Maybe that’s because business is pretty good for Mercedes-Benz these days. There’s solid sales growth in emerging markets like China, and even though BMW and Audi have now firmly muscled in on the premium vehicle market segment the three-pointed star effectively created and owned for decades, the explosion in global wealth over the same period means there seems to be more than enough customers to go around. The ill-starred Chrysler adventure is a fast-fading memory, and there’s a renewed focus on making sure Mercedes vehicles delivers the quality and technology that made the brand famous in the first place — R&D spending will be 20 billion euros in 2011-12, up five billion on 2009-10.
But Dieter Zetsche takes nothing for granted. “We’re seeing some clouds on the horizon,” he says. The European sovereign debt crisis, sparked by the shaky economies in Greece, Spain, Portugal and Italy, and weakness in the French banking system, is threatening the stability of the euro as an increasing number of Germans complain about having to pay for the bailouts. And the U.S. economy is still very sluggish, with unemployment stubbornly high, and the housing market still a smoldering wreck.
It’s unusual for a car company CEO to take aim at politicians – you never know when you might need their help – so the fact Zetsche takes a mild potshot at Washington early in our conversation perhaps betrays deeper frustrations. “The long discussion about the debt ceiling was not helpful,” he says of the partisan bickering that brought the U.S. economy to a virtual standstill. “There is a need for clear leadership from politicians. Hopefully we will see some of that soon.”
Yeah, right… The problem with politicians is they only think in terms of the next election. Dieter Zetsche, by contrast, is overseeing decisions today that will materially affect his company 20 years from now. It’s 125 years since Karl Benz invented the automobile, and for the first time in more than a century, Daimler is putting a timeline on the internal combustion engine. And the implications of that are profound.
“We see another one or two decades of dominance for the internal combustion engine,” says Zetsche bluntly. Think about that: What were you driving 10 or 20 years ago? More importantly, though, 10 or 20 years barely two model cycles away from the stuff Daimler engineers are working on right now. The problem is that as a business, alternatives to the internal combustion engine are a bust: “Nobody will make money in the next five years with alternative powertrains,” Zetsche says.
China, now the world’s largest auto market, is widely regarded as critically important to the development of alternative powertrains. The Chinese realize they cannot afford – economically or militarily – all the oil they need if their country continues its explosive growth, and have begun to put in place strategies to encourage automakers to develop hybrids and electric vehicles. China wants to cut energy consumption by 50 percent and make electricity the main substitute for gasoline by 2020.
“It is no surprise China has made the ‘new energy car’ one of the seven priorities of its development plan,” Zetsche acknowledges. “But we’re hearing the [market] transformation might be slower than anticipated. We still believe China has the capability to execute its plans quicker than anyone, but the technical constraints of electric vehicles apply in China as well.” In other words, even the Chinese are having trouble figuring out how to make electric vehicles work.
So put yourself in Dieter Zetsche’s shoes: You’re running one of the world’s most successful automakers; one with a reputation for developing industry-leading technologies and highly profitable products. You know the lifeblood of your company’s products – oil – is only going to get scarcer and more expensive over the next 20 years. And you also know that even though as of right now there doesn’t seem to be any commercially viable alternative, you have to invest in finding one.
The move to large-scale production of electric, hybrid, and fuel cell powertrains “is a question of timing, not direction”, Zetsche says. But get the timing wrong, and Daimler may not be around to celebrate its 150th anniversary. So when would you roll the dice?
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