Some key people depart; Is Daimler running the show?

EcWe will see more (departures)," says Gerald Meyers, former cheif executive of American Motors Corp. and now a professor of management at the University of Michigan. "Daimler has only started to spread its wings".

Indeed, a U.S. executive who participated in planning the merger tells WAW that "more and more, Daimler is beginning to act like a company that acquired another company rather than one that merged with another company."

In a WAW interview published last December, Juergen Hubbert, head of DC's Mercedes-Benz passenger car division, left no doubt who is running DaimlerChrysler AG. "If we hadn't changed and began operating in a different way," Mr. Hubbert said of Daimler's restructuring a few years ago, "there would still have been a takeover, but it would have been the other way, with power on the other side."

But Mr. Stallkamp insists that "it was true, is true and will continue to be true that (this) is a merger of equals. We brought two companies together of almost equivalent size, strength and profitability. Now it is time to concentrate on the new opportunities."

Still, the realization that Daimler is running the merged company has some Chrysler middle and senior managers testing the job market. Says one headhunter: "There's uncertainty at the mid and upper levels of (Chrysler). We've been getting calls from individuals who fear displacement and want to look at what's out there. We're an insurance policy, if the need arises."

An upper level Chrysler source tells WAW in April that he gets "batches" of 800 numbers from head hunters left on his voice mail almost every day. Mr. Eaton has said he expects more departures because of "all the recruiters circling the building."

>From Day 1 of the merger, Chrysler and Daimler-Benz ceased to exist. >"People have to accept that," says AutoPacific analyst Jim Hall. "The >things that made Chrysler are never going to be like that again. The >structure of the company is gone."

As Daimler has asserted itself, several of Chrysler's key executives have left the company. Stephen J. Harris, who was vice president of Chrysler Corp.'s communications, and largely responsible for rebuilding Chrysler's tattered image in the early 1990s, resigned and assumed the same title and job at General Motors Corp. PR executives Tony Cervone and Tom Kowaleski followed him to GM, which should come as no surprise: Typically, departing executives entice their teammates to their new companies.

More critical to the operating side of the business are the departures of Chris P. Theodore, DC senior vice president-platform engineering, and Shamel T. Rushwin, senior vice president-international manufacturing and minivan assembly operations. Both men joined Ford Motor Co. in February as vice presidents. And Senior Vice President Rex Franson also retired earlier this year when Chrysler Financial Corp., which he headed, was merged with DC's Stuttgart-based financial arm.

Mr. Harris admits that the fact he was passed over for the top PR slot at DC played a role in his decision to leave. But ultimately, he says the GM job "was an offer I couldn't refuse. It is the biggest communications job in the world."

Resignations are implicit in corporate mergers. People leave when they were No.1 and end up No.2 or 3 after the deal is done. Career paths to the top are cut off. The authority to make decisions is taken away. And the uncertainty of a merger makes people test the job market.

"When you have a few people leave, people sweep to one big conclusion," says Mr. Stallkamp. "When in reality, each (departure) is an individual story. A few people have decided that they want to do something else. Time will tell whether that opportunity was in fact greater than it was here."

Future departures from Chrysler will be in those areas where the Germans are consolidating their control, and that means across the board. For instance, Chrysler's public relations staff interacted with Daimler-Benz AG longer than any department since the merger was announced 12 months ago. Chrysler's PR staff has thus far tendered the most top-level resignations.

What's more, morale is said to be low - partly because of uncertainty over the future. DC currently is revamping and re-slotting Chrysler's salaried folks, inevitably raising concerns over how they'll fit in the hierarchy. "A lot of people are dismayed," says one staffer. "The feeling is that the Germans are in control, but we can't say that."

Says Mr. Stallkamp: "People make too much of this issue of who reports to Schrempp directly. On the management board, there are 17 of us, and we are all equal."

Some areas of Chrysler apparently are insulated. Chrysler's marketing and sales operations will function with little interference from Daimler because the merged company is adamant about marketing its brands separately.

And there is one area where Chrysler staffers will dominate: All purchasing areas report directly to Gary Valade, Chrysler's former chief financial officer. He is charged with forging a global purchasing network. From the selection of suppliers to the coordination of logistics, all decisions are made by Mr. Valade.

Newsweek magazine published a flowery feature story last month on two purchasing agents, one from Chrysler, one from Daimler. The magazine says they're a rung below vice president and both oversee departments that buy seats, steering wheels and other interior components for Chrysler's brands and Mercedes-Benz, respectively.

What the story didn't say is their tasks are redundant, and one of the purchasing agents will at least be demoted. In a global purchasing scheme, one person will head the department that purchases interior components for all of DC's automotive products.

"The merger will be good for global purchasing and technology sharing," says a top-ranking executive at a large diversified U.S. supplier. But he warns that keeping the new company's procurement ranks on track is critical to DC's success. Departures on that side of the business could have serious repercussions in the supplier community.

