DaimlerChrysler
Corporate profile: DaimlerChrysler - Herr Schrempp is not a happy man DaimlerChrysler will go to chairman Jurgen Schrempp at last when his opposite number in America steps down. The company is pumping out Mercs, Jeeps and Dodges, and he has just put his fellow Germans in the driving seat. So why, he wants to know, won't Wall Street recognise a good thing when it sees it?
High above Stuttgart, the familiar star-shaped symbol of Mercedes-Benz glints proudly in the sun, winking at the city below from the headquarters of the mighty DaimlerChrysler corporation like some great totem of wealth, power and self-confidence.
Indeed, these should be good times for the cars-to-aerospace colossus forged through the $37bn takeover of Chrysler by Daimler-Benz in 1998. Record output from the nearby Sindelfingen car plant helped Mercedes to sell more than one million units for the first time in its history last year, driving operating profits to a record 11 billion euros and group sales to 4.9 million cars and trucks. That is an awful lot of Mercs, Jeeps and Dodges.
This year, DaimlerChrysler, has even more ambitious plans. It aims to launch 12 new car and truck models in a 50bn euro investment programme, float its aerospace interests and turn the corner at last at Adtranz, its loss-making train business.
After two years of co-habitation at board level the Germans are now firmly in the driving seat. The DaimlerChrysler jet may shuttle endlessly between the two corporate head offices in Stuttgart and Auburn Hills, Michigan. But when Bob Eaton of Chrysler steps down as joint chairman at the end of this month, a year earlier than planned, his opposite number in Daimler, Jurgen Schrempp, will be in sole charge.
So is Mr Schrempp a happy bunny? Not exactly. The one thing DaimlerChrysler has not been able to drive forward with quite the same gusto is its share price, languishing near its 12-month low. "If Wall Street doesn't understand that our numbers are good, they have a problem, not us," snapped Mr Schrempp at the Geneva motor show last week.
In a bid to align the interests of investors more closely with those of management, DaimlerChrysler intends to launch a share option plan entitling 6,500 executives to up to 96 million shares over the next five years. If the share price were to recover to its peak of 95 euros, then the pay- out this year for board members would be around 4 million euros apiece. That will go some way towards delivering a fairer share of the spoils to DaimlerChrysler's German executives, who went into the merger earning as little as an eighth of the pay of their US counterparts.
But before shareholders have voted on the plan at DaimlerChrysler's annual meeting next month, Mr Schrempp has run into trouble. Investors complain that the performance targets attached to the scheme are too lax. Most share options are exercisable only if the company outperforms a given index or peer group. But Daimler's executives will cash in if the shares rise 20 per cent from an historically-low base price of 62 euros.
Even for a classically old economy stock like DaimlerChrysler, that should not be beyond the realms of possibility. John Lawson, motor industry analyst with Salomon Smith Barney, has put a target price of 78 euros on DaimlerChrysler, comfortably enough to trigger the options programme. But he senses disillusionment with the company's performance, given all the hype and high-expectation that accompanied its creation.
"It has missed the targets set by the investment community and that is one reason for disappointment in the industry," he says. "The growth achieved is that which came into the merger at the beginning. There has not been extra growth."
DaimlerChrysler's stock price is important for another reason, because shares are likely to be the currency it uses should the group decide to merge with another carmaker. Will it be in Europe or Asia? Fiat or Honda? Peugeot or Mitsubishi? Yesterday the market got its answer. Reports in Japan say DaimlerChrysler is negotiating for a stake of around 30 per cent in Mitsubishi.
Taking effective control of the ailing Japanese carmaker would help Mr Schrempp achieve his long-term goal of generating a quarter of group sales in Asia (at present the region accounts for just 3 per cent of group turnover of 150bn euros) and moving into the small car market. But it would join DaimlerChrysler at the hip with a company whose debts stand at Y1.75 trillion (pounds 10bn).
Few analysts doubted the rationale of putting Daimler and Chrysler together in the first place, though the deal came like a bolt from the blue. In terms of model range and geographic spread, the two companies are as complementary a fit as could be found in the industry with Daimler's focus on Europe and the luxury car market and Chrysler's heavy concentration on North America and 4x4s, or light trucks, as they are known in the US.
But the prospect of a merger with Mitsubishi is likely to be met with less rapture. Garel Rhys, professor of motor industry economics at Cardiff University Business School, says: "They need to buy a company because it makes sense, not simply because it is available. If DaimlerChrysler acquires Mitsubishi they would be buying trouble because there is an awful lot of debt to take on."
A similar worry persuaded DaimlerChrysler to withdraw from alliance talks with Nissan last year - more, it is said, at the insistence of Bob Eaton than his co-chairman - leaving Renault to take control of Japan's second biggest carmaker.
The original DaimlerChrysler deal created the world's fifth largest motor manufacturer by volume and third largest by sales. Swallowing up Mitsubishi, Japan's fourth largest carmaker would propel DaimlerChrysler into number three slot in terms of units sold, behind the American duo of General Motors and Ford. If the Mitsubishi talks reach a successful conclusion, then DaimlerChrysler's small- car strategy will be resolved. Until now, its attitude towards this segment of the market has been confused.
