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Mercedes on the Mend

Beset by Poor Ratings, the Once-Arrogant Luxury Carmaker Embarks on a Self-Improvement Course
Paul A. Eisenstein
From the Print Edition:
Tom Berenger, July/Aug 2007

Racing between appointments, Chris Marie dashed into the parking lot, dodging raindrops as she fumbled for the keys to her Mercedes-Benz C230. Tossing her briefcase onto the passenger seat, she cranked the ignition and relaxed a bit as she heard the engine fire up, but try as she might, she couldn't shift out of park. With a sinking feeling in her stomach, she picked up her cell phone, called the dealer and was transferred to the service desk.

The problem didn't take long to diagnose. "Did you have anything in the cup holder?" the mechanic asked. When Marie, a 45-year-old Detroit saleswoman, said yes, and that a little bit of her coffee had splashed out when she hit a bump, she was told to sit tight and wait for the tow truck. As it turned out, the same problem visited thousands of other C-Class owners across the United States. Mercedes had only grudgingly added cup holders to its smallest sedan line—German drivers, after all, would never drink and drive on the demanding Autobahn. What the automaker's engineers had failed to consider was that the transmission control module was directly below the cup holder and if even a just little liquid spilled onto the poorly sealed system, it would short out.

Mercedes eventually fixed the problem, but it meant spending millions on warranty repairs. Worse, the cup holder incident was just one in a mounting series of problems that began to befall the carmaker in the late 1990s and that owners were reporting to the factory, listing in quality surveys and angrily passing on to friends and neighbors. "They were suffering from quality problems," says Neal Oddes, director of product research and analysis for influential J.D. Power and Associates, "across the board." The troubles didn't stop there, but cascaded into the twenty-first century.

The complaints—whether they concerned electrical problems, poorly finished instrument panels or squeaky brakes—were enough to send the longtime industry leader plummeting from the pinnacle of such closely followed quality studies as Power's Customer Satisfaction Index. At the same time, the influential Consumer Reports magazine began removing Mercedes products from its "Recommended Buy" list. Such a demotion did more than just wound the Teutonic pride of the century-old automaker. It threatened to dash Mercedes' hard-won reputation at the very moment it was facing an unprecedented assault on its long-held supremacy in the luxury market. Traditional competitors, like BMW and Audi, were well poised to take advantage of Mercedes' quality problems, as were newer Japanese competitors Acura, Infiniti and the new king of the quality charts, Toyota's Lexus division.

After an unprecedented effort to fix its quality problems that addresses the very basics of product development, and having jettisoned its Chrysler division, Mercedes-Benz is regaining momentum. But several new models still show some nagging issues, and problems at corporate headquarters threaten to distract the attention of top managers who should maintain a single-minded focus on Mercedes.

All Circuits Are Busy
"There's no question about it. We ran into a series of...significant issues," says Ernst Lieb, the affable German executive who moved into the CEO's office at Mercedes-Benz USA headquarters, in Montvale, New Jersey, last year. "We rushed into some technical developments," often without thinking through the consequences of seemingly minor matters—like placing a cup holder over an "un-hardened" electrical circuit.

Indeed, Jürgen Hubbert, the now-retired brand boss long known as "Dr. Mercedes," once confided that as much as 80 percent of Mercedes' most serious problems have involved electronic system failures or glitches. That's not entirely surprising, says Joe Phillippi, a longtime automotive analyst who now runs AutoTrends Consulting, a research firm. Silicon-based technology has become a critical battleground in the luxury car wars. Digital safety systems, such as Electronic Stability Control, onboard navigation, audiophile sound systems and the like can account for as much as a quarter of the price tag of a high-line vehicle like the newest Mercedes S-Class.

"When you put so much software, so many functions, into a vehicle, so much of it superfluous, invariably you're going to cause yourself some problems," Phillippi contends. And as if to underscore that point, Hubbert revealed that in its push to solve some of its high-tech problems, Mercedes disabled or removed hundreds of electronic features and functions from high-end products like the S-Class. Apparently, nobody noticed. And if they did, it was only because the vehicles started to work better.

That's not to say Mercedes is backing away from technology. Far from it. The new S-Class is a high-tech wonder, boasting an array of new electronic systems, such as Distronic Plus. This new "proximity control system" uses radar sensors to maintain a safe distance from vehicles ahead. Active Cruise Control isn't all that new, but Mercedes' system can bring the car to a complete stop, then start up again once traffic gets moving. But even as the new S-Class was being launched, Mercedes was revamping its mid-range E-Class, in the process replacing its troublesome drive-by-wire brake system with time-tested hydraulics.

"A Sense of Arrogance"?
Mercedes sells its products in virtually every market on the planet, but nowhere were the problems more severe than in North America, Lieb contends. Americans (and Canadians too) tend to drive longer distances, through more extreme weather conditions, and without the tender loving care that Mercedes products can expect in places like Germany. Lieb recalls that, when he was assigned to Canada a few years back, the company experienced a rash of generator failures, which he tried to explain to the folks back at the factory. They just didn't understand that on cold winter mornings, Canadians liked to start their cars up, with heaters blasting and seat heaters on high. Parts that worked in milder European climes couldn't hold up.

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