Merger? What Merger?--Clearly now, DaimlerChrysler is a German company

DaimlerChrysler AG co-chairman and CEO Juergen Schrempp has put his management team in place.

In a move to speed DaimlerChrysler's consolidation into one company, Mr. Schrempp streamlined the management board, created three global automotive divisions and disbanded the integration committee, allocating its ongoing initiatives to line businesses. Out of the shakeup comes an Automotive Council, in effect a global platform team, that will speed innovation and technology sharing across DaimlerChrysler's automotive brands.

"The moves had been in the planning stages since May or June," says Jim Mateyka, an analyst with A.T. Kearney. "What surprises me is that it took this long. It was inevitable."

The reorganization was announced on Sept. 24 and it went into effect on Oct. 1.

If there is anybody, anywhere within the automotive industry, who still thinks that last year's merger between Chrysler Corp. and Daimler-Benz AG was actually a merger, they should check themselves in for a brain scan. The "merger" was in reality a peaceful takeover of Chrysler Corp. by Daimler-Benz AG.

DaimlerChrysler was incorporated on May 6, 1998, in Dusseldorf, Germany, under the name Oppenheim Aktlen-gosellschaft. "Think about it; DaimlerChrysler AG was organized as a German company," says AutoPacific product analyst Jim Hall. "That should tell you something."

The reorganization makes clear, if it wasn't already, that Mr. Schrempp is in complete control of DaimlerChrysler, and he will continue to fine tune his management team.

But rather than concentrate on what's next, press reports highlighted the departure of Tom Stallkamp, who was president of Daim-lerChrysler's North American operations. He was forced to resign in the shakeup.

James P. Holden, who replaced Mr. Stallkamp, met with the communications staff the day the reorganization was announced and said that Mr. Stallkamp's departure was not because of any discord with Mr. Schrempp.

Mr. Holden, formerly executive vice president of sales and marketing at DaimlerChrysler's North American operations, was correct. Mr. Stallkamp was dismissed, not for disagreeing with Mr. Schrempp, but for making those disagreements public.

Most analysts agree that Mr. Stallkamp was right to oppose a DaimlerChrysler acquisition of Nissan, a company which carries a debt load that rivals money owed by some small Third World countries. And many observers also think he was right to play the devil's advocate in DaimlerChrysler's decision to invest more money in its European Smart car project, which reportedly drained $250 million from the company's bottom line during the first half of this year.

But insiders say Mr. Stallkamp's willingness to publicly express his opposition to these pet projects ultimately cost him his job.

In the wake of Mr. Stallkamp's departure, co-chairman and CEO Bob Eaton goes from lame duck to pivotal player. Rather than leave the company at the end of this year, as most industry watchers expected, Mr. Eaton becomes the voice of DaimlerChrysler on Wall Street.

Mr. Eaton may very well have to stroke financial analysts until his appointment ends on Nov. 11, 2001.

"Eaton still reflects the old Chrysler, the one that Wall Street is familiar with," says Mr. Mateyka. "He was probably going to leave at the end of this year. But when Stallkamp ran afoul of Schrempp, all that planning went out the window."

Indeed, the price of DaimlerChrysler's stock had dropped on Wall Street by almost 40%, from a high of $108.625, when the reorganization was announced in September. During the downward spiral, both DaimlerChrysler and Wall Street learned painful lessons.

DaimlerChrysler's German executives now know better than to publicize potential strategic moves in advance, especially when they are as risky as acquiring a stake in debt-ridden Nissan. So, too, should Mr. Schrempp now know better than to inflate Wall Street's expectations, as he did earlier this year by boasting of a 20% earnings increase on a 10% increase in revenue. That won't happen, and Mr. Schrempp had to eat his own forecast in July.

And it should now be apparent to Wall Street that in the case of DaimlerChrysler, the tail is wagging the dog. While almost 50% of DaimlerChrysler's revenue was generated in the United States last year, financial analysts on Wall Street are coming to grips with the fact that the company is controlled from Germany, where only 19% of revenue was generated in 1998.

"The initial runup (in the value of DaimlerChrysler stock) may have been artificially induced by analysts who didn't want to accept what was really happening," that DaimlerChrysler was controlled by Germans rather than the Americans having an equal say, says Mr. Hall. "And when they did, they panicked."

Indeed, there is some validity to Mr. Hall's contention. DaimlerChrysler's stock price increased by 2% one day in October on the mere rumor that the company would move its Stuttgart headquarters to the United States, as if its relocation here would positively impact the company's performance.

From DaimlerChrysler's inception, both the financial community and the American press have taken a parochial view of what is, at present, a global holding company, says Mr. Hall.

American reaction to the reorganization was as if Mr. Stallkamp was the only one shown the door. Four German senior executives have or are about to retire and five more were either promoted to, or took over, larger sales and marketing organizations in various countries. There were very few reports of what it all means.

