DC's Bob Eaton Fighting for Respect on Wall Street

If you don't look at the stock price, DaimlerChrysler AG Co-chairmen Robert J. Eaton and Juergen E. Schrempp still look like two pretty smart guys. By most other measures, the $36 billion merger of the former Daimler-Benz and Chrysler Corp. is doing well. Mercedes-Benz's worldwide car sales are up 12% through the first nine months of this year, and Chrysler's car and truck sales are 6% ahead of last year's torrid pace. Third-quarter earnings were 14% ahead of the same period last year, when Chrysler Corp. and Daimler-Benz reported their earnings separately.

Those earnings of $1.6 billion, or $1.65 per share, were well ahead of Wall Street's expectations for the third quarter. Despite some trouble spots, such as growing sales incentives in the U.S. and DC's controversial and troubled Smart car operations in Europe, the rest of this year - and next - look good, as does the longer-term outlook. Mr. Eaton in fact says U.S. vehicle sales next year might come in second only to 1999's all-time high.

In September, DC announced a $49 billion new product program aimed at introducing 64 completely new passenger and commercial vehicles before the year 2004. And coming up shortly are Chrysler's widely anticipated PT Cruiser and its 2000 Dakota Quad cab. Plus, on the Mercedes side, a new flagship luxury coupe is debuting, along with a hot-rod version of its extremely successful M-Class and several other models. In short, consumers are gobbling up Chrysler trucks, now more than 70% of its product lineup, and worldwide consumers can't seem to get enough of Mercedes' cars and trucks.

What's more, DC is providing a clearer vision of itself to Wall Street and investors as it adds cash to corporate coffers by selling off or merging non-automotive businesses. For instance, it netted $3.2 billion when it merged its Dasa aerospace unit with France's Aerospatiale Matra SA. Mr. Eaton says DC now is clearly on the path to becoming one of the world's top transportation services companies. The image he wants for the company is: "Nothing less than the No. 1 transportation company in the entire world that's known for exciting, dynamic products, happy customers and good shareholder value. And we'll get there," he adds confidently.

Yet Chrysler's troubled past and problems integrating German and American cultures and management styles continue to plague DC. And no matter what it does, it can't seem to win back the favor of Wall Street or U.S. investors. After peaking in early May at over $100 per share, the company's stock price plummeted last summer after reporting lower-than-expected second quarter earnings and has never recovered. In mid-November it was hovering around $71 per share.

And just when it looked like the negative publicity over internal cultural clashes and top executive defections to competitors such as Ford Motor Co. and General Motors Corp. was starting to subside in early fall, DC's popular president, Thomas T. Stallkamp, was suddenly forced to retire at age 53. He was replaced by James P. Holden, 48, a respected executive but one with little background outside sales and marketing. That started the rumor mill churning once again, and it hasn't been helped by the departures of at least two more of DC's public relations staffers.

In late October Mr. Holden announced 40 new appointments at Chrysler's Auburn Hills headquarters in an apparent attempt to reassert the organizational swiftness that characterized Chrysler before it merged with Daimler-Benz. The reorganization gives more managers control over sales and marketing and establishes a series of best practices, and it's designed to force executives in departments such as finance and engineering to learn about brand image and focus on real-life customers instead of departmental customers.

The reorganization establishes four teams in charge of vehicle operations, engineering, product planning and technology. Mr. Holden wants all departments, from small car engineering to Jeep marketing, to have similar, customer-focused benchmarks.

But the reorganization does not affect Daimler executives at all, nor the controversial Smart car operations. Plus traditional German corporations don't even have presidents, which will no doubt make it difficult for DC's German executives to respect or understand Mr. Holden's position.

That has left the Chrysler side of DC wide open to criticism that it now is merely DC's U.S. marketing arm. Mr. Eaton absolutely bristles at that characterization. "We've got a team of people here that design over half of the products of this new company, that manufacture over half the products, that procure over half the parts for half the products, sell over half the products and have three strong brands. That just sounds ridiculous to me," he argues.

He's enthusiastic about President Jim Holden's new reorganization. "Jim and I and the team have spent a lot of time offsite focusing on exactly where these brands are going. "I'm really excited about how he's grabbed ahold of it. He's building an unbelievably strong team," Mr. Eaton says.

In early November, DC announced it was killing off its Plymouth Div., and its much publicized Prowler car. The move has been rumored for years and was easily accepted, Mr. Eaton says. "We didn't do this by ourselves. We have worked with our dealer body, and the announcement was made in Las Vegas where the National Dealer Council was meeting. The support is overwhelming from the dealer body," he says.

