Daimler's innovation unit - Thinking outside the car

ORIGINAL: The Economist

After its disastrous American foray, Daimler is thinking more radically

Oct 21st 2010 | Stuttgart

IT WAS July 4th 2007 and Jérôme Guillen had spent America’s independence day climbing Mount Hood in Oregon. Back at his car, he found a voice-mail message: Dieter Zetsche, the head of Daimler, wanted to meet him urgently. When the Frenchman, then in charge of the design of a new American truck for the German carmaker, saw his boss, he was asked his thoughts on setting up an innovation unit to generate additional growth. A few days later he was given the job.

The meeting came at an important time for Daimler, which had just extracted itself from a disastrous merger with Chrysler that had sapped its creativity and damaged its Mercedes-Benz brand. Before long, recession would add to its troubles. But adversity made the company more willing to embrace some of the odder ideas that Mr Guillen and his team came up with—especially those that ran against the longstanding conventional wisdom that the way for carmakers to grow is to encourage people to buy more cars.

Two of the ideas are designed to make it easier for people to live without owning cars. Although the concept of hiring a car by the quarter-hour is not new, in most car-sharing schemes the vehicle must be reserved for a set amount of time and returned to its starting point. Daimler’s Car2Go scheme, however, allows people to pick up cars on a whim, use them for as long as they need to and drop them off wherever it is convenient. It relies on sophisticated software to match cars and drivers, even when hiring details are not known in advance. Car2Go is being tested in Ulm, a southern German town, and in Austin, Texas. Daimler is also using the idea as the basis for a bid to supply 3,000 electric cars for a sharing scheme in Paris.

The second idea looks something like a cross between Facebook, an internet dating site and a discount-flight broker. Car2gether matches people wanting to hitch a ride with drivers going the same way. In time it will allow cashless payments for the journeys, from which Daimler will take a small cut. Mr Guillen describes this as “broking empty seats”.

These ideas seem more San Francisco than Stuttgart. But others seem to come straight from a business consultant’s playbook, a nod perhaps to the years Mr Guillen spent working as a turnaround specialist at McKinsey. One such idea is to allow existing Mercedes-Benz customers to hire demonstration models from showrooms. This may appeal to those who need a roomier car for a weekend trip or a sporty one to impress the opposite sex.

To get approval, each project has to demonstrate that it will tap at least €100m ($140m) a year in revenue from a market worth at least €1 billion, and promise higher profit margins than usual. Some 25 projects are in the works, says Mr Guillen.

Such promises may seem extravagant, yet five years ago Daimler set the wildly optimistic target of earning a 10% gross margin for Mercedes-Benz cars. That target was suspended during the financial crisis, but in the second quarter of this year the company came within a whisker of achieving it. Next year, it may beat it comfortably. More important, perhaps, than the success of any individual project is that Mr Guillen and his team are prepared to “think outside the car” no matter how threatening their ideas may seem.