Why DCX honeymoon soured

‘Merger of equals’ spin clashes with everyday strains as Schrempp begins to eclipse Eaton

By Bill Vlasic and Bradley A. Stertz / The Detroit News

Joe Wilssens Juergen E. Schrempp, left center, and Robert Eaton gather with DaimlerChrysler executives in Auburn Hills shortly after the merger agreement.

    Every senior DaimlerChrysler executive in the world flew into Seville, Spain, for the first Top Management Meeting that kicked off Dec. 11. The Germans outnumbered the Americans by about two to one.

    Seville would, co-chairman Juergen Schrempp hoped, be a rallying cry, the foundation for the surging spirit he felt for DaimlerChrysler. The weekend would be his stage to set the tone of his leadership. Only a few dozen Chrysler officers had spent much time with Schrempp or seen him in action. Schrempp was a spellbinding speaker, raising and lowering his voice and inflection, pausing for effect, taking the audience where he wanted to go.

    “I have never worked for a company,” Schrempp preached. “A company is not human. Only the people are human.”

    The officers ate, drank, mixed, and matched for two days: Germans joined Americans in discussion groups, with a member of the board of management heading up each table. The conversations endlessly circled the huge range of issues facing a $130-billion business: productivity, quality, executive training, capital expenditures and compensation. Chrysler’s long-time advertising and public relations executive Bud Liebler stood up.

    “All I hear about is speed,” Liebler said to the packed room. “I don’t know how we’re going to get anything done. We talk about speed, but all I hear about is committees.”

    Schrempp just about jumped off the podium. He jabbed his finger in the air, then pointed it directly at Liebler.

    “We are not going to slow anything down!” he boomed. “If you can come up with any example of slowing down, next time we meet I’ll buy you the best bottle of red wine you have ever had!”

    No one mentioned the word “speed” during the rest of the question-and-answer session.

    After dinner, the hotel turned into a giant, free-form cocktail party of, in most cases, total strangers. More than a few jet-lagged Chrysler officers left for their rooms shortly after dinner, and more boisterous German voices filled the air as the night wore on. A small but hardy crew of Americans matched their new colleagues drink for drink, as things got festive.

    A Chrysler finance executive, Tom Gilman, began playing piano in the bar, and Americans and Germans alike joined in to sing along. But nobody sang louder, longer, and more exuberantly than Schrempp.

    “This is the guy,” public relations executive whiz Tony Cervone laughed, “that you always wanted in your fraternity in college.”

    Schrempp got rowdier and funnier as the night progressed, raising his glass in a litany of toasts, calling out for another favorite tune, slapping backs, and roaring with laughter. By 2 a.m., the bar was rocking.

    Saturday night in Seville was the release, the blowout after months of waiting from the engagement to the marriage of Daimler and Chrysler. Schrempp and the group bellowed song after song until the wee hours. After one final chorus of “Bye, bye, Miss American Pie,” Schrempp was done. Then, with a wild gleam in his eye, he grabbed his ever-present assistant, Lydia Deininger, picked her up, and threw her over his shoulder. The room exploded in laughter as Schrempp snatched a bottle of champagne in his free hand, raised it in the air, and yelled out with a grin, “See you later, boys!” Then he carried her off, not to be seen for the rest of the night.

    DaimlerChrysler’s other chairman, Bob Eaton, wasn’t there for Schrempp’s departure. He went to bed early.

    The atmosphere toned down on the last day in Seville. The final themes were weightier, the mood decidedly more sober than the night before. Some of the Chrysler executives looked at Schrempp a little differently after seeing him cut loose the night before. Bounding into the morning meetings with a hail welcome and a full agenda, he certainly didn’t seem any the worse for wear. Schrempp had great stamina for late nights and long hours, and he traveled the world constantly. Seville was the honeymoon as far as Schrempp was concerned. There would be more parties, to be sure. But Schrempp had big plans for 1999.