An executive in the supplier industry says, "We haven't seen any changes in (Chrysler's) procurement policy. They're reviewing some suppliers in key areas like tires, but we haven't seen any changes in the process."

Mr. Stallkamp is the architect of Chrysler's heralded relationship with its suppliers (see sidebar below). He is considered pivotal to expanding Chrysler's quick, lean and low-cost supplier relations to all of DC.

But why should Mr. Stallkamp stay? He was heir apparent to Mr. Eaton at Chrysler Corp. At age 53, however, Mr. Stallkamp doesn't stand a chance of gaining the top job because Mr. Schrempp, who by most accounts is really running the show, is only 54.

Mr. Stallkamp insists that he will stay on at DC. Why? Because "this is the most exciting job in the industry. It's been tremendously broadening for me," he says.

"In a merger, ultimately one group takes charge," says Jim Mateyka, an analyst at AT Kearney. "The quicker you can get through it, the better off you're going to be. Somebody's got to be in charge."

Daimler-Benz AG benchmarked 40 corporate alliances, including BMW AG's takeover of the Rover Group in 1994, before merging with Chrysler. "Daimler-Benz feels that BMW's takeover of Rover got off on the wrong course because BMW didn't take charge," says an executive familiar with the deal. "BMW sort of let Rover be Rover."

That almost certainly is why Daimler has dropped the merger shroud just six months into the deal. But as news of the resignations from Chrysler resonate in the press, and rumors of other departures abound, one fact gets short shrift: Chrysler is knee deep in talent. Middle managers make a lot of the decisions.

"There are a lot of people farther down in the chain who are very worthy of moving up," says AutoPacific's Mr. Hall. "This is their chance."

But as Daimler asserts itself over Chrysler, there is a risk that the traits that made Chrysler the most profitable per-vehicle automaker in the world will unravel.

"Chrysler's greatest attribute is enthusiasm and a willingness to change and think out of the box," says DRI/McGraw Hill Analyst Lincoln Merrihew. "The question becomes, is that solely derived from the people, from the culture or from the management processes? If it is purely the people, there is a risk. If it is solely the process, then the ship continues."

"One strength at Chrysler has been looseness, a looseness that is counter to the German culture," says David Cole, director of the University of Michigan Office for the Study of Automotive Transportation. "If you start peeling Chrysler leaders away, that could be tough for morale."

Thus far, DaimlerChrysler's top executives have done little to bolster the esprit de corps that made Chrysler a fun place to work. AMC's Mr. Meyers says Mr. Eaton turned himself into a lame duck by refusing to say that he will stay on for three years, which the merger agreement allows. Mr. Eaton himself says a company can only have one chief executive, and both Mr. Eaton and Mr. Schrempp have said Mr. Eaton would stay until the integration was going well. "There isn't any timetable set for my leaving," says Mr. Eaton.

Thomas C. Gale, the product strategy and design boss at Chrysler, refuses to quell rumors that he is leaving by remaining silent on the matter.

"The big boss needs to be clear and inclusive as possible," says AT Kearney's Mr. Mateyka. "If he's not, he just fuels rumors rather than assures people that they have positive futures."

Mr. Schrempp failed that test miserably in March when it was widely reported that he said - in reference to the Chrysler executives who had left - that DaimlerChrysler didn't need them.

What he actually said about the departures was, "If we should need somebody from Ford or General Motors we would buy it as well, but we don't need that. We also don't need their know-how. You can quote me."

It is impossible to tell if Mr. Schrempp was referring to the departed Chrysler executives, or if he was saying there was no need to hire people from Ford and General Motors for their know-how. Or was he saying that DC didn't need to buy Ford or GM? No matter, the damage was done.

"Schrempp needs to watch his tongue," says Mr. Mateyka, "or more of this kind of stuff (resignations) is going to happen."

But it is not only Mr. Schrempp who has dismissed the departure of the Chrysler executives.

"I think it's absolutely normal to expect that will occur," Mr. Eaton says of the recent flood of resignations. It's because Chrysler had the strongest management team of any automo bile company, and the headhunters were circling, Mr. Eaton says.

"We do expect we will lose additional people," he adds, "We are not concerned about that at all."

Mr. Schrempp rejects that all of the departures were due to the merger. If a car breaks down, that's merger related, right? asks Mr. Schrempp. He also says that you cannot create two of the same level jobs even if both people are talented.

"We have it (departures) in Germany as well, but no one noticed," Mr. Schrempp says.

While perhaps not on the level as the former Chrysler departures, at least two former Daimler-Benz employees have left the company after losing key positions to Chrysler personnel.

Heinrich Rodewig, 52, former chief legal counsel of Daimler-Benz, resigned after having learned that in the new company he would have to report to Bill O'Brien as the global head of the legal department.

Peter-Hans Keilbach, 59, head of the former Daimler-Benz Washington representative's office, is set to announce his early retirement after Rob Liberatore's appointment as head of public affairs for the NAFTA region. Mr. Keilbach had been with the company for more than 30 years.