One moment the group is unveiling its Java concept model - a car aimed squarely at the territory occupied by the Golf and perhaps Polo. The next it is denying it has any interest in venturing alone into this hugely competitive segment, where volumes need to be huge but margins are wafer thin and profits often non-existent. Perhaps this is born out of past experience. The launch of the A-class was undermined by the car's habit of keeling over on bends, doing immense damage to Mercedes' reputation for quality, and its town runaround, the Smart car, is reckoned to have lost DaimlerChrysler 500m euros last year. The consensus is that if DaimlerChrysler is serious about small cars it will have to merge with another manufacturer.
Most observers believe the neatest fit in Asia would be Honda. But the company is financially robust and is not for sale. In any case, Honda has already experimented with a European alliance in its shareholding in Rover, a relationship which ended in acrimony and divorce. Mitsubishi is a more likely option, even if it is second best. Professor Rhys also believes it would be foolish for DaimlerChrysler to get into bed with Peugeot. But if the talks with Mitsubishi fail and it is intent on finding a partner in Europe, he says: "Fiat could offer some delicious possibilities in terms of joint ownership of Lancia and Alfa Romeo. They do make smaller cars, they are well-known brands in Europe and it would provide a channel into other markets."
Guessing which other motor manufacturer DaimlerChrysler plans to merge with may be an entertaining parlour game. But the first merger it has to pull off is that of DaimlerChrysler Aerospace (Dasa) with Aerospatiale Matra of France and Spain's Casa to create the European Aeronautics Defence and Space company (EADS). The merger would be followed by a flotation of the company which will hold an 80 per cent stake in the European aircraft manufacturer Airbus. But BAe Systems holds the remaining 20 per cent of Airbus and without its agreement, EADS cannot fix a value on its share of the consortium or move ahead to convert Airbus to an integrated company with shareholders and a conventional balance sheet, as opposed to industrial partners.
Progress of sorts was made a fortnight ago when all the Airbus partners finally swapped valuations of their respective assets. For political reasons, BAe's share of Airbus needs to stay at 20 per cent, but BAe believes it is due a substantial cash payment to reflect the higher value of its assets. EADS thinks if any money needs to change hands, it should flow in the direction of Europe.
Mr Schrempp is left with his bombed-out share price. In an attempt to sprinkle internet stardust on the stock, DaimlerChrysler has teamed up with General Motors, Ford and now Renault to launch a joint e-business venture, bringing component purchasing online. With 30,000 suppliers among them and a combined component bill of $230bn, the scope for savings is clearly large - perhaps as much as $1,000 a car. The partners also intend to expand this "virtual marketplace" to encompass other industries.
So far, the initiative has failed to boost DaimlerChrysler's stock. Nor did yesterday's news from Japan about a possible marriage with Mitsubishi. Mr Schrempp may now be on his own in the driving seat. But, as he is discovering, that can be a lonely place.
fact file
Market Capitalisation: 66.4bn euros
Turnover: 150bn euros in 1999
Pre-tax profits: 6.23bn euros (pre-exceptionals, year to 31 Dec, 1999)
Main businesses: Cars, trucks, aerospace, engines, rail systems, financial services. Brands include Mercedes-Benz, Jeep, Dodge, Plymouth, Smart car, Freightliner, Thomas Built Buses, Adtranz and MTU. Car and truck sales in 1999 were 4.9 million units. Aerospace includes Airbus, Eurofighter, Eurocopter and Ariane space launcher
Key executives: Joint chairmen Jurgen Schrempp, Robert Eaton (retires, 31 March); Manfred Gentz, finance; Manfred Bischoff, aerospace; Jurgen Hubbert, Mercedes Benz cars; James Holden, Chrysler group; Dieter Zetsche, commercial vehicles.
Employees: 466,900
a drive through the history of daimler chrysler
1886: Karl Benz builds world's first car in Mannheim, Germany, a three-wheeled, petrol-engined vehicle road tested by his wife
1899: Emil Jellinek, an Austrian entrepreneur buys 36 Benz cars, and wins the Tour de Nice in one, named after his daughter Mercedes
1902: Benz obtains the legal right to use the name Mercedes on his cars
1920: Walter Chrysler hired to rescue Maxwell Motor Car Company from receivership. Names the company after himself in 1925
1923: Gotlieb Daimler registers three-pointed star as his car company's official trademark
1926: Daimler and Benz merge to create Daimler-Benz though their founders are dead and never met
1928: Chrysler acquires Dodge and introduces Plymouth range
1939: Daimler-Benz factories turned over to military production
1958: Daimler-Benz buys Audi (subsequently sold to Volkswagen in 1966)
1978: Facing bankruptcy, Chrysler gets $1.5bn loan guarantee from US Government. Chief executive is ex-Ford president, Lee Iacocca
1980s: Daimler-Benz expands into aerospace, heavy trucks, buying Freightliner
1992: Iacocca steps down and is replaced by Bob Eaton, head of General Motors, Europe
1995: Daimler-Benz records DM3bn loss, biggest in German corporate history. Forms Adtranz train manufacturing firm with Asea Brown Boveri. Jurgen Schrempp is chairman
1996 - 1997: Chrysler sells aerospace and defence interests and Pentastar Electronics
1998: Daimler-Benz buys Chrysler Corporation for $37bn, creating DaimlerChrysler, world's fifth largest carmaker. Eaton and Schrempp co-chairmen
1999: DaimlerChrysler merges aerospace business with Aerospatiale Matra of France and Casa of Spain to create European Aeronautics Defence and Space Company, world's third biggest aerospace firm
2000: Eaton to leave a year early
The Independent - London
March 8, 2000
Michael Harrison