A successor to the compact Smart car is to be developed

The German-US car maker said it wanted to put Smart on a sound financial footing, and set the brand the goal of breaking even by 2007.

It said the restructuring would cost 1.2bn euros ($1.56bn; �824m), hit profits this year and bring job losses.

DaimlerChrysler said it would step up development of a new version of the compact car to suit the US market.

Production of Smart's roadster model is to end this year, and a sports utility vehicle project is being abandoned.

Cooperation on a four-seater Smart car would continue between Japan's Mitsubishi Motors and Smart, a unit of Mercedes, the company added.

It would also work with Mitusbishi and Nissan on a new engine.

'Significant' job cuts

The company said it wanted to cut fixed costs at the unit by 30% within two years.

It added that "the programme also includes significant workforce reductions," although it did not give details of how many jobs would be involved.

Smart highlights 1993: Mercedes starts feasibility study into a small car 1998: City-coupe launched 2000: Cabrio launched 2002: Crossblade launched 2003: Roadster launched

Smart employs 2,150 people. The company's union issued a statement which said 600 jobs would be lost at Smart's main plant in Boeblingen near Stuttgart, Germany, and about 100 posts would go at a factory in Hambach, France.

A further 300 jobs would be cut in the long term, it said.

DaimlerChrysler said it was continuing to fine-tune Smart's new business strategy and would finalise its plans by the end of April.

As part of the restructuring, key parts of Smart's development and sales operations would be integrated into that of Mercedes.

Earnings hit

Smart has not made a profit since its first car was released in 1998.

The two-seater Smart car has been promoted in the US but has not yet gone on sale. DaimlerChrysler had intended to launch the brand next year with the now-discontinued SUV.

In February, DaimlerChrysler announced that fourth-quarter operating profits for 2004 fell to 785m euros from 2.4bn euros in 2003 on the back of fierce competition.

The company said on Friday that the costs of the restructuring are expected to reduce earnings in 2005.

But excluding the exceptional charges, DaimlerChrysler said it still expected a slightly higher full-year operating profit this year compared with 2004.