Dieter Zetsche - Chairman Daimler AG and Head of Mercedes-Benz Cars HARDtalk

mistreated. That's it from me for this hour. For

now it is time for HARDtalk. Welcome to HARDtalk, I'm Stephen

Sackur. Today I am in Stuttgart, Germany, a city with a long history

of engineering and manufacturing. The auto industry is a major player

here, and you can see signs of it all over town. Which is good news

for Stuttgart, as long as the German car industry continues to thrive. My

guest today is Dieter Zetsche, the boss of Daimler AG, the makers of

Mercedes-Benz cars. The company, of course, with a global reputation.

But over the past decade they have made some costly mistake. They still

face some major challenges, not least the push for greener, more

efficient vehicles. Yes, Daimler AG have a proud reputation. At with a

have a bright future? -- but does it have.

Dieter Zetsche, welcome to HARDtalk. Innkeeper having me. Peewee stick in

the headquarters of Daimler AG. Strikes me that this isn't the right

place to be if you have global ambition. -- here we sit. Yes and

no. On the one hand, of course we are a global company and we want to

be present around the globe. On the other hand, our strength is our

brand. And one important character of our brand is being German. White

but let's be honest about where Europe is today, car sales have

slumped in the last six years. They have come down massively across

Europe. Still in Germany and France they went down last year. If you are

ambitious about global growth. Europe is the last place you want to

put your focus. It is true what you are saying that at the same time we

are selling more cars in Europe today than we did six years ago and

we are still selling more cars in Europe than between US and China

combined. So... I'm talking about growth potential. Absolutely already

from eight demographics point of view. Growth will come from emerging

markets. From the US as well. Still, the volume we sell here is so

significant that it is important to deal with that. But no business

leader rest on his laurels and always looks to tomorrow. A simple

question, you know how old the average buyer of a new car in

Germany is today? It is close to 50 years. 52.2 years. That's a disaster

to you. No. First of all, customers of that age a more affluent.

Everybody should be jealous about us having a very strong foothold in

that part of the population. At the same time, when you want to grow you

have to look for younger customers. New car sales in general are being

realised not by the youngest who either have no car or a used car,

but clearly, when you want to be there in 20 and 30 years, you have

to win the young customers today, which is what we do with our new

product. What you are when you talk about people relying on used cars,

your company is indeed moving into the car share business as well, it

seems to me you are acknowledging that in the more developed

economies, the assumptions about everybody owning a car, using a

car, they are a thing of the past. That is true again. So why would

they want to invest in your company when it seemed like you are a

Somerset industries? Yum I've been in this princess for 40 years and I

can't remember a time when growth prospects were so positive. That is

not because of growth potential in Europe, but because of the emerging

markets where more people get to a level of wealth where they can

afford to buy a car and they are as excited about the first car as

Europeans were in the 1950s and 1960s. That is a huge amount of

potential. That is where we are benefiting. It is interesting that

you are agreeing with my first proposition that it's not here that

your focus has to be. But I do want to stick with thoughts on Europe for

a moment longer because you are one of the longest serving and

best-known corporate leaders in Europe's today. I want your

perspective on what is happening on this continent. It seems to me that

Europe has a profound set of structural economic issues, many of

them not necessarily in Germany but in surrounding countries, when you

look as an industrialist and an investor, what do you think the

biggest problem is? We have to overcome our fiscal problems. It is

difficult to have good fiscal situation and at the same time see

the economy being in a slump and see the need for some incentives for

growth in the industry or economy altogether. We have come through the

worst. Most countries have made some progress in Europe in this regard.

We can now afford to start incentivising. Better by a reduction

of our state's restriction rather than just by deficit spending. Do

you think the state plays far too intrusive a role in Europe? It is

always a pendulum. We had a time in Europe where many people thought

very liberally and wanted less government unless state. There were

some extreme consequences like the financial crisis. -- and less state.

