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Shake-up at DaimlerChrysler
Zetsche in charge
DaimlerChrysler AG Chairman Juergen Schrempp's surprise resignation and the promotion of Chrysler CEO Dieter Zetsche to succeed him ends Schrempp's turbulent reign atop the global industrial giant and validates the comeback of Detroit's No. 3 automaker.
The management shake-up announced Thursday, which overshadowed DaimlerChrysler's improved second-quarter earnings, puts Zetsche, 52, in a position to advocate for the Auburn Hills automaker he helped revive in the stormy aftermath of the 1998 union of Daimler-Benz AG and Chrysler Corp.
The changes, effective Jan. 1, also vault Chrysler Chief Operating Officer Tom LaSorda to CEO, returning a North American to the top of Chrysler for the first time in nearly five years.
Voluntary or not, Schrempp's departure eliminates the possibility of a bloody succession battle that could have damaged and distracted the company. While Schrempp, 60, orchestrated the trans-Atlantic deal and is considered a master strategist, Zetsche's team-building skills, attention to detail and engineering pedigree may be what DaimlerChrysler now needs to optimize its far-flung operations.
But Zetsche's exit from Chrysler has the potential to disrupt the momentum it has gained in recent years. It also means the U.S. auto industry will lose one of its most visible and well-liked leaders.
Analysts say it will be critical for the LaSorda-led management team at Chrysler to stay focused on cutting costs and turning out the kind of appealing products that have driven the company's success, such as the Chrysler 300 sedan and the Hemi engine.
"For Chrysler to continue on the path it's on, its product portfolio will be critical," said Brett Hoselton, auto analyst for KeyBanc Capital Markets.
In a conference call with financial analysts and the media Thursday morning, Schrempp characterized his departure as a mutual decision between himself and the supervisory board.
He said it was an "optimal" time to leave the company now that Chrysler is on firm footing, the Mercedes luxury car unit is posting improved earnings and other issues -- such as a troubled relationship with Japan's ailing Mitsubishi Motors Corp. -- have been resolved.
"The second quarter is showing clearly that the company is heading in the right direction," Schrempp said. "So we believe it was the right time to hand over the helm of the leadership of DaimlerChrysler."
But industry experts were surprised by the timing.
"The unthinkable has happened," Merrill Lynch auto analyst Stephen Reitman wrote in a research note upgrading his rating on the stock to neutral from sell. "Of all the scenarios we have tried to model for DaimlerChrysler as we have puzzled where the business is going, the early departure of the seemingly impregnable CEO seemed among the least likely."
Analysts had expected the news of the day to focus on the turnaround efforts at Mercedes-Benz, whose falling profits and quality problems have been compounded by heavy restructuring costs at its Smart micro-car division. But the announcement that Schrempp would leave before his contract expires in spring 2008, and that he would not ascend to the chairmanship of the company's supervisory board, as is customary in Germany, took center stage.
In Auburn Hills, the news that Zetsche would replace Schrempp and return home for a post in Germany came as a shock. A top ring of executives with knowledge of the move had kept it secret for weeks and by Wednesday had only informed a handful of top managers.
The quick announcement of a succession plan at Chrysler signaled to some industry observers that the decision was not hastily made. Under the plan, Windsor native LaSorda, 51, becomes chief executive, while Eric Ridenour, 47, an executive vice president in charge of product development, moves up to chief operating officer. Frank Klegon, a 53-year-old group vice president of product development process and components, replaces Ridenour.
"My guess is that this transition has been in place for some time," said Mark Mendola, managing partner at PricewaterhouseCoopers' automotive practice in Detroit.
The promotion of Zetsche, the man most responsible for Chrysler's improved financial performance and product renaissance -- should put to rest calls by some shareholders to spin off the American automaker or otherwise break up the company. Rather, it seems to be a reward for the work he did in Auburn Hills.
"There are very few auto executives who have accomplished what Dieter has accomplished," said KeyBanc's Hoselton.
Zetsche returned Chrysler to profitability and improved its U.S. market share at a time when Ford Motor Co. and General Motors Corp. are losing it. He also improved the image of Chrysler in the marketplace with new vehicles like the 300 sedan, and quietly negotiated a deal with the United Auto Workers to lower the company's health care costs without reopening a national labor contract.
