Schrempp to Step Down

Even though there was a great deal of controversy, his strategy may well be vindicated in time.

NEW YORK - In the few hours after DaimlerChrysler announced that chairman Jürgen Schrempp would step down at the end of the year and be replaced by Chrysler Group Chief Executive Dieter Zetsche, the market capitalization of the company rose 10%, or $4.3 billion.

Telling, isn?t it?

Sure, part of the market?s reaction had to do with a 28% rise in second-quarter earnings, also announced Thursday, but the big driver was the management change.

Jurgen Schrempp, who has been chairman since 1994, has spent his last decade in power making breathtaking strategic moves. He was creative. He was bold. But his most striking attribute has been his staying power. Because his bold moves rarely paid off.

Schrempp?s grand idea was to jump into the arms of globalization by building an automotive giant that spanned the world?s three major markets?Europe, North America and Asia. His first move was to buy Chrysler in 1998, for $36 billion. It seemed like a good idea at the time?just after the merger, the newly minted DaimlerChrysler (nyse: DCX

- news - people ) was valued at $84 billion, and it soon reached as high as $108 billion. Now, even with Thursday?s boost, the company is worth just $49 billion.

That's because things quickly went sour. The merger was a train wreck. Chrysler Group executives left in droves. The company, once Detroit?s most profitable, stumbled into the red. It turned out that Schrempp had publicly called Daimler?s purchase of Chrysler a ?merger of equals? only to mollify the Chrysler side. He had always intended it to be an acquisition.

Morale, and the company?s stock price, tanked. Calls to unwind the acquisition could be heard loud and clear, from Michigan to Stuttgart.

Meanwhile, Schrempp looked to Asia for the next piece of his global puzzle. He first considered then-struggling Nissan (nasdaq: NSANY - news

- people ), but instead turned to Mitsubishi. While Renault snapped up Nissan and made it the most profitable automaker in the world, Schrempp sank $3 billion into Mitsubishi, only to see the company nearly collapse and his investment evaporate.

Back at home, the company?s flagship brand, Mercedes-Benz, was suffering alarming lapses in quality, and profits were beginning to dry up. A mini-car brand called Smart produced colorful, charming and staggeringly unprofitable little vehicles that could fit in the tiniest of European parking spaces. Mercedes is somewhat profitable again, but Smart won?t be profitable until 2007.

The company?s vast commercial vehicles division (DaimlerChrysler is the world?s biggest producer of heavy trucks, with brands like Freightliner, Sterling and Western Star) paid for foolish sales incentives in the late-1990s, with big losses in the early 2000s.

Yet Schrempp hung on, able, somehow, to convince his board and investors that despite his stumbles, his strategy was a good one. Remarkably, even after his board voted last year?against his wishes?to suspend investment in Mitsubishi, effectively killing his three-market hopes, the board still kept Schrempp in the chairman?s seat.

Now, at last, Schrempp?s vision is in the hands of a capable operator. When the Chrysler acquisition was near a breaking point in late 2000, Schrempp made one of his best moves: He dispatched Dieter Zetsche to Auburn Hills, Mich., to run Chrysler.

The mood in Michigan was poisonous. You mean the Germans are going to come run our American car company? This wasn?t just any German, though. Dieter Zetsche charmed the grimaces right off the faces of the American workers within a matter of months, even as he announced a painful, $8.1 billion restructuring plan that would cost 26,000 jobs.

Zetsche set out to work on the revenue side of the business?building and selling exciting cars and trucks that people would actually want to buy. And he had a deputy, Wolfgang Bernhard, now with Volkswagen, to attack costs. Together they turned Chrysler back to profitability by slashing operating and parts costs and building cars like the in-your-face 300 and minivans with a clever seat-storage system.

Zetsche will now leave the Chrysler group in the hands of Thomas W. LaSorda, the former manufacturing chief. LaSorda is in some ways like his boss Zetsche?both have a refreshing, almost goofy sense of humor, and both relish the nuts-and-bolts dirty work of running a carmaker.

And Zetsche will return to Germany where he will try to succeed where Schrempp never quite could?making the far-flung, patchwork operations of DaimlerChrysler hum the same?profitable and innovative?tune.

Not surprising.

Big fat salary. Big fat pension. Big, fancy cars without any garage hassles. Running a prestigious car maker. Major corporate problems and not being fired.

DAS

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