Many people do believe again the government must intervene in

Moorfields which definitely is not a right recipe to follow. That Mac

more fields. Why is so much of Europe failing to get anywhere close

to Germany in terms of competitiveness and economic

success? Competition is what drives success. I think in Germany, in most

parts of the time, the Government held back in interfering in

business. It let competition work. In some other nations there was more

protectionism and more interference by the Government and the result is

austerity. When you look at your work is in your French plants or

your Hungarian plants, do you think they are lazy ? Certainly not. In

hungry we had a similar quality level for comparable cars as we do

in our plant in Germany. What about France? In France we have a

different model. We only have a few hours on the car being done and then

we have supplied is positioned around. I would not agree with the

American tyre manufacturer send a letter complaining about French

workers. I don't think it is about the people but about the system and

some of the direction the system has taken four years which I disagree

with. I think more fresh wind and competition helps you in the long

run but it might be difficult in the short term. It is like practising in

your basement every day, that is what we need in our companies and

that is what we have been faced with in Germany for many years. Reading

between the lines, you are saying that French political leaders have

got things wrong in their economic management over the years. I wonder

whether you would acknowledge that you have got things wrong over the

last decade in Daimler AG, particularly thinking of the

billions and billions of euros or dollars that you poured into the

tie-up with Chrysler which turned out to be a disaster. It is easy to

come up with this situation. I made the decision to separate the company

's. But you were instrumental in the tie up in the first place. I don't

want to hide that. I just said, in hindsight, it was obvious it did not

create value. At that time, there was a board I was a member of, not

leading but a member, which decided to join forces with the company

which was at that time strong. When I went over there, we got a

significant revival, with setbacks, but when I saw there were no

firewalls at Daimler or Chrysler, against any risk, I saw the upside

potential and downside risk, there was only one decision for me. That

was to split immediately. What did it cost? Some people said $30

billion. The merger created a delusion for the Daimler

shareholders so that a higher number of shareholders were left after

selling off Chrysler. 30 billion the loss less yellow haven't made a

calculation but it was substantial. That was substantial. I'm getting,

in a way that is history, but I am getting to the other element of the

German economic model. It seems to me that many countries, having

overseen such a terrible corporate failure, they would have been a

desire to sweep away a whole generation of top management, and of

course you were by then the top manager, at the apex of the company

's. Why do you think you managed to hang on to your job and that there

wasn't this sweeping out of the entire generation of leaders? I'm

not someone who is defensive and tries to defend the past. I am

responsible for this company for eight years. When I took over, we

had significant challenges within the company. The liability for

Chrysler was one of them. We had quality problems. Our product

portfolio was poor. We had design criticism. Many things. Together

with my colleagues I addressed these issues and today we are a company

which is very strong and has high equity as dart equity and a product

range. We can follow up with production capacity and we had a 52%

increase in stock price last year which was not too bad. All of that

is true, but you are still lagging behind. If you look over a decade,

you are lagging behind your premium market competitors at BMW and Audi,

VW as well. I wonder, you now say you are determined to make Daimler

Mercedes-Benz number one x 2020. I am wondering how that can be

realistic given you where you are now. We were the fastest growing

manufacturer last year. We had two decades were we had different

directions between a technology company for ten years and another

company for ten years. I refocus the company on automotive and... The

idea you were a broad technology company and the idea that you would

diversify and use Chrysler and become in that sense a global

conglomerate, you have had to junk both of those core strategy. We can

study that merger and see what conclusion we can take. That is

fine. But looking at today, we are moving fast. We are selling more

cars than BMW or Audi outside of China. I was going to say, what

about China? At the beginning of the conversation you may recall it was

about the degree to which you have to be focused, like a laser beam, on

your biggest growth potential market and China is number one. In China,

this is your words, the biggest element of our profitability gap

remains China. We are in poor condition in comparison to Halep

peer 's. They are your words. -- to our peers. We came 20 years later to

China than Audi did. We were four years behind BMW. We were catching

up, matching BMW. Three years ago, we got into a slump. The others were

growing and we did not. The analysed the reasons and addressed them. We

had 45% growth in January. We addressed the issues. We fixed them.

I am convinced of that. That is about product. The product is now

received in China very well. With the C class come and we will start

to catch up and get closer to our competitors as well. There is one

important question Chinese consumers are asking of companies like yours,

from the websites. They say we pay 150% more for the same car that can

be bought in the United States or Europe? Why such an incredible

markup? On the cars you sell in China? Nobody of us is making 100%

profit. We are talking about different cost structure. A good

portion of that being addressed all created for instance bike customs

when we talk about importing cars. That is not all about it. An

electric car company cares for his issued a fair price challenge in

China. They say they can sell their product at 50% more than Europe,

taking apart transport and Customs costs. Looking at companies doing

business in China, it is profitable for us but not profitable at the

percentage you are mentioning. We are talking about the low two digit

margins. Again, this is about the order of rural cost structure we are

facing. We have two face on productivity gains in China all the

time as well which we are doing. Today we are implying more people in

China, more cars are produced in Europe and the US and we have to

work on this issue. Let's shift focus and talk about and by mental

challenges. We are at an impressive Mercedes showroom, bigger cars all

around us. Many of which are not the most fuel-efficient in the world.