"He's the modern Iacocca," said James McTevia, chairman of McTevia and Associates, a Southfield turnaround firm with automotive clients, referring to the former CEO who saved Chrysler from bankruptcy in the early 1980s.
Iacocca, who is currently starring in Chrysler ads, endorsed the choice of Zetsche for DaimlerChrysler's top job.
"Dieter is a good guy ... he's a good car guy," Iacocca said in an interview with The Detroit News on Thursday. "And when you come down to it, it's all about product."
LaSorda will pick up where Zetsche left off, inheriting the German executive's goal of matching industry-leading Japanese automakers on manufacturing productivity by 2007, improving quality and making good on a pledge to launch 25 vehicles between 2004 and the end of 2006.
Chrysler has 11 vehicles left to launch in 2006 -- the most it has ever introduced in a single year -- which means LaSorda's mettle as a leader will be tested early. While the company has improved productivity 19 percent since 2001 and has greatly reduced warranty costs, a host of vehicle launches could find Chrysler struggling to stay on that trajectory.
LaSorda will also be in charge when Chrysler returns to the bargaining table with the UAW in 2007 to negotiate a labor contract. Those talks could be some of the most contentious in recent history because Detroit's automakers are expected to push the union to accept higher out-of-pocket costs for health care.
Still, UAW President Ron Gettelfinger struck an optimistic tone about the management changes at Chrysler.
"Our union has enjoyed a strong working relationship with Dieter Zetsche and Tom LaSorda," Gettelfinger said in a statement. "We think it's a positive development that the leadership change at DaimlerChrysler will bring in a new CEO who is very familiar with the company's U.S. operations. We look forward to working with them in their new assignments."
The pass-off to LaSorda signals that Chrysler is making operational excellence a priority. LaSorda, a manufacturing expert, does not have Zetsche's background in engineering, nor his experience with product development and marketing. But he has been learning all three under Zetsche's tutelage since becoming chief operating officer in May 2004.
He may also be thrust into the spotlight as a spokesman and pitchman for Chrysler, a job that Zetsche approached with self-effacing zeal, but many U.S. automotive executives see as an obligation.
Yet LaSorda is coming into the job at a time when Chrysler's mission is to maintain momentum, not to turn around the company, a situation that could make his job easier than it was for Zetsche, Hoselton said. "The pressure for Tom LaSorda to perform well is less than it was for Dieter," he said.
Zetsche felt the heat from the moment he landed in Auburn Hills in November of 2000, but he managed to win over most naysayers.
"When Dieter first arrived, Chrysler employees and the business community were obviously concerned. This was an American icon being run by a German," Mendola said. "And Dieter did a remarkable job of understanding that sensitivity."
Today, with Zetsche's promotion, Detroit feels like it is losing one of its own, he said.
When asked Thursday what his priorities would be as chairman of DaimlerChrysler, Zetsche declined to comment, saying, "It is a bit early." But he did reflect on his accomplishments at Chrysler and give blessings to his successor.
"I'm certainly proud about the fact that Chrysler is in considerably better condition than it was four or five years ago. I'm more proud about the fact that there's an extremely strong management team in place in Auburn Hills that has accomplished just that."
Schrempp also had good wishes for the new management team in Auburn Hills, saying, "It will go very well," and adding that "Chrysler is moving in the right direction."
Through June, Chrysler's U.S. sales were up 4.6 percent this year and its market share was 13.9 percent, up from 13.5 percent a year ago, according to Autodata Corp.
In the second quarter, Chrysler's profit rose 4 percent to $658 million, while its larger domestic rivals General Motors Corp. and Ford Motor Co. lost money in North America. The results marked Chrysler's 13th straight positive quarter since 2002.
Looking forward, Zetsche said there is no reason to believe the momentum that was created at Chrysler during his tenure will wane.
"The longer we are seeing a positive development," he said, "the higher the confidence is from the outside and inside about the sustainability."
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You can reach Brett Clanton at (313) 222-2612 or bclanton@detnews.com.
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