Mr. Mateyka adds that in another six months, the people who are going to leave Chrysler will have left, and the people who remain will stay. However, he warns that if people are still leaving the Chrysler side of the business after six months, "then this merger didn't go good."

A lot of people on Chrysler's platform teams have resumes that say they participated in ground-breaking procedures. And there are plenty of automakers, especially Ford and GM, who would like to know just how Chrysler did it. DC can't afford personnel losses at the platform team level. It can't get back the knowledge they'll take with them.

But lest Wall Street forget, the elements that made the merger between Chrysler and Daimler-Benz a great deal are still in place.

"The potential is gigantic from a product standpoint," says DRI/McGraw Hill's Mr. Merrihew. "If you can meld Chrysler's effervescence in design, good supplier relations and its paperless design with Mercedes-Benz's quality, the potential is really limitless."

DC's product lineup ranges from the $9,900 Mercedes Smart minicar to the upcoming $250,000 Maybach ultra luxury sedan. It owns a commercial truck operation that includes Freightliner. And DC sells more minivans than any other automaker; owns Jeep, the icon of sport/utility vehicles; and has Mercedes-Benz, arguably the industry's premier luxury brand.

Still, some feelings doubtlessly will get bruised as the corporate cultures of the two companies blend. Mr. Schrempp expects resignations. He has said "there is life outside DaimlerChrysler." Meanwhile, he will mold the company into his own image.

Management magazine, which named Mr. Schrempp its Manager of the Year for 1998, said he used speed, process design and information management in the walk up to the merger. Mr. Schrempp carries an IBM Think Pad. He can call up the status of any project, immediately locate any member of his senior management team or find out what they said in interviews 24-hours a day, no matter where in the world he is.

The magazine said that, "the Daimler boss has a rare ability to fire people up and carry them along with his massive energy." What's more, he knows just how to use these qualities, with the unions and shareholders, for example, or with employees who are willing, as one close to Mr. Schrempp explains "to give their all to him."

Once the dust settles on this merger, Mr. Schrempp will need all of those attributes to form a contiguous, Transatlantic company.

The difference in the two corporate cultures is significant. Chrysler is willing to try new things and try them quickly, such as the quirky Chrysler PT Cruiser, which goes on sale in mid-year 2000. Products at Mercedes-Benz take longer to gestate. "What happens when Chrysler has a great new product and Daimler slows it up?" asks Mr. Merrihew.

Mr. Mateyka suggests that the current structure of Chrysler's platform teams won't last in their current form, either. But it is doubtful that Daimler will completely dismantle a system that has made Chrysler a lean, quick and nimble automaker.

Still, it may be unwise to continue, in a global organization, to have major product decisions made, as they are at Chrysler, at the platform team level. What's more, Chrysler, Mercedes-Benz and Daimler's commercial truck operation can't be allowed to become fiefdoms within the company.

If they are allowed to operate autonomously, then DC will have created what was the worst element of the old GM: powerful divisions constantly fighting over the company's money and resources.

DC needs a global product czar who can make the call on whether the next generation Chrysler Cirrus uses the chassis of the current generation Mercedes-Benz C-Class, or whether the next generation Dodge Durango and Mercedes-Benz M-Class sport/utilities share parts, or which Mercedes-Benz engines can be used in Chrysler's cars.

In short, DC should have a Bob Lutz.

Chrysler's retired vice chairman was the final authority when it came to product decisions. When that person surfaces at DC, it will be a stunner if he is not from the Daimler side of the business.

Mr. Schrempp, who will become the sole chairman by 2001, has said that Chrysler and Daimler-Benz can learn much from each other. But if the current us-vs.-them atmosphere is not squelched soon, few people on either side of the company will be willing to listen. He seems sensitive to the issue by slowing the merging of American and German staffs because human feelings have to be considered.

Indeed, the naming of Steve Rossi to take over Mr. Harris' job as vice president of communications and giving him responsibility for global product communications is somewhat Solomon-like. Although Mr. Rossi, formerly head of communications at Mercedes-Benz USA, is from the Daimler side of the business, his office will be at Chrysler's headquarters. And while Chrysler's public relations staff is obviously not happy that Mr. Harris didn't get the top job, Daimler's communications staff in Stuttgart can't be all that happy either: Mr. Rossi is an American and one-time Chevrolet PR staffer.

"At the end of the day," Mr. Rossi says he told his new office mates, "we're going to be judged by our products, the service we provide, financial results and shareholder value. That's how we're going to be judged, not by who is sitting in what public relations chair."

That same mantra applies to all of DaimlerChrysler. But it begs the question of who will be sitting in those chairs? o

- Frank S. Washington is a former Newsweek Detroit bureau chief and Detroit-based freelancer. Dave Zoia, David Smith, Said Deep and Andrea Wielgat contributed to this article.