Zetsche Bets on Smart

DaimlerChrysler Chief Executive Dieter Zetsche has decided not to sell its money-losing mini-car unit Smart — at least not yet, the German newspaper Handelsblatt reported today, citing sources close to the board. In January Zetsche gave Goldman Sachs the brief of seeking out potential buyers, to the cheers of financial analysts. In the meantime, he must have received some encouraging signs that the little stub of a car can be made profitable. Last year restructuring charges at Smart triggered a $1.4 billion writedown at the Mercedes Car Group and investors are keen for Zetsche to get rid of the unit, which has racked up several billion in losses since its launch in 1998.

Zetsche’s goal is to bring Smart to break even by 2007. He plans to launch the second-generation ForTwo city car in 2007 and is pondering bringing the car to the US market. But Zetsche will have to make some convincing arguments to shareholders first. One activist DaimlerChrysler investor has already forced the company to put a review of the ailing Smart unit on the agenda for the April 12, annual shareholders’ meeting - an unusually defiant move in corporate Germany. Shareholders’ patience for money-losing engagements at DaimlerChrysler has been worn to the bone by former CEO Juergen Schrempp, whose hapless managment destroyed $40 billion in shareholder value. Thanks to that legacy, Zetsche faces investors with zero tolerance for failure.