Germany just last year, went to the European Union and demanded a delay

in the imposition of emissions Carbon targets for new cars. Targets

were supposed to be in place for 2020 after pressure from Germany,

that was put back to 2024. Your company was named as one of the key

lobbyists behind the German move. Why did you do it? We are offering

the most fuel-efficient vehicles in every segment on a global basis.

With the German industry and Mercedes as well. We are offering an

S class with a plug in hybrid with less than 70 grams per hundred

kilometres. My point to you is, to reach these targets, was 95 grams

per kilometre, he wanted to be introduced by 2020, you would have

to accept, these big cars and not the future. Let the answer to your

question. The fact is, the discussion was not of the 95 grams

carrier but it was about very minor issues to which electric cars would

have a multiple of 1.5 or two being counted as part of this average. One

environmental campaigner in Brussels said the resulting fudge was the

result of naked power politics played by Germany? And backed by you

and BMW and the big carmakers in? Festival, we'll let interest and a

very valid interest to reduce the tier two emission vehicles as fast

as technically and economically possible. We are making tremendous

progress in this regard. No one has a higher percentages of reduction in

the last ten years than Daimler. Secondly we are talking about

differences which are almost marginal between the manufacturer

who sells mostly for the size or a manufacturer like Portia Boros sell

more vehicles at the high side. We are investing so much in technology

that the resulting difference, in spite of the physics, it is a bigger

machine in the first place with additional technology, we are

reducing this gap to almost a minimum. Talking about five or ten

grams difference. That is only politic to highlight that and has

nothing to do with the real CO2 emission which results. I tell you

what is also about politics, your decision to hire a junior minister

who worked in Chancellor Merkel's office. He is now your chief

lobbyist. Germans are very worried about this. They see a dangerous

revolving door developing where conflict of interest appears to be

very real? There is a real problem in Germany that we have not enough

exchange between politics and industry as we have two higher

extent of macro other countries. Very very few politicians have had

time in industry. It would be much better for future understanding. In

abstract I can understand that, practically what do you expect from

home. Why have you-? He has such a close relationship with Angela

Merkel? I do not need him to talk to Angela Merkel. I can take the call

and she will answer in reasonable timeframe. Of course, when we have

somebody who deals with our relationship to governments around

the globe, and Germany made the point that is not important to us

any more. Politics in other countries of the world are at least

as important. We need somebody who has understanding of our politics

and ideally has been a politician for some time himself will stop that

is why he is the perfect choice for us. Not because he would have

influence on anything. He knows his business and therefore can act on

our behalf. We are almost out of time, you have spoken in visionary

terms about a couple of ways in which you see industry develop. One

is in terms of self drive, autonomous vehicles that do the

driving for themselves the driver can sit that can play on his laptop

or whatever else he wants to do. How realistic is that? What kind of

timeframe are you talking about? We are pursuing emissions free driving

and accident free driving. We have lots of technical assistance systems

which take care of customers when they make a mistake or when

something happens unexpectedly. They interfere and prevent accidents.

When you do that, you can keep the steering wheel and keep on driving

anyway. That is autonomous driving. We come from the safety point of

view, with the same systems we can prove that, go for a hundred

kilometres in the street, autonomously. There are still some

refinement and further increase of the safety of these systems

necessary. Technically, we are very far. Do you think your customers

wanted, more and more driving to be out of their hands and left to the

computer. The customer will always be in control of the passenger

chooses to drive the car all the time, it is fine. When he decides

that in this car jam, I would rather read a newspaper until the traffic

area starts moving again, he can do that. Two-day in hour production car

for 20 kilometres, that is on offer which any customer can take up. Do

you think the idea of the person macro the drivers seat reading a

paper, not watching what is going on on the road is a good thing to

aspire to? Absolutely, when she wants to. When we have achieved the

level where we can do that with the least the same level of safety is

when she is driving herself, that is where we are up two to 30 kilometres

today. You are a company man. He joins Daimler in 1976. You then

executive chairman for seven years. A much longer do you want to do

this. Some people you will think you will leave very soon. I would -- I

would prefer we discuss more about our beautiful cars which many

customers are looking for and about personal issues. I'm perfectly fine

with what I'm doing today. I do not worry. I met the first month of my

new contract. I do not worry how long I will do that job. I think we

are on a very good move with our company. That is the only thing that

matters. No plans to drive into the sunset? That is certainly not my

object to. Dieter Zetsche, we have two ends there, thank you very much.

During a normal winter, the weather for the week ahead wouldn't be

remarkable at all. However, although there will be wind and rain,

compared to last week, it is looking an awful lot calmer. We will see low

pressure systems but we won't see intense storms. For most, a drab

Monday morning. Cold across northern Scotland. A little icy as the wet

weather pushes in here with snow. Snow over the hills to