More than two years after its landmark international merger, DaimlerChrysler AG is starting to think like a global automaker.
Its long-awaited restructuring plan, laid out in Stuttgart Feb. 26 by Chief Executive Juergen Schrempp and crew, calls for a new level of cooperation and cross-breeding from DC's various camps in the U.S., Europe and Japan.
At the core is a platform-sharing strategy that will see its two ailing divisions — DaimlerChrysler Corp. in the U.S. and Japan'sMotors Corp., now controlled 34% by DC — collaborate on small and midsize car models in order to rein in red ink in both North America and Japan.
If the plans work — and analysts appear skeptical that it will — both will return to profitability by 2003, Mr. Schrempp promises.
For now, there's no exact word on how or when DCC and MMC will merge their small and midsize platforms. Neither DCC President Dieter Zetsche norofficials in the U.S. will provide details, with MMC officials saying only that platform sharing is “under study,” and that nothing has been determined yet.
Most observers believe it likely that MMC will provide the small-car platform and DCC will focus on the midsize platform, but it is possible MMC could do both. DCC and MMC, no strangers to partnership, long have shared manufacturing turf at the Mitsubishi-owned plant in Normal, IL, which currently builds the 2-door versions of the midsizeSebring and Dodge Stratus.
Platform sharing is likely to expand from there, with DCC and MMC's combined 29 platforms now scheduled to be boiled down to at most 17. Long-term success hinges on the reduction of Mitsubishi platforms to six from 12, says DC-appointed Mitsubishi Chief Operating Officer Rolf Eckrodt. Officials say the combined 17 DCC/MMC platforms does not necessarily mean a reduction in models for DCC. Mitsubishi, however, may see its some two dozen models cut in half.
's LX large cars, slated to go rear-drive around 2004, will share key components, including electronics and transmissions, with Mercedes-Benz. “But we aren't going to share platforms and we aren't going to have badge engineering,” says Mr. Zetsche.
At MMC, restructuring must bring the debt-laden company to a breakeven point in the fiscal year that began April 1, through cuts ranging from $861.1 million to $1.3 billion, says Mr. Eckrodt.
MMC's plan also includes closing its plant in Oe, Aichi Prefecture, Japan, and additional capacity shifts to reduce global capacity more than 20%. It means a 14% reduction in its global workforce — 9,500 jobs — including a 30% cut in management excluding board members. The 11 executive and 38 non-executive directors will be reduced by 20%.
Following in DCC's footsteps, MMC also is targeting a 15% reduction in procurement costs and reducing its total supplier pool.
MMC — which forecasts a $1.5 billion loss for the fiscal year ended March 31 — promises the cost-cutting effort will bring the company to the breakeven point in the current fiscal year and lead to operating profits of 4.5% in the following two fiscal years.
Meanwhile, the restructuring plan for DCC is designed to return the troubled division to profitability within two years. Mr. Zetsche says the company lost $1.3 billion in the fourth quarter of 2000, bringing total losses for the year to $1.8 billion. They eroded first-half earnings, ending the year with operating profits of $470 million, a 90% free fall from 1999 results.
DCC expects to lose $2.5 billion in 2001 and will take a restructuring charge of $2.8 billion in early 2001. The plan is to break even in 2002 and earn a profit of $2 billion in 2003.
On March 16, DCC fired about 2,700 salaried workers, with another 2,285 — 54% of those eligible — opting for early retirement. Another 1,800 contract workers were let go, bringing the total cutback at DCC to 6,800 white collar staffers.
Expansive as the overall, $3.64 billion, 3-year recovery plan is, it did not stop two leading U.S. rating agencies, Standard & Poor's and Moody's Investors Service, from cutting their long-term ratings for DC, making it more costly to raise cash for restructuring.
And the restructuring efforts so far have failed to pacify investors. Shareholders of both DaimlerChrysler and Mitsubishi have filed high-profile lawsuits — against DC for allegedly misrepresenting the nature of the Chrysler acquisition and against Mitsubishi for an expensive recall cover-up scandal.
The question is whether these antsy shareholders will be patient enough to wait three years for a turnaround or force the auto giant back to the drawing board.