Daimler Hits Brakes on 2d Flawed Model By John Schmid December 19, 1997

FRANKFURT: Daimler-Benz AG again suspended Thursday the sale to the public of a compact car that flipped over in test drives in what analysts called an embarrassing repeat of the quality troubles that plagued the company on a different model a month ago.

"It is the continuation of a nightmare," said John Lawson, industry analyst at Salomon Smith Barney in London. "It has gone into the second round."

Like the Mercedes-Benz A-class before it, the luxury automaker's Smart car suffers from a tendency to flip over on sharp turns in tests, the company said Thursday.

The admissions about both cars were stunning, observers said, for Europe's most profitable carmaker and particularly for its engineers, who have prided themselves on technically superior Mercedes-Benz sedans.

The company's prompt withdrawal of the Smart car from its production schedule was a radical move meant to avert further damage to its image so soon after the A-class debacle, analysts said.

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Dissent and satire still alive in RussiaIn Eastern Germany, an exodus of young womenAung San Suu Kyi and junta edge toward reconciliation A quality audit of the micro-compact Smart car, built for an 81-percent-held Daimler subsidiary, discovered technical flaws in the two-seater only three months ahead of the March introduction date, Daimler officials said.

Juergen Schrempp, the Daimler chief executive, demanded a six-month delay until October to give engineers time to widen the car's wheel base, shift the vehicle's weight closer to the ground and retool the production line.

The company's unprecedented expansion into the crowded market for inexpensive hatchbacks stumbled in October when the A-class four-seater flipped over in the course of an "elk test," a maneuver meant to simulate an emergency swerve to avoid wildlife.

"Schrempp will not take risks," said one Daimler executive. "He is a no-nonsense manager. He already has seen how quickly such situations can blow up in your face."

The promotional blitz that accompanies new models has been suspended, Daimler officials said.

Mr. Schrempp, 53, once dubbed the cost-cutting "Rambo" of German managers, recently boasted that he personally will be at the wheel of a Smart car to conduct an elk test.

In-house test drivers, however, already have managed to tip over several Smart cars during "extreme driving tests," according to Nicolas Hayek, vice chairman of the Micro Compact Car joint venture between Daimler and Swiss-based Societe Suisse de Microelectronique et d'Horlogerie SA (SMH).

Conceived to foster a stylish sense of cachet with splashy colors, the Smart car also is dubbed the "Swatchmobile" because of its ties to SMH, a company best known for making trendy Swatch wristwatches. Mr. Hayek is chairman of SMH, which holds 19 percent of the joint venture.

"The most important problem with the Smart car is elk test," Mr. Hayek said in an interview. "We have to improve this and we are doing this." Other problems include the need to upgrade some of the 5,000 parts used in the car, Mr. Hayek said.

The enduring crisis over Daimler's compact cars claimed its first career casualties. At a Thursday board meeting, Johann Tomforde was removed from his job as head of the Smart car's development and production, according to a statement issued by the joint venture. No replacement has been named.

Daimler said the A-class delay would cut 1997 operating profit by 100 million Deutsche marks ($56 million) and 1998 results by 200 million DM.

On Thursday, the company said the delays with the Smart car will cost it 300 million DM, a figure that includes reimbursements to dealers.

Daimler, Germany's biggest industrial group, also announced Thursday that its 1997 sales rose more than 13 percent from a year earlier to a record 120 billion DM , the biggest percentage rise this decade.