Shining Star – Into the 21st Century
by Karl Ludvigsen
Images courtesy of Daimler Archives
 
Soon after Walter Hitzinger became chairman of Daimler-Benz AG in 1961,the issue of the DBAG’s 1958 acquisition of DKW-maker Auto Union was resolved. “Nice girl” though the company was, in the words of Fritz Könicke, she failed to set hearts beating faster in the headquarters tower in Untertürkheim. Daimler denied investing in the new trousseau that the lady desperately needed. Well-meaning initiatives to achieve distribution synergies bore no fruit and no clear guidance on future-product policy came from the new owner.

Daimler-Benz finance chief Joachim Zhan – against the acquisition from the start – was authorized to look for a tax-neutral way to shed Auto Union. He and Volkswagen colleagues negotiated a share-swapping strategy that saw VW take over the company in 1965. In fact, many DBAG board members regretted their company’s failure to exploit Auto Union as a means of extending its range downward without risking the Star’s reputation, viewing this sister company’s disposal as a lost opportunity.

These were years in which high hopes were nurtured for a deeper relationship between Daimler-Benz and Volkswagen. The companies encouraged this expectation with their June 1966 joint founding of the Deutsche Automobil-Gesellschaft mbH in Hanover, the German Automobile Corporation. Behind this portentous name was an earnest desire to explore areas where they could cooperate. Soon, though, it was evident that this was less a goal for the companies than for their respective chiefs at the time.

Main Mercedes manufacturing plant and development facility at Unterturkheim.

However, from the Hanover relationship came a dividing of the light-commercial-vehicle market between VW at the lower end and Mercedes-Benz at higher levels. This was a field in which the two companies would eventually cooperate. And the idea for a deeper relationship was approved by the Stuttgart company’s management board Dec. 9, 1969, announcing its decision “to carry further in a positive manner negotiations about a fundamental combination of DB and VW.” This ambitious idea would be shelved when Rudolf Leiding replaced Kurt Lotz at VW in Wolfsburg in 1971.

Unfortunately for his effectiveness, Walter Hitzinger was neither personally nor professionally a good fit as leader of the company. Looking more like the neighborhood shopkeeper than an industry titan in the Teutonic mold, Hitzinger seemed only vaguely aware that his colleagues either resisted his initiatives or maneuvered around him with the help of their fellows. Realizing in 1965 that his five-year contract as management-board chairman would not be renewed, Hitzinger retired several months before its expiration, claiming health reasons.

                                Joachim Zahn


Having established his capability, Zahn replaced Hitzinger as head of the company. Born in 1914, Zahn was a doctor of law who segued into the world of finance after serving as an officer on the Russian and Italian fronts during the war. Favoring conservation over adventure, Zahn steered Daimler-Benz through the choppy waters of the first global energy crisis of 1973-74 and the troubled vehicle markets that it provoked. By restricting dividends and reinvesting profits he built massive financial reserves by the time he left office in late 1979.

One reason to jettison Auto Union had been Zahn’s desire to dedicate finances to the company’s truck operations, which he achieved with the opening of a truck plant – Europe’s largest – at Wörth, France, in the 1970s. On the car side, Zahn placed great weight on Mercedes-Benz products’ singularity, from which he felt DBAG derived its prestige and success. Caring little for volume growth, Zahn aimed to avoid direct competition with lesser auto makers.

For example, Zahn had serious doubts that a station wagon was an appropriate car for Mercedes-Benz, holding lengthy and earnest discussions with board colleagues debating whether the company’s planned T-model wagon would be a proper Mercedes, including concerns about its planned production in Bremen, remote in the far north from Baden-Württemberg where stolid Swabians were renowned for their precision and diligence.

The company overcame this last objection by hiring senior personnel from Bremen’s defunct Borgward factory. From its 1977 launch, the T-model station wagon was a signal success.

For the company’s Rennsport enthusiasts, Zahn’s years were quiet ones that broke, for the first time, a long chain of Daimler-Benz competition tradition. From the turn of the century through 1955, that chain had been forged – each link a year in which somewhere, somehow, economics and world conflicts permitting, a Mercedes, Benz or Mercedes-Benz built and backed by the factory competed in an important event. Often without a chance for outright victory, Mercedes-Benz cars raced to show the flag and sound the commercial drums. The chain, however, was broken at Le Mans in 1955, and not easily repaired.

In these years, an important keeper of the flame was AMG Motorenbau-und Entwicklungs (Engine Production and Development) GmbH. Founded in 1967 by former Mercedes-Benz engineers Hans Werner Aufrecht and Erhard Melcher in the little village of Burgstall outside Stuttgart, AMG’s purpose was to tune Mercedes-Benz cars to higher performance. Why Mercedes-Benz? 

“Because they are the only cars we’ve known for a dozen seasons,” the foundersanswered.

With enthusiastic support from development chief Rudolf Uhlenhaut, Erich Waxenberger developed a racing version of the Mercedes-Benz 300SEL. AMG’s 6.8-liter version, tuned to 428 brake horsepower, placed second overall in the 1971 Spa 24 Hours for touring cars and one of the cars astonished spectators with its speed at the Le Mans pre-training session. Motor sports at DBAG would restart from scratch, this time with production cars.

