Industry Watching DaimlerChrysler Shakeup

DaimlerChrysler AG has appointed German executive Dieter Zetsche as president and CEO of Chrysler, and warned that financial results at Chrysler will not meet earlier projections.

The automaker said Friday that current president and CEO James Holden would step down immediately. Its supervisory board also appointed Wolfgang Bernhard as Chrysler's chief operating officer.

The company said that the new officers would "fundamentally reposition and restructure the business" with a program that will be unveiled next year to cut costs and improve market performance.

DaimlerChrysler had said that Chrysler was expected to post a profit in the fourth quarter. The company said Friday that higher U.S. incentives, inventories and production cuts would push results "below the last forecast," but did not give specific numbers.

The move to oust Holden, which had been expected for days, cements control of the unit in German hands, but would do little to fix some of the larger problems facing the U.S. half, analysts have said.

Those problems include an uneven handling of Chrysler by German officials, a high-pressure market in the United States and some strategic stumbles that have yet to be fixed.

"There's substantial challenges in the environment, and there's no silver bullet or easy answers," said Scott Merlis, an analyst with Wasserstein Perella Securities Inc.

Growth Increases Challenges

With the purchase of a third of Mitsubishi and 10 percent of Hyundai, Schrempp now controls a business empire that stretches from Brazil to China, and builds vehicles from the tiny two-seat Smart car to 20-ton Freightliner trucks. But Chrysler has been the moneymaker, supplying half the company's revenues and, until recently, half its profits.

Zetsche's first job "is to galvanize morale," former DaimlerChrysler president Thomas Stallkamp said. Holden was his replacement.

"How he does that I have no idea," Stallkamp said.

When Daimler-Benz AG and Chrysler Corp. came together in 1998, Schrempp and Chrysler chairman Robert J. Eaton billed the deal as a "merger of equals," and promised to create a new, transcontinental corporate culture.

It soon became clear that the new culture was only the two old cultures that looked at each other warily, with the German side in a position of power. Since the merger, several top Chrysler executives have left -- including Stallkamp, who was rebuffed in attempts to bring Daimler and Chrysler closer together -- and the company's board of supervisors has tilted more toward the Daimler side.

But Chrysler employees were shocked when Schrempp was quoted in the London-based Financial Times two weeks ago saying he had never meant for the merger to be a marriage of equals, and that the deal was billed that way "for psychological reasons."

Stallkamp and others said the employees in the United States are now wary of the moves Zetsche and any new German managers he brings with him might make.

"There's a mountain of suspicion here that the Germans have dealt with the U.S. company in a duplicitous way," said Gerald C. Meyers, a professor of organizational behavior at the University of Michigan and the former CEO of American Motors Corp.

"What's stunning to me is the guy would say it even if it was true," Stallkamp said. "I still can't comprehend why he said it."

In a report Thursday, Standard & Poor's warned that the company's credit rating was under review, saying "the exodus of management talent" from Chrysler "and the resulting dwindling morale heighten the risk that performance prospects for Chrysler will continue to fall well short of historically superior levels."

Another area where the merger has not lived up to expectations is in cost savings between Mercedes and Chrysler. There has been some sharing between the two sides in manufacturing and vehicle design, and research into fuel cells has been split, with Mercedes handling advanced lab work and Chrysler charged with figuring out how to build fuel cells into vehicles.

But Schrempp does not embrace the auto industry's thoughts that sharing basic vehicle structures between several models is the best way to grow profitably. The other five largest automakers in the world -- General Motors, Ford, Toyota, Volkswagen and Renault-Nissan -- share engines and frames broadly between brands or have plans to do so.

Since the merger, Schrempp and other Daimler executives have ruled out such moves between Mercedes and Chrysler, making it clear that keeping the quality image of Mercedes-Benz free of taint from the lower image of Chrysler was a top goal.