Mr. Schrempp has empowered younger, more aggressive line managers, as he has reshaped DaimlerChrysler's management board to meet his expectations. Mr. Schrempp believes in making yes or no decisions and doing it quickly - as long as they are the right decisions 80% of the time.

So Wall Street should prepare itself for more changes.

Mr. Holden told the communications staff that he didn't know whether Tom Gale, head of product development at Chrysler, Plymouth, Jeep and Dodge, would leave the company because he is close to retirement age. Mr. Gale, who heads the new automotive council, is just 56.

And rumors that Tom Sidlik, Daim-lerChrysler's North American purchasing chief, will also leave and return to Ford has DaimlerChrysler's North American suppliers nervous. Mr. Holden told the staff that Mr. Sidlik was puzzled by the rumors since there were people at Ford who hated him when he left. "Why would they want me back," Mr. Holden quoted Mr. Sidlik as saying.

Mr. Sidlik left Ford's car product development department in the comptrollers office nearly two decades ago and joined Chrysler in 1980 as a car product financial analyst.

While the rumor machine was running amok at the former Chrysler Corp., the departure of Mike Jackson, the president of Mercedes-Benz USA Inc., hasn't caused much of a stir.

Nevertheless, Mr. Jackson's decision to depart and become president and CEO of AutoNation, leaves Mercedes-Benz without the two men who forged a new image for the luxury brand and doubled its U.S. sales in the last five years.

Michael Basserman, former chairman and CEO of Mercedes-Benz USA Inc., retired at the end of last year. It is now up to Paul Halata, who replaced Mr. Jackson in the shakeup, to continue the sales momentum in Mercedes-Benz's most important export market.

"Mike felt most strongly about empowering people because he didn't want them asking him: can they do this or can they do that," says one Mercedes-Benz staffer who was close to Mr. Jackson. The people who were responsible for implementing the changes at Mercedes-Benz "are still here." The question is whether Mr. Halata will let them continue to do their jobs.

As Mr. Schrempp molds DaimlerChrysler into a contiguous, global automotive manufacturer, Chrysler's influence will be most felt beneath the skin of the company because of its sourcing and manufacturing efficiencies. Daimler will dominate the more public parts of the company, especially sales, marketing and distribution outside of the U.S. because of its experience in operating in international markets.

There also is precedent to ignore certain pronouncements made by DaimlerChrysler executives in the future. They called their corporate marriage a merger, it is not. Mr. Stallkamp told WAW in April that he planned to stay with the company because he had the most exciting job in the industry. He's gone. And despite Mssrs. Eaton's and Schrempp's contention that there is no rift between the company's American and German executives, there is.

It is the Germans who are resisting platform sharing at DaimlerChrysler in an effort to protect the cachet of Mercedes-Benz. But despite their opposition, platform sharing will take place at DaimlerChrysler, it just won't happen anytime soon.

DaimlerChrysler AG has 10 automotive brands that produce enough models to rival General Motors. It will take time to determine which platforms to share, what vehicles to put on them, what to brand them and where to sell the products.

But if Mr. Schrempp is to compete with the globe-girdling platform-sharing efficiencies being put in place by GM, Ford Motor Co., Volkswagen AG and others, then DaimlerChrysler will have to match them.

Already, processes are being exchanged at the plant level between Mercedes-Benz and the Chrysler side of the business.

Mercedes-Benz engineers have adopted an adhesive used in Chrysler plants to bond inner and outer doors on their flagship S class sedan. Meanwhile, Chrysler engineers have ordered 29 Mercedes-built gluing lines and curing ovens to improve quality and eliminate repairs.

Mercedes will use a Chrysler-developed computer system that lets designers and product developers see three-dimensional images of future products, killing the need to build costly, time consuming prototypes.

Sixteen E-mail systems are being consolidated into two worldwide communication networks. And Daimler-Benz's myriad payroll, human resource records, production control and scheduling software will be dumped in favor of one system, which is currently in use by the former Chrysler.

And coming are common processes that will be used to develop all DaimlerChrysler products faster.

Sales organizations in eight countries have been combined under the DaimlerChrysler aegis, and the next sales and distribution consolidation takes place in the United Kingdom at the end of this year. Along with the consolidation of computer information systems, purchasing, sales and distribution, the merging of operations is expected to save almost $4 billion by the end of next year.

All of this must be in place before platforms can be shared. In other words, the merging of the automotive operations of the former Chrysler Corp. and Daimler-Benz AG is taking place from the bottom up.

The process could take five to seven years, says AutoPacific's Mr. Hall. But Mr. Schrempp does not have that long to get DaimlerChrysler headed in the right direction in terms of performance and profits. His contract expires on Dec. 15, 2003.

So if Mr. Schrempp expects to keep his job, he must speed the transformation of DaimlerChrysler from a holding company into a global, operating company. And that should make Wall Street happy. o

- Frank Washington is a Detroit-based writer who heads "The Washington Bureau."