All-in-all it has not been an easy year, but Mr. Eaton shrugs it off. Indeed it could be easily argued that he's weathered tougher storms, including a time when former Chrysler Chairman Lee A. Iaccoca - the man who hired him to fill his shoes in 1992 - attempted to take over the company with billionaire shareholder Kirk Kerkorian in 1995-96.

"There's always, in the media, tremendous amounts of waves. We went through one with the Kerkorian thing and a couple of other things. We're not worried about it at all. The first thing we have to do is come back with really good results. We did that (in the third quarter). As Jim (Holden) gets more established and his team gets more and more established, we can run all over the competition. I'm not worried at all," he says.

But Mr. Eaton doesn't want to talk about the controversial departure of Mr. Stall-kamp, who reportedly was forced out after publicly disagreeing too much with Co-Chairman Juergen Schrempp, from arguing strenuously against buying a stake in troubled Nissan Motor Co. Ltd. and expanding Mercedes' lackluster Smart car operations to complaining about DC overspending on perks at board of directors meetings in New York. He does emphatically say that Mr. Stallkamp's departure officially did not come as the result of a culture clash.

He also acts surprised when he's asked about concerns that DC may change the way it deals with suppliers when Mr. Stallkamp formally leaves the company at the end of the year. Mr. Stallkamp pioneered the concept of the "extended enterprise" at Chrysler, where suppliers are treated more like partners rather than adversaries, and rumors have been flying that without Mr. Stallkamp at the helm, supplier sourcing will devolve into something more conventional and acrimonious.

However Mr. Eaton says: No way. "It's an ingrained part of the way we do business. I don't think there's any concern or should be any concern about it. In all the supplier meetings that we've had, including worldwide supplier meetings, since Tom's announcement I think that's all been reinforced. I haven't heard one concern among suppliers," he says.

Beyond that, Mr. Eaton is mum about Mr. Stallkamp's departure. "That's an issue that's behind us," he says. Instead, he's looking forward very optimistically to the future. "The traditional paradigms we've had for the economy are simply not valid," he says. "That doesn't mean that the cyclical economy is gone, it simply means that we can, I believe, absorb greater growth because of the productivity being driven by not only traditional industrial companies but also by information technology and micro-electronics. The bottom line is: I think we'll continue to see a very strong industry next year, likely at least the second largest we've ever seen."

Asked to look out 10 or 20 years into the future, Mr. Eaton says hybrid vehicles and fuel cells likely will make gains on the internal combustion engine. He also expects other technologies from the Internet and e-commerce to transform the industry.

Is another big merger or acquisition looming in DC's future? Mr. Eaton won't rule it out. He acknowledges that buying a controlling share of Nissan last year wasn't the right move at the time, but he says DC probably could digest a major deal now if the opportunity presented itself. But he won't bite when asked if Fiat SpA or Mitsubishi Motors Corp. might be likely partners down the road.

"I'm not going to talk about any specific company out there," he says tersely.

"We are not focused on anything now or under discussion. On the other hand, I think as the opportunities present themselves down the road, we'll look at them and judge whether they're the right things for us."

Robert J. Eaton is no stranger to controversy. Early in his career as an engineer at General Motors Corp., he frequently found himself in court defending GM's much maligned X-cars. After rising to the head of General Motors Europe, he was recruited by Lee A. Iaccoca to run Chrysler Corp., taking the job coveted by popular Chrysler insider Robert Lutz. Now after helping Chrysler soar to new heights in respectability and profitability, he once again is on the defensive as DC's stock price has fallen and critics say Chrysler now has become just the U.S. marketing arm of DaimlerChrysler AG.

WAW Editor Drew Winter, Senior Editor David E. Zoia and Senior Associate Editor Tom Murphy interviewed Mr. Eaton at DC's Auburn Hills, MI headquarters in early November. Some highlights:

* U.S. car and truck sales will remain strong in 2000. While they're unlikely to top 1999's record, they could end up running a close second.

* Chrysler and Mercedes cars and trucks will never share platforms, but they will share numerous components in the future.

* Mr. Eaton won't comment on when he plans to retire. "Everytime I say something about that somebody gets some new nuance that isn't there."

* DC will seek shareholder approval in April to buy back stock in an effort to raise its sagging price.

* "Synergies" will cut DC's costs by $1.4 billion this year, and at the end of three or four years cost savings should be in the $3 billion per year range.