2 German Execs Will Assume Control at Ailing Chrysler

As Chrysler losses mount and the U.S. auto market heads into a slowdown, its parent DaimlerChrysler used the occasion of Friday’s two-year merger anniversary to announce it is dispatching two senior German executives to run the troubled car maker in Auburn Hills, Mich.

At an extraordinary meeting of the supervisory board in Stuttgart, Germany, DaimlerChrysler confirmed it is ousting Chrysler’s American chief, James Holden, and replacing him with the current head of its commercial vehicles department, Dieter Zetsche. The board also created the new post of chief operating officer at Chrysler and filled it with 40-year-old Wolfgang Bernhard, who oversaw the successful launch of Mercedes’ new S-Class.

Holden’s departure had been expected since third-quarter results disclosed $512 million in losses at Chrysler, and analysts have been lowering expectations for year-end performance.

But the perfunctory thanks accorded Holden, an 18-year Chrysler veteran, was likely to do little to change the view at the U.S. company that what was intended as a marriage of equals when negotiated in 1998 has evolved into a relationship of submission to the German behemoth.

DaimlerChrysler executives, however, insist that their goal of creating a global manufacturer with strong market shares in all key regions is unchanged and that the personnel moves are aimed at cutting costs and shoring up Chrysler’s once-vaunted position.

“We are not trying to Germanize Chrysler,” said company spokesman Michael Pfister. “On the contrary, we are investing in Chrysler to improve overall performance.”

In a statement from Stuttgart after the special board meeting, DaimlerChrysler Chairman Juergen E. Schrempp insisted Zetsche was the right man for the job.

“Given his capabilities and his proven career track record, we have no doubt that he will lead this business back to sustained profitability,” Schrempp said. “He has extensive experience in every facet of the automotive sector.”

Chrysler’s performance has been a huge disappointment in Stuttgart, and it is blamed for the tumble of the combined companies’ share price from a post-merger high of $108 in January 1999 to a record low of $41.59 in European trading Friday. In New York, it lost 71 cents to $42.85, a 52-week closing low.

Whether a change in management at Chrysler can overcome the downward direction of the U.S. auto market remains to be seen. As the economy cools, the entire U.S. market is bracing for a slowdown after two straight years of record sales--16.9 million new cars and trucks sold last year and as many as 18 million projected for this year.

Chrysler and rivals General Motors Corp. and Ford Motor Co. have either idled plants or cut production to reduce bloated inventories. All three continue to spend heavily on consumer incentives, and all three companies have seen double-digit percentage dips in share price this year, with DaimlerChrysler’s stock dropping 45%.

Since the dismal third-quarter results were disclosed, problems with oversupply of older Chrysler models and start-up marketing costs for new ones have persisted and given analysts reason to believe the U.S. producer could rack up another $50 million in losses in the current quarter. Chrysler has had to offer costly incentives to move out the overstock, and at the same time it has had to concede it cannot meet orders for its successful PT Cruiser, further alarming those watching the company’s sinking bottom line.

Bernhard’s appointment appears to be a Stuttgart-designed mission to get Chrysler back on the profitable track it had occupied until this year.

“Wolfgang Bernhard, in his new assignment as COO, has been given the mandate to make the restructuring measures his highest priority,” Schrempp said in the statement explaining the shake-up. “He has demonstrated in his previous position that he is a highly competent manager with a strong empathy for his employees and a sound understanding of market conditions.”

Schrempp’s insistence that Bernhard is employee-friendly is clearly aimed at calming the jitters rife in Auburn Hills following the departure of at least a dozen senior executives since the merger.

The board in Stuttgart said the 46-year-old Zetsche will take over Chrysler immediately, and that Eckhard Cordes, executive vice president and one of the architects of the merger that launched “Day One” amid much global fanfare exactly two years ago, will take over Zetsche’s post in commercial vehicles.

Although DaimlerChrysler met its first-year target of $1.4 billion in cost reductions and managed to refocus the company on its core auto-manufacturing operations, its expansion in recent months to absorb a one-third interest in Mitsubishi Motors and 10% of Hyundai stirred concerns in financial markets that the company is overreaching.

But executives have insisted that those acquisitions were windows of opportunity the company needed to exploit before they closed, and that Schrempp’s vision of making DaimlerChrysler one of the top automotive powers worldwide remains on target.

“The strategic rationale for the merger and acquisitions remains the same,” Cordes said in an interview in Stuttgart last week. “From our perspective, the Daimler-Benz perspective, the main reason is that if you want to be competitive in an industrial environment you need growth, and the long-term potential for growth at Mercedes-Benz was limited.”