Time Ripe for DC to Consider Third Partner

Maybe Juergen Schrempp was right after all.

Not about everything, just the need for DaimlerChrysler to find a low-cost partner in Asia.

Schrempp stumbled as head of the newly minted DaimlerChrysler when he referred publicly to the marriage as a veiled “takeover” of Chrysler by Daimler-Benz, prompting a lawsuit by disgruntled stockholders and no doubt rankling some insiders.

But Schrempp may have read the handwriting on the wall correctly when he lobbied for a third leg to the DaimlerChrysler stool, one that would give the auto maker a footprint in the world’s hottest emerging markets of Asia and provide a better product-development partner for volume-oriented Chrysler than luxury marque Mercedes.

Initially, Schrempp was pushing for an alliance with Nissan, which in 1999 was teetering toward bankruptcy and openly trolling for a partner.

But the timing was off. DC was only a year old, and it was having enough trouble blending German and American cultures without adding in a more complex third variable. Besides, common wisdom was the troubled Japanese auto maker was a financial sinkhole best avoided.

But after Renault scooped up Nissan and launched an aggressive recovery program under uber-CEO Carlos Ghosn, Schrempp regained the partnership itch and began wooing Mitsubishi.

A tie-up made some sense, because Chrysler and Mitsubishi long had collaborated on vehicles and components, and the two quickly began plotting new car platforms and global parts purchasing strategies.

But soon after the courtship began, Mitsubishi was rocked by a management scandal in Japan, and its already bleak financial position worsened rapidly. A call to DaimlerChrysler for more help fractured the German car maker’s ranks. Those in favor of abandoning Mitsubishi, including current CEO Dieter Zetsche, eventually won the battle, and Schrempp’s power base was never the same.

Now Zetsche is faced with the identical dilemma: How to lower development and manufacturing costs for Chrysler in an increasingly competitive environment.

Sure, Chrysler can share more with Mercedes, and already is. But that only goes so far when one operation is selling cars that start below $16,000 and the other offers models topping $100,000.

Bigger rivals General Motors and Ford are fast at work “globalizing” their engineering and production bases. GM is centering small-car expertise and manufacturing at its South Korean subsidiary, compact car engineering in Europe and fullsize rear-drive vehicle development in Australia. Ford is relying heavily on Mazda and Volvo for its car platforms and may look to Australia, as well.

That could leave Chrysler as Detroit’s odd man out in the resource-leveraging game. It currently is scrambling to find a partner to help fill a fast-emerging subcompact car segment in the U.S. and may have to turn to China for help. But China isn’t known for its engineering expertise or quality, and any deal there is sure to have its limitations.

DaimlerChrysler says everything is on the table as it reviews ways to stem losses at Chrysler, which reached $1.5 billion in the third quarter.

Perhaps a more complete Asian strategy – and that potential third leg to the DaimlerChrysler stool – should be on the list.

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