Quality: Priority Ein

After a year when Mercedes-Benz saw its quality image take a beating in the influential J.D. Power Initial Quality Study, its leader is ready to return his luxury brand to leadership.

It will take time, but it's a top priority at the German marque, one that has been the car of choice for heads of state and the rich and famous.

The disappointment revolves around two vehicles in particular: the M-Class SUV and S-Class sedan. Both scored lower on feature, accessory, body and interior quality. The M-Class fell behind the '02 Lexus RX 300 and Acura MDX cross/utility vehicles, while the S-Class slipped behind the Lexus LX 430 in the study.

Mercedes-Benz CEO Juergen Hubbert doesn't brush aside the criticism. He acknowledges Mercedes has lost its focus in recent years, and he has a plan to turn around the brand.

“We have to understand that Mercedes customers are asking for things they would not accept in a Toyota, or they would not accept in some other car because they paid much more money,” he tells Ward's in an interview. “It's their right to say, ‘I'm not happy with what I got.’”

Hubbert, 63, has been a member of Mercedes-Benz parent DaimlerChrysler AG's management board since the company's inception in 1998. His responsibilities are not limited to the Mercedes-Benz brand. He also oversees DC's Smart and Maybach brands. Before the formation of DC, he was a 9-year veteran of both the Daimler-Benz AG and Mercedes-Benz management boards.

Hubbert is so intent on rebuilding Mercedes' quality standing that he has created a team of engineers and product-development personnel focused solely on building better quality into Mercedes vehicles.

The team is led by a director who reports directly to Hubbert on concerns or ideas on how to improve quality. The director works with and assigns members of the team to tackle specific quality issues. Additionally, time is set aside at every Mercedes-Benz management board meeting to discuss quality and the steps being taken to improve it.

“My board is talking about quality in every meeting, so we are all working in the same direction starting from the development team, to production, to the sales organization,” he says.

How did Mercedes fall off its leadership pedestal so quickly?

Hubbert blames a global product development mindset, instead of developing products tailored to their specific markets. That prevents the German luxury auto maker from adding features such as cupholders — important only to U.S. vehicle buyers.

“We have a great market here in the U.S. which is about 20% of our overall sales, but some of (our) cars aren't totally focused on American demand or American wishes,” he admits. “What we are getting (noted) from critics (are items such as) cupholders, radio quality and things like that and that bring us down (in the surveys).”

But substandard cupholders aren't the sole reason the perception of Mercedes' quality is suffering, and Hubbert knows it. He acknowledges fundamental quality issues arose in the development of the M-Class, the first Mercedes built in the U.S., at a new plant in Vance, AL.

He points to Mercedes' U.S. supply base as one of the reasons the M-Class fared so poorly.

“Not all of our suppliers here in (this) country were familiar with what it means to build a Mercedes,” he says. “We (have talked) with them about Mercedes quality, we worked with them at the beginning and we still have to.”

The fix is simple: Focus more of your content on pleasing the American consumer. Hubbert plans to do just that with upcoming product freshenings and building in specific U.S. content on upcoming vehicles.

“What we are doing is focusing more on what Americans want and make this a standard for the world market — having the right cupholders, talking about different CD players, DVD players and things like that,” he says.

The auto maker already is taking steps to improve quality. The company paid attention to U.S. consumer needs on the new E-Class, which offers a DVD player in its wagon model. It could, however, take several years before the entire Mercedes line obtains all the necessary changes to meet the needs of U.S. buyers.

Hubbert concedes it's difficult to revamp vehicles already in production. “But, we feel much better (about our quality) than we have before,” he says. “It is a moving target.”

While quality may be Hubbert's paramount concern, he, like other industry leaders, is worried about prospects for the year ahead. With the U.S. embroiled in a showdown with Iraq, and the world economy riding a roller coaster of uncertainty, it's hard to imagine a year with promise.

“We see a global market still at a low level (of sales),” says Hubbert. “Western Europe, which is an important market for us, might slow down a little bit. In the German market, our target is also to stay on the same (sales) level (as 2002).”

Mercedes sold 388,231 vehicles in Germany in 2002, a 4.4% decline from like-2001 levels, according to Ward's data.

Hubbert expects Mercedes to at least match its global sales of 1.1 million units sold in 2002, a feat that will be helped by full availability of the new E-Class.

“We have one of the youngest product ranges ever, so from that perspective we are in quite good shape. If the economy collapses or something goes wrong, then everybody will go down (in sales volume) and we should perform better than our competitors. We will keep on fighting,” he says.

Mercedes-Benz also should benefit marginally from availability of the new ultra-luxury Maybach sedan. Hubbert says there are no plans to expand the Maybach line beyond the sedans (62 and 57), despite rumors that a coupe is being considered to compete against the Bentley Continental GT. “There are no plans,” he says.

The German auto maker does plan to expand its product offerings in other areas, most notably with the A-Class small car, which will make its U.S. debut in 2005, when the second generation of the city car hits the road.

There's also the new GST sports tourer, similar in concept to the Chrysler Pacifica, which will hit U.S. showrooms at the end of 2004 or the beginning of 2005. The tiny Smart car also is slated for a U.S. arrival in 2005.

Hubbert points out that Mercedes always is looking for new niches to expand its product lineup. Among the top contenders: a small SUV.

“There also may be some interest in a smaller SUV,” he says. “We don't need to be everywhere, because we are discussing all the time what brand in what price range we have to fill. This is how we act as the (DaimlerChrysler) Group, not just the Mercedes brand.”