Schmückle believes that productivity improvements will largely compensate for the additional annual costs incurred on developing fuel-efficient vehicles. In 2006 productivity improved 12 per cent and in the current year it is expected to improve around 7 per cent. The division plans to improve productivity by a further 10 per cent totally in 2008 and 2009.

CORE was geared not only to cut costs and boosting efficiency, but also to improve quality, expand revenues and step up returns. It was also designed to create an organisational culture focused on execution "in order to generate outstanding products and services that fascinate and excite customers".

During the first phase of CORE in 2005, the company achieved "quick wins" through measures implemented in the short term. The focus of these measures was to reduce materials, IT and travel costs, and to consolidate and simplify freight purchasing. Also, vehicle and component projects were evaluated and adapted - for example, the decision to make the Mercedes-Benz GLK compact SUV.

In the next phase, decisions about many long-term measures were taken. Says Schmückle, "This phase also involved the implementation of workforce adjustments, based on voluntary cooperation by both sides. In total, around 9,700 employees took advantage of the severance packages offered.

"The workforce adjustment programme was completed in 2006, representing about eight per cent of the total improvements realised under CORE." In other words, the largest share of the cost reduction measures was implemented in other areas.

CORE''s long term, structural and process-oriented changes are now being transferred to the line organisation, "where they will continue to be consistently implemented". An important example of such a change is the cross-series modular shelf for Mercedes-Benz passenger vehicles. Says Schmückle, "A total of 110 modules were defined, providing a foundation that will allow the company to develop and manufacture all vehicles more rapidly in the future, at even higher quality and at a lower cost."

Not only were Mercedes employees involved, but the suppliers were roped in too; "they played a key role in achieving the profitability targets. Through more than 300 workshops, cross-functional teams from the Mercedes Car Group and its suppliers developed ideas on how to optimise processes, material costs, and quality despite of several drastic price increases for raw materials."

According to the company, CORE is subdivided into seven work packages, each headed by a member of the executive committee of the Mercedes Car Group. Each work package consists of three to five sub-packages whose teams carry out assignments, "which have clearly defined goals but are networked with one another in many ways".

The executive committee makes decisions on the ideas and measures generated by these teams and systematically monitors their implementation by using a special IT tool. Cross-functional cooperation between all Mercedes managers and employees has been a key factor in the consistent implementation of these ideas and measures, according to Schmückle.

He says, "In today''s global competition, we can''t afford to be satisfied with the status quo. Only by continuously developing and moving forward can we become the top-performing organisation that we need to be in order to stay in the lead - and make sure programmes such as CORE are not necessary at all in the future." Now that is yet to be seen.

Mercedes has had quality problems, which adversely affected earnings. The CORE programme has helped it re-establish quality while controlling costs. The company still has to come to the cost levels achieved by its German rival BMW or Japan''s Toyota, but consumer ratings of its quality have moved up in the past three years. While it remains behind Honda, Toyota, BMW, Audi and Volvo in JD Power''s German car quality rankings, its rank has improved from 11 in 2006 to 8 this year.

Having slipped from its earlier top ranking, it will not be easy for Mercedes to beat BMW, Audi et al. That is because while Mercedes is striving to improve, its rivals are not sitting back and relaxing. But Mercedes has shown that it is determined to compete, and compete hard.

One other area of concern is the strengthening of the euro against the US dollar. This may prompt the company to expand production in the US. It''s still a wait-and-watch situation.