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DaimlerChrysler: The Grace Period Is Over
Pressure is building for the
merger to start showing results
Co-Chairman Jurgen E. Schrempp follows a management principle that he has dubbed ''the
Schrempp Curve.'' It steered him through the wrenching restructuring of Daimler Benz after
he took over the German industrial giant as chief executive in 1995. Simply put: When
taking a controversial strategic step, pause and wait for the negative reaction to come.
Don't make the next move until both the mood and the bottom line have curved back up.
''Never go too far in the first step,'' he likes to say. ''Always keep the next three
moves to yourself.''
Yet with the ink barely dry on the new DaimlerChrysler business cards, Schrempp violated
his own code by making a lunge for Nissan Motor Co. (NSANY). He had been talking with Nissan Diesel, the truck arm, about a
deal for over a year. But then Renault upped the ante by itself starting talks with
debt-ridden Nissan Motor. Rather than waiting to get DaimlerChrysler (DCX) running smoothly, Schrempp plunged into a whirlwind of fact-finding
missions on the risks of taking a Nissan stake. Finally, on Mar. 8, he acquiesced to his
board's objections to the deal. Co-Chairman Robert J. Eaton and Chief Financial Officer
Manfred Gentz were among those opposing.
Schrempp and team have learned a hard lesson: In the grand experiment that is
DaimlerChrysler, there is little room for error. Schrempp pledged to cut costs in the new
company by $1.4 billion in 1999. Distracting managerial talent to help fix Nissan would
have risked that effort. The deal ''would have overextended our resources,'' Schrempp told
BUSINESS WEEK. DaimlerChrysler people are already ''working to the limits.''
Taking on Nissan would have been doubly hard since financial markets have decided not to
cut DaimlerChrysler any slack. Despite posting a 1998 earnings gain of 29% on Feb. 25,
DaimlerChrysler's shares slipped 11% over five trading days on Nissan-related jitters. The
price recovered 5.5% on Mar. 12, after Schrempp flew to Tokyo to end the talks. ''People
don't give us credit for the fact that six months ago we weren't even a company,'' snaps
DaimlerChrysler President Thomas T. Stall-kamp. ''They ask, 'Why don't you have the annual
report out yet? Why don't you have the logo stapled on your forehead?' Give us a break.''
Such complaints are galling, but they won't go away. Even the pace of the merger is now
fair game. ''Integration is going slowly,'' frets one fund manager, citing a lack of
movement on combining suppliers. MaryAnn N. Keller, an analyst with ING Baring Furman
Selz, is concerned because 25% of the time of the top 300 managers is absorbed by details
of uniting the companies--not making and selling cars.
Two high-profile defections have accentuated the merger pains, as well. Ford Motor Co.
Chief Executive Jacques A. Nasser, hunting for fresh blood, snatched Chrysler platform
engineering specialist Chris Theodore and manufacturing chief Shamel Rushwin away in
February. DaimlerChrysler executives dismiss this as career decisions unrelated to the
merger. But fears are rising that Stuttgart leadership will destroy the creative spirit at
BIG QUESTION. Nevertheless, DaimlerChrysler is trying to get on with building a car
company. For now, the priority is Europe. There the carmaker dominates the luxury segment,
but its overall 5% share lags market leader Volkswagen, with 18%. The first new product
will be a subcompact under the Chrysler brand, to compete against the VW Golf and be
launched by 2002.
Given the Nissan deal's collapse, Asia is a big question for DaimlerChrysler. It still
needs a partner to be a serious player in the region, but Schrempp says he is no longer
interested in an acquisition. Instead, DaimlerChrysler will launch new autos through its
Mercedes-Benz infrastructure. And it may renew talks on joint truck projects--but no
equity stake--with Nissan Diesel.
Schrempp faces a big job getting DaimlerChrysler to run properly around the world. From
the Nissan fiasco, he's drawn one conclusion: When he next makes a big move, he's going to
do it quietly--just as he did when he went after Chrysler itself.
By Karen Lowry Miller in Frankfurt and Joann Muller in Washington
Two top Chrysler executives defected to Ford, and more could leave as U.S. managers worry
that their Daimler counterparts will dominate decision-making.
The management board, including Robert Eaton, nixed Jurgen Schrempp's ambitious move to
add Nissan to the company's fold.
Fund managers and analysts are demanding swifter results, as integrating the two companies
absorbs one-fourth of top management time.
DATA: BUSINESS WEEK