AMG came to stand for the ultimate in sporting performance under the Daimler star. This led to the Oct. 2, 1990, signing of a cooperation agreement between Mercedes-Benz and AMG and the opening of new purpose-built facilities in Affalterbach, Germany, for race- and road-car preparation and production. A decade later, AMG came under Daimler’s umbrella. At its beginning in January 1999, Mercedes-AMG GmbH was founded to continue development of sporty AMG versions of Mercedes-Benz cars, of which some 18,000 had been manufactured in 1998. Progressively during the decade to 2008, Daimler took complete ownership.

Meanwhile, at the end of the 1970s, DBAG set up a new sports department to prepare its cars for rallying. This commitment was followed with special interest by a new man at the top of the DBAG, Gerhard Prinz, Zahn’s replacement. Formerly board member for purchasing, the 50-year-old Prinz assumed command of a company that then employed 180,000 worldwide and turned more than DM 30 billion annually.

With Daimler-Benz since 1973, Prinz cut his teeth in the motor industry by implementing for Volkswagen the difficult merger between VW, Auto Union and NSU. Now Prinz had to follow Zahn’s success in steering the firm through a troubled decade, managing a DM 10 billion investment program for the 1980s, already approved by the board of directors.

A motor-sports department was established, reporting to Werner Breitschwerdt, board member for engineering since 1978.

“In our search for a new sporting activity, rallies seemed to us to be ideal,” Breitschwerdt said. “In them we can demonstrate outstanding reliability with virtually standard automobiles.”

But after hectic struggles of its silver 450SLC coupes against Fiats, Fords and – most annoying of all – Datsuns, the rally effort was controversially cancelled at the end of 1980.

In fact, the decision was harsh: the management board imposed a ban on all motor-sports participation. This was a low point in the company’s competition history. Not since Daimler and Benz joined 15 other German companies in a boycott of racing from 1909 through 1912 had motor-sports activity been explicitly barred.

At times, the company chose not to compete, but it had never unilaterally banned competing. For the sports-minded inside and outside Daimler-Benz, the 1980s could not have begun more badly.

In defiance to this edict, dedicated engineers kept the flame of motor sports burning by clandestinely building, testing and supporting equipment for outside racers. “Do good and speak not of it” became the motto of a new-generation car-crazy crew at Untertürkheim. Their initiative led to support for Peter Sauber that blossomed into a successful Mercedes-Benz Group C racing effort at the end of the ’80s.

During these years, Breitschwerdt led Daimler-Benz, for Prinz died suddenly of a heart attack in October 1983. Born in 1927, Breitschwerdt joined DBAG in 1953. His elevation was a suitable reward for his leadership in the W201’s development, introduced in 1982 as the 190 or Baby Benz. Rejecting designs that were shrunken versions of big Mercedes, Breitschwerdt and styling chief Bruno Sacco chose a fresh approach from designer Peter Pfeiffer. Produced until 1993, the successful 190 evolved into the first C-Class model.

Boosted by windfall profits from the strong dollar of the 1980s, Daimler’s performance during the Breitschwerdt years was excellent. Its global turnover increased 60 percent while annual profits rose near 80 percent to some 1.7 billion German marks in 1986 and employment in the core company rose 16,000. In spite of this success, doubts remained whether electrical engineer Breitschwerdt was the right leader for DBAG. Leading the doubters was ambitious finance chief Edzard Reuter, while chief operating officer Werner Niefer also staked a claim for the position.

Finally, Breitschwerdt gave way at age 60 in September 1987 to Reuter. With Daimler-Benz since 1964, Berlin-born Reuter became a management-board member with corporate-planning responsibility in 1976 and was named chief financial officer in 1980. At the same time, Jürgen Hubbert rose to DBAG deputy board member with responsibility for passenger cars. As Hubbert ascended the corporate ranks of the Swabian company, the man in charge of the Mercedes-Benz marque was Niefer.

Not for nothing was the robust, knowledgeable Niefer – a former toolmaker – known as Mister Mercedes. Niefer showed the younger Hubbert the way forward. “Above all,” Reuter said, “there are two names without whom the Mercedes-Benz success would be unthinkable: Werner Niefer and Jürgen Hubbert. These two developed the strategy which, in the second half of the 1990s, would aim toward a shrewd broadening of the traditional Mercedes-Benz model range, the so-called ‘Model Offensive.’”

On June 28, 1989, Daimler-Benz AG shareholders approved sweeping changes in corporate structure to adapt to Reuter’s vision for the company. To create the entity he called an “integrated technology concern,” four separate companies were created to pursue distinct missions, all reporting to and owned by a central holding company, still Daimler-Benz AG. Mercedes-Benz AG became responsible for passenger-car and truck operations. Sister companies conducted aerospace, industrial and service operations. Niefer was named to chair the new Mercedes-Benz company, by far the largest unit of Daimler-Benz.

