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Mercedes money-losers: where Chrysler’s funds went, part 3

by David Zatz on

When Chrysler Corporation was swallowed into Daimler-Benz AG, in a 1998 transaction which was almost universally hailed by analysts and pundits, the company had an estimated $8-12 billion in cash reserves. A few short years later, the company went from running consistent and hefty profits to, according to Daimler, losses. After that, there were numerous articles on “Where did the money go?”, some of which pointed to Daimler’s investments in Mitsubishi and Hyundai.

Some also mentioned the Smart car, originally a joint venture of Mercedes and Swatch, which some sources claim have never made money.

smart

Analyst Sanford C. Bernstein, according to a report in Indian Autos Blog, wrote that the Smart ForTwo alone was responsible for losing $5 billion. This loss was, according to Mr. Bernstein, the largest financial disaster in the European motor industry. They also pointed to the older Mercedes A-Class, which lost a total of $2.5 billion (and came in at #5 in the top ten European losers).

The list also included the Fiat Stilo, losing $3 billion from 2001-09; the Volkswagen Phaeton, losing $2.9 billion; the Peugeot 1007, Bugatti Veyron, Jaguar X-Type, Renault Laguna, Audi A2, and Renault Vel Satis.  On a per-car basis, nothing comes even close to the Bugatti Veyron, with an estimated $6.7 million loss per car; the Volkswagen Phaeton (a close relative of the Touareg) comes in at a distant second, with $40,800 lost per car. Smart ForTwo (1997-2006) lost $6,500 per car while the A Class (1997-2004) lost $2,100 each.

Insiders have told Allpar that Chrysler funds were siphoned to the Daimler-Benz over the years through royalty payments, consulting fees, and investments in technologies that Mercedes could draw on (such as UConnect) but which were charged to Chrysler. Once the companies were united, the billions in cash reserves would have been immediately available to DaimlerChrysler itself, rather than being assigned to one division or another.

David Zatz founded Allpar in 1998 (based on a site he had begun in 1993-94), after years of writing reviews for retail trades. He has been quoted by the New York Times, the Daily Telegraph, the Detroit News, and USA Today. Before making Allpar a full-time career, he was a consultant in organizational psychology. You can reach him by using our contact form (much preferred) or by calling (313) 766-2304


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