Wednesday, 19 December 2007

Company Focus - Daimler's smart thinking

Significant strides have been undertaken within the Mercedes Car Group since Daimler's re-appraisal led to the possibility of a new dawn for smart GmbH. Since the original 1992 concept (car & business model), the project has been beset by troubles, both in terms of original set-up by Swatch - the initial partnership with VW floundering - and the lengthy time taken to reach break even.

The ambitious project has come under unfavourable fire when times have been financially tough, but visionary leadership has consistantly saved the day, understanding far greater, bigger picture, returns were further down the road.

It is the case that the most intelligent of species require longer gestation and formative nurturing periods.

Whilst the marketing hype behind a new Ford or GM overplays conventional, small step product evolution, Daimler's use of low-key PR underplays what are 2 milestones for both smart and the very nature of the 'received' automobile. As history shows, meaningful evolutionary strides are often played out in the shadows of louder and bigger beasts.

Firstly is the introduction of the Zytec engineered smart EV (or more commonly known "electric smart") in Europe, and secondly is the introduction of smart into the US. Both are radical onward steps that serve to intertwine traditionally rejected notions...the full electric car and US micro-car. However, unlike previous attempts the formulae applied by Daimler for both initiatives demonstrates the importance of leading and educating the market step by step. Hence to reach this point smart has had to wait for general (ie European) market acceptance before embarking on new powertrain technology and expanding into what many previously saw as a geographical anathema.

Of course social perception comes from environmental context, and there has been a rapid change of consciousness and appreciation (even amongst the most cynical) in a very short timescale over recent years. The push and pull effects of Al Gore's message, legislative pressures and importantly oil/energy security & price have made the western world a very different place to that not so long ago. Daimler recognises that immediate profitability of these dual ventures is negligable relative to group-wide earnings, the real focus is to strategically plant the seeds of change regards the very DNA of Mercedes product. It did this successfully with A-class (spawning B-class) in Europe as a fast follower to smart, and is attempting the same thing again in the US, intrinsically "opening the doors of perception" for the public, so as to introduce alternative core and sub brand attributes. [We believe the time is right to introduce a new intermediate premium small car recipe and sub-brand. See auto-antenna Q3,07]. And here, in Europe, the electric smart paves the way for part and full hybrid technology in large and mid-size cars, aswell as taking the notional upper hand in corporate eco responsibility as Toyota has done with Prius.

These exercises of 100 cars in London and a notional 30,000 in the US (based on conventional Canadian:US ratios) wouldn't ordinarily be judged on traditional Return on Investment grounds given their strategic nature. However investment-auto-motives expects that Daimler has had the acumen to make the individual project finances work. The London 'experiment' deriving income from a lease based scheme via 'highly price elastic' fleet owners (such as government agencies, local councils, energy cos and telecoms cos) needing to be seen to be green. And for the US cars, that much of the 'Bill of Material' piece price and Capex costs already amortized by previous production, leaving the 30,000 units 'owing' the cost of US specification re-engineering and marketing overhead, thereby probably providing a positively healthy profit-centre for latter day US market next step projects.

These 2 ventures will be closely analysed: the electric smart demonstrating that electric can be populist and mainstream when incorporated into the right, intelligent vehicle; whilst the new chic runabouts for Seattle, Boston, San Francisco, New York and possibly closed communities and retirement regions sit in that middle ground between a trendy BMW Mini and taking socially responsible public transport.

Lastly, investment-auto-motives likes to highlight a case of serendipity...VW originally marketed itself to America with the slogan "Think small!" from small acorns strong oak trees do grow.

And given the overtones of such 'smart thinking', what of the potential business relationship between Daimler's smart and Frazer Nash's, ex Ford owned, and conceptually similar TH!NK ? That conversation must have surely taken place given Frazer Nash's expertise with electric drive.