Under Niefer, Hubbert took charge of cars and Helmut Werner became truck chief. Hubbert had his hands full when he stepped into the passenger-car job. Mercedes-Benz market share was down 1.7 percent and the average age of its owners was up to 52.5 years. As Germany’s executive-car icon, Mercedes was under heavy assault from BMW – its feisty competitor in Munich – a rivalry that spurred both companies to higher performance. The Niefer-Hubbert assault on these problems included the C-Class, rigorously engineered to meet its market and cost targets. Introduced in 1994, the C-Class was dubbed by some observers as the “Rescue Wagon” of Mercedes-Benz.

“We didn’t like the name, but it wasn’t far from the truth,” Hubbert said.

Changes in the early 1990s brought fresh ideas and alignments. In April 1992, Dieter Zetsche became head of car development. Born to German parents in 1953 in Istanbul, the mustachioed Zetsche was running truck maker Freightliner in America. Then at the beginning of 199,3 Werner replaced Niefer as the Mercedes-Benz chairman. An obvious up-and-coming man in Germany’s motor industry, the only open question about Werner was whether he would ultimately head Volkswagen or Mercedes-Benz.

With remarkable speed and effectiveness, Werner became the arch advocate for Mercedes-Benz. “Werner fought for the company,” Hubbert recalled. “What he could do best was selling. He sold the company. He sold the brand. And he was someone who gave you freedom to do your job. He gave you all the freedom you need. He had great support inside Mercedes.”

Unlike many of his predecessors, Werner was open to new ideas.

“Mercedes-Benz has to change to stay alive,” Werner said at his accession. Its cars were too expensive, over-engineered, he said. In development was the radical, small A-Class, introduced in 1997. Under discussion as well was a cooperative deal with the Swiss developers of the “Swatchmobile,” made public in 1994.

“When we launched the A-Class, I was criticized for stretching the brand name too far,” Hubbert later said. “But exactly the opposite happened. That model opened a completely new segment for us.”

In unprecedented style, the A-Class advertising and marketing launch began a year and a half before its launch. This gained outstanding acceptance for the new model.

But Werner and Hubbert faced troubled years together. The vehicle unit lost money in 1993 and Daimler-Benz was a money loser in 1995 despite improved profitability at Mercedes-Benz. The mantle of Mercedes-Benz defender passed to Hubbert in 1997 when the vehicle unit merged back into Daimler-Benz, for Reuter’s elaborate diversification was progressively reversed after his May 1995 departure from the company. Pointing to capital losses totaling DM 36 billion under his stewardship, one critic accused Reuter of “the greatest-ever peacetime annihilation of capital in Germany.”

Though Werner was an obvious and able candidate to succeed Reuter, the top job went instead to Jürgen Schrempp, who since 1989 presided over Daimler’s Deutsche Aerospace unit. Having headed subsidiaries in South Africa and the United States and experience leading Mercedes-Benz truck operations, Schrempp was no stranger to the automotive side of the business. He unwound Reuter’s complex structure, ridiculing his new group headquarters built at Möhringen near the airport as the “B.S. Castle.”

Obsessed over the sheer size needed for industry survival, Schrempp explored potential alliances with other major players, leading to shareholdings in Hyundai and Mitsubishi Motors and, ultimately in 1998 to the takeover of America’s Chrysler, disguised descriptively as a merger of equals. Although this satisfied Schrempp’s craving for a big deal on a global level, the alliance that was DaimlerChrysler brought few synergies and immense confusion as key Chrysler executives, many responsible for its successes, were abruptly escorted off the premises.

Through these dramatic changes, Hubbert kept the Mercedes marque on track. The acquisition of Chrysler posed a challenge to the sanctity of the three-pointed star – here was potential for damaging dilution of its authenticity. The need to redefine the distinctive attributes of Mercedes-Benz, in contrast to those of Chrysler, brought renewed vitality to a marque that traces its origins to the work of Gottlieb Daimler and Karl Benz 125 years ago.

In 2000, Mercedes-Benz celebrated its first million-car year. Turnover was up 73 percent from 1990, exploiting a product range expanded from six to 15 model series, while the average customer age was 50 years and falling. Global production included the M-Class in the United States, A-Class in Brazil and C-Class in South Africa.

“These years were of decisive importance,” Hubbert said, “not only because of the renewal of all model ranges but also for the emergence of a new, more youthful and at the same time tradition-conscious culture of the entire company.”

In the midst of the DaimlerChrysler years, Zetsche replaced Schrempp at the company’s helm at the beginning of 2006. Since 2000, Zetsche had been in America running Chrysler, even going so far as to star as “Doctor Z” in the company’s commercials. After his return to Germany, engineer Zetsche moved his base of operations back to Untertürkheim from Möhringen, the elaborate Reuter-era headquarters that he put up for sale. In 2007, Zetsche oversaw the sale of Chrysler and his company’s renaming as Daimler AG.
 

Zetsche was in his element at Daimler’s 125th-birthday celebrations earlier this year. The great company had survived two massive upheavals – the Reuter diversification and the Chrysler adventure – that could have humbled a lesser institution. But Daimler has the advantage of being based in a nation that respects its great companies and whose bankers are prepared to fund them for the long term. In the world’s motor industry, no corporate executives have a longer-term perspective than those at the head of today’s Daimler AG.