It's starting to crumble
The Detroit News.
DaimlerChrysler: Shake-up at the top
How Chrysler lost American leaders
Holden ouster shows DaimlerChrysler woes are more serious than thought
By Daniel Howes / The Detroit News
FRANKFURT, Germany -- The ouster of Chrysler Group President James P. Holden, expected to be made official Friday, may have been one of the few options left for Juergen Schrempp.
With the celebrated merger that created DaimlerChrysler AG steadily unraveling amid losses in North America and executive defections, the decision by Schrempp, DaimlerChrysler's chairman, to make Dieter Zetsche Chrysler's third boss in two years signals Chrysler's troubles are far more serious than thought.
Internal estimates show the Auburn Hills-based automaker is on track to post losses of hundreds of millions next year, if not more, contradicting recent public statements. And orders from dealers have slowed to such a point that more production shutdowns may be ordered by year-end. To compensate, Chrysler has asked employees to order new company cars and return their leased ones by the end of the year.
Whatever the fallout turns out to be, the ouster of Holden marks the end of an era for the former Chrysler Corp., long known as the nation's scrappy No. 3 automaker. Holden is the last member of the celebrated senior management team credited with turning Chrysler into the nation's most innovative and profitable automaker in the 1990s.
The Chrysler shake-up also highlights an emerging worldwide corporate trend: Top executives unable to produce will be promptly given a pink slip. Holden joins the ranks of such corporate hotshots as Lucent Technologies Corp.'s Rich McGinn and Maytag Corp.'s Lloyd Ward as executives dumped by a board impatