Ailing DaimlerChrysler awaits arrival of new German leadership

Ailing DaimlerChrysler awaits arrival of new German leadership
REUTERS

Detroit, Nov 18 : Exactly two years after the world greeted the DaimlerChrysler AG marriage with great fanfare, the German-US union has soured, as the former Chrysler Corp. struggles to turn a profit with an aging vehicle lineup and rising costs, analysts said.

German executives dispatched to Chrysler headquarters in Auburn Hills, Mich., will discover an automaker burdened by rising inventories of unsold cars and trucks, despite record US industry automotive sales this year.DaimlerChrysler said on Friday that Dieter Zetsche, chief of commercial vehicles, will take over as Chrysler chief executive officer and Wolfgang Bernhard, who headed the Mercedes AMG high performance car division, as Chrysler chief operating officer.

They replace James Holden heading the Chrysler group, which includes the US-based Chrysler, Jeep and Dodge brands of cars and trucks.

Distrust and poor communications between German and American operations have plagued DaimlerChrysler since the merger, company insiders said. Zetsche, the third Chrysler group leader in two years, plans to meet Chrysler employees in Michigan next week to try to clear the air, they added."Obviously, we've got a serious morale problem," said one unionised mechanic involved in future vehicle development at Chrysler's suburban Detroit headquarters. "Germany has given us zero reassurance."

DaimlerChrysler warned on Friday that Chrysler financial results for the fourth quarter, traditionally the strongest quarter of the year for the industry, would be below forecasts. Chrysler alone lost $512 million in the third quarter.

"I think the general opinion now is that they (Chrysler) will lose money in the fourth quarter," said analyst Saul Rubin of UBS Warburg in New York. "It looks like it would be somewhere between (a loss of) $100 and $150 million."Twice in the last 20 years, Chrysler had teetered on the brink of financial ruin and it was only saved from bankruptcy in 1980 when the US government stepped in with a $1.5 billion loan.

When Daimler-Benz AG and Chrysler officially merged on November 17, 1998 to create the world's No 5 automaker, executives saw great promise because the companies had little product overlap, targeted different areas of the automotive market and were based on two different continents.

But in their struggle to create what they termed a "merger of equals," the two companies missed opportunities to fully integrate their operations and cut costs, company insiders said.

In the year-and-a-half since France's Renault SA allied with Japan's struggling Nissan Motor Co. Ltd., the two automakers have made plans to share a small car platform in 2002 and 10 vehicle platforms by 2010. Sharing platforms which usually include the major underpinnings of a vehicle such as the floorpan, transmission, engine and suspension allows automakers to substantially cut costs.

However, DaimlerChrysler, in an effort to protect the uniqueness of the Mercedes brand, has revealed no plans to share any vehicle platforms. Mercedes and Chrysler only recently said they planned to share transmissions in 2004.

Goal one: Cut costs: At the top of Zetsche's agenda will be cost-cutting at Chrysler, formerly considered the low-cost producer."I think that management's take on it is Chrysler's costs have gotten too high, and there will be an aggressive cost-cutting program that would not have happened under Holden," said analyst David Healy of Burnham Securities.

Analysts said Chrysler may now hasten plans announced in July to cut administrative costs by 25 per cent, including considering a minimal number of job cuts. Now considered to have the cosiest relationship with parts suppliers among the US automakers, Chrysler has taken a tougher stance in recent months to try to cut costs, company insiders said.

New minivans face fierce competition: Earlier this month, Chrysler was forced to place costly consumer incentives such as low financing rates on its newly-redesigned minivans in an effort to defend its commanding 40% market share. Automakers are usually able to command premium prices on new vehicles.