Mercedes abandons 'perfection at any price' to widen sales appeal: The car maker's thinking signals a fundamental shift for German industry, writes John Eisenhammer

IT WAS GERMANY'S sudden plunge into recession last year that first tore large holes in the comfortable belief that Mercedes had long wrapped around itself: that the august company's reputation was sufficient to sweep aside problems of price and costs.

Now, Mercedes' chairman-elect has ripped away the entire covering. If the company continues to 'over-engineer' its products, Helmut Werner warned, it would price itself out of the market. This amounted to much more than a condemnation of that central tenet of Mercedes thinking - perfection at any price. In effect, it represented a challenge to the very basics of the post-war German industrial ethos.

Mr Werner's announcement of a radical change in company strategy, which will broaden Mercedes' activities into production of smaller and more popular cars, is the most dramatic admission to date that the 'made in Germany' label no longer of itself guarantees success.

It comes as an increasing number of competitors, especially Japanese, offer comparable quality and better reliability, and for less money.

There had already been a creeping awareness among German business that all was not well, but it was dulled by the post-unification boom. Now, attention has been sharply refocused on the problem by the suddenness and depth of the recession.

The revolution heralded by Mr Werner is one that will leave virtually no sector of German manufacturing unchanged. Lean production and simplicity are the new Teutonic orders.

The strategy outlined by the 56-year-old Mr Werner, who officially takes over as Mercedes- Benz chairman in May but who is already running the show day-to-day, is two-fold. First, the company is to move into new markets, bringing out a small 'city' car, a people carrier or multi- purpose vehicle along the lines of the Renault Espace, and a four-wheel-drive vehicle spanning the utility-leisure market. Second, the group is to attack head-on what it has for too long neglected - costs and efficiency. There are to be a drastic simplification of management procedures, subsantial cuts in the central administration staff in Stuttgart, and the introduction of decentralised performance centres.

Mr Werner also said the company was fundamentally rethinking its pricing policy. The traditional method - symbolised by the new S series super-car, whose sales have been knocked sideways by the recession - seeks to produce the perfect machine, almost regardless of price. This will be replaced by 'target pricing', that is, the company will produce according to what it judges customers are prepared to pay. In effect, Mercedes' strategy is being turned on its head.

Without saying so explicitly, Mr Werner was also reflecting the concern uppermost in almost every German businessman's mind at present, that prices have to be able to compete with the Japanese.

According to Mr Werner, who is tipped as a potential successor to the Daimler-Benz chairman, Edzard Reuter, when he retires in the mid-1990s, Mercedes-Benz 'will evolve from being a car manufacturer with a long tradition in the luxury class to become an exclusive full- line manufacturer offering high-quality vehicles in all segments of the market'.

The announcement of this radical transformation comes against the background of six months of plunging car sales that have shaken Mercedes to the core. Last year, for the first time, its arch-rival BMW outsold Mercedes, by 595,000 cars to 530,000. While BMW benefited from strong sales of its new, compact 3-series, Mercedes had nothing with which to fight back other than its 10-year-old 190 model.

Instead, Mercedes found itself trying to make the running with its only new model, the top-of-the-range S-class juggernaut. At a time when so many chief executives are announcing cuts and lay-offs, there was little appetite for such conspicuous luxury. True, there has been a large element of bad luck with the timing, but there was more to the problem, as Mr Werner has now conceded.

The thinking was wrong. In radical fashion, Mr Werner has now set out the plan for recovery, not just for Mercedes, but for German manufacturing in the 1990s.

(Photograph omitted)