    His rapport with Eaton in Seville was good, which pleased Schrempp. The bottom line was that Schrempp felt a loyalty to Eaton for doing the deal with him. When Eaton took the stage, the room got unusually quiet. The Germans had been particularly attentive to his every word throughout the weekend, trying to size up this new leader with whom Schrempp had joined.

    Eaton talked about sacrifice: sacrificing the independence of their companies, sacrificing the comfort zones they all worked in, sacrificing the present for the future. He had to get it off his chest. By giving up his own job, he said, he made the ultimate, selfless sacrifice that all the Germans and Americans had to make if DaimlerChrysler were to achieve its destiny.

    “Just thinking about it,” Eaton said, “makes me emotional.” A few Chrysler executives could sense it coming: Eaton grew misty-eyed and red-faced at first, then choked up, his voice cracking. Then it happened. Eaton began crying. He put his hand to his face to wipe away the tears, but he couldn’t stop them. He was overcome with emotion, and let it all out in front of the 300 executives. The Germans and Americans leaped to their feet, applauding the impact of Eaton’s bared soul. A few of the Germans turned to their new American colleagues for an explanation.

    “What is he doing?” Schrempp asked Tom Stallkamp, president of the new company’s Chrysler side, was sitting next to him. “I know! He is saying good-bye!”

    Stallkamp almost started laughing.

    “Nah, nah, you don’t understand,” Stallkamp said. “He’s just emotional.”

    “No,” Schrempp said. “He has just admitted he is leaving now. He can’t stand up in front of his people and get a standing ovation and everybody feel sorry for him and not be leaving.”

    “Trust me. He’s just warming up,” Stallkamp said. “This has happened on several occasions. He’s not saying he’s leaving.”

    Schrempp looked at the crying Eaton and just didn’t understand.

    “He’s not leaving?” Schrempp said.

    Within weeks, the Americans, to their dismay, saw their worst fear become reality. Eaton slowly but surely withdrew, grew detached, and didn’t contribute. He isolated himself in his office for days at a time. He rarely talked to Schrempp. The Chrysler executives thought Eaton appeared intimidated by Schrempp.

    In public, Schrempp tackled the hard business issues, laying out DaimlerChrysler’s agenda, promising that profits would grow faster than revenues. Schrempp was a natural-born speaker, entertaining and assertive. Schrempp didn’t exactly intimidate Eaton. He overwhelmed him. Some of his own executives could not get past the barriers Eaton had erected around himself. “The merger is his way out,” one executive concluded. Some Germans cracked jokes about Eaton’s “farewell speech” in Seville, while others ignored him. But Schrempp was petrified of being perceived as imposing his will on Eaton or, worse, forcing him out.

    Instinctively, he wanted to communicate with them but held back for fear of encroaching on Eaton’s turf. It created a classic no-win situation. By not showing himself to the troops, the rank and file formed opinions of Schrempp based on gossip, speculation and media reports. Stallkamp held dozens of town hall meetings and responded daily to e-mail messages from across the Chrysler system. He ran the operations while attending to his amorphous integration duties. Stallkamp tried to refrain from circumventing Eaton and talking directly to Schrempp, but he couldn’t help it. Schrempp was the center of power.

    American investors fled from its stock after its banishment from the S&P 500. By late March the percentage of U.S. shareholders had fallen from 43 percent on Day One to 25 percent. The shift shocked the company’s American executives, none more so than Eaton. He and Schrempp met with Clinton administration officials and members of Congress to reassure them of American jobs and investments and seek help to get back on the S&P 500. Eaton beseeched Wall Street analysts, pleading his case that DaimlerChrysler’s stock shouldn’t be penalized because it was a German company. The market offered no sympathy. Since hitting a high of $108 in early January, the stock had tumbled 26 percent to $85.

