that we didn’t have a better start on the first M-Class. That was not acceptable,” he says.

 

Design/Development Face Heat

When it came to developing the first full-size SUV for Mercedes, the product development team faced a number of hurdles, some of which seemed monumental, according to Ron Mueller, manager of the luxury sport utility and touring division of Mercedes-Benz USA: “The biggest challenge on our end was to develop a vehicle that would stay full-size to the U.S. customer, yet was small enough to still sell in Europe, especially since we are targeting up to 35% of the volume for the GL to go to Europe.” While the GL shares few exterior parts with its M- and R-Class siblings (only the front doors are shared with the M-Class), everything underneath is common, including gauge clusters, electrical architectures, suspension systems, HVAC, and audio systems. “We knew we had to have a different persona for the GL because it appeals to a different buyer than the M- or R-Class vehicles,” Mueller says, adding the GL is 3-in. shorter than the R-Class. Unlike the G-Class, which is a rugged SUV capable of traversing the Alps (Mercedes has a contract to provide the G-Class to the Austrian military for the next 10 years), the GL is better suited for the suburbs. Engineers wanted to provide the GL with more car-like ride-and-handling. “This is not really meant to go off-road. We expect less than one-percent of the owners of this vehicle to actually take it off-road,” Mueller says. Performance characteristics aren’t the only differentiator between the GL- and the G-Class vehicles. Mueller says Mercedes designers wanted to give the GL a unique design treatment, removing any possibility the new SUV would be dubbed a longer wheelbase version of the M-Class. He admits designers developed a GL that had a front fascia design similar to the M, but it was chucked to give the GL a more masculine appearance. “We had to go back to the drawing board,” he says. “The biggest thing for us was the front end. We wanted a front end with a big, square chin; one that was almost flat. If you look at other Mercedes you see most of them come to a point at the front, but we wanted the GL to be snub-nosed, in-your-face.” Last-minute changes were also made to the GL’s D-pillar design. The original design called for the rear edge of the pillar to be more rounded, following the contours of the body line that stretches from the top of the front headlamp up along the top of the greenhouse. “That line was too rounded and ended up making the vehicle shorter in the rear. We then decided to give it a more squared-off look, which also gave us more headroom in the third row,” Mueller says.

Inside, the GL follows along with the rest of the Mercedes SUV family, providing top-notch materials and fit-and-finish. “We learned a lot about SUV interiors from the first M-Class. Everyone climbed into that interior and said, ‘this is not a Mercedes.’ Specifically, the materials were all wrong,” Mueller says.

 

Making the Sale

Keeping Mercedes on its current path (the German luxury marque sold a record 224,421 vehicles in 2005) and making the GL a success rests firmly on the shoulders of Paul Halata, president and CEO of Mercedes-Benz USA, the brand’s second-largest volume market behind Germany. Halata doesn’t buy into the hysteria that full-size SUVs are dying on the vine. He points out that while gasoline prices continue to remain at high levels, the GL will have a competitive advantage thanks to the availability of a 3.2-liter four-valve-per-cylinder V6 diesel engine equipped with DaimlerChrysler’s new BlueTec emissions system, which arrives in October 2006 (see sidebar). Mercedes returned diesels to its U.S. lineup in 2005 with the introduction of its E320 sedan, which quickly sold beyond its 4,000 unit target. A few obstacles remain in the way of diesels gaining mass appeal in the U.S., especially since the engines are outlawed in California and New York State, both large markets for Mercedes. Still, Halata says he longs for the days in the mid-1980s, when diesels accounted for 73% of Mercedes total U.S. volume: “I’d like to think we will see big numbers coming out of diesel engine demand in the future,” he says. “We feel with the diesel we will offer an SUV with very respectable fuel consumption.” Halata says the addition of the GL may result in lower sales of the M-Class, especially for owners of the previous-generation model looking to move into a larger vehicle. He is confident Mercedes will remain successful in the U.S. this year, thanks to full-year availability of the M-, R- and S-Class models. Still, he admits the brand will have to turn around the negative quality perception it has built up in recent years. “We’ll be relentless in accomplishing this. Mercedes and quality and reliability need to be synonymous,” he says.

 

Too Many Pieces?

Some observers say adding the GL to a range of products that have grown exponentially over the past few years—an expansion that includes the R-Class, CLS, C-Class Coupe and SLR—means the exclusivity of Mercedes may be lost. Zetsche says he has no plans to pare back the number of models, adding the brand may have enough space for further model iterations. “We have to make sure whatever we do enhances the brand equity of Mercedes. We will not be on the defensive mode in the future,” he says. “We could find further definitions and concepts of vehicles that are better aligned to meet the needs of our customers, but that cannot sacrifice the clear brand of Mercedes.” And what exactly is the definition of Mercedes? Zetsche defines it as, “The most exciting products which have a very strong character and technology and innovation are a very strong line of that character.” Halata agrees, saying Mercedes remains true to its luxury heritage, although globalization has changed the brand from a German-centric company. “Mercedes is the ultimate in driving, safety, design and engineering,” Halata says. “It’s a global company that is European-based.”