    High-profile defections of Chrysler executives fed the image of German control. The strategy of trumpeting DaimlerChrysler as a merger of equals had been flawed from the start. It was a mistake, and a serious one.

    “We should have never called this a ‘merger of equals,’ ” Liebler said. “It was an acquisition, and by calling it something else, we confused a lot of people on both sides of the Atlantic.”

    Schrempp would address the issue head-on at the year-end press conference. He expected Eaton to speak up as well but wasn’t sure how seriously his co-chairman took the event. While a team of German strategists briefed Schrempp before his appearance, Eaton sat off by himself, reading a newspaper.

    Schrempp had ditched his usual rectangular, rimless glasses for rounder, tortoise shell frames. The look softened his image some and photographed better. Schrempp tempered his outlook for cultural integration.

    “We are not harmonizing the cultures,” he said. “They are still referring to the culture they have, and they should. The psychological human integration will take somewhat longer.”

    Cultural integration was a slippery commodity. The great divide between the Germans and Americans seemed as deep as it was wide. Bringing them together required a measure of education, changes in behavior and a willingness to accept the other side’s cultural biases. The Americans attended classes on German meeting protocol and personal interaction. The Germans took a course on the meaning of sexual harassment in the U.S. work environment. “A German male should always keep the door open when meeting with an American female.” The cultural divide extended beyond attitudes and mores. The yawning gap in pay scales fueled an undercurrent of tension.

    Schrempp, Eaton, chief financial officer Manfred Gentz, and a huge team of executives and advisers went to New York on July 29 for their earnings presentation at the Millennium Broadway Hotel in midtown Manhattan. The question was, what would the company show and how would they do it? The U.S. financial reporting system was sleekly efficient. American corporations kept a close watch on earnings estimates conjured up on Wall Street and discreetly let analysts know if the companies would hit their target. Nothing tanked a stock like an earnings shortfall, particularly a surprise disappointment.

    In Germany, companies and stockholders focused on full-year results, the better to crank up in the fourth quarter to make strong numbers. Gentz, a stubborn stickler for German practices, argued that the press release should emphasize the six-month numbers and relegate the quarterly results to a column in the financial breakdown. The Americans were aghast. It just wasn’t done. To make matters worse, the numbers were published in Eurodollars in the financial table, requiring a quick conversion to U.S. dollars. Veteran investor-relations executive Sam Messina, Chrysler’s link to Wall Street, warned that a confusing earnings statement would infuriate analysts.

    But Schrempp didn’t think it was a big deal. He went along with Gentz, as he sometimes did when he wasn’t wildly interested in a topic.

    The analysts complained about the format, but they were furious with the results. The numbers on the page were a monumental letdown. DaimlerChrysler’s revenues rose 10 percent in the second quarter to $38.5 billion, but its profits were as flat as a pancake, the same $1.53 billion as the year before. Wall Street expected the company to earn as much as 20 percent more, an enormous misimpression that sent analysts, some of them livid and swearing, to call their offices.

    DaimlerChrysler stock fell to $77 on the New York Stock Exchange. Nine percent of its worth evaporated overnight. The next day, the price went into another free fall, hitting bottom at $72. More than $10 billion in shareholder value was gone, up in smoke in 48 hours. “Daimler is hurting because of the higher expectations created by the merger with Chrysler,” one analyst said. “But it’s looking more and more like a big, ugly, cyclical ‘car company.’ ”

    The honeymoon wasn’t just over — now the pots and pans started flying. Schrempp and Eaton fumed. Stallkamp railed against the stupidity of not preparing analysts for such a huge disappointment. Gentz made the mistake of dishing blame and provoking Stallkamp.

    “Your forecasts for the rest of the year aren’t good,” Gentz said to Stallkamp. “We’re having trouble adjusting to your forecasting techniques.”

    Stallkamp lost it.

    “I don’t need to listen to you about forecasts,” he yelled. “I know where I am. You’re the CFO! You don’t even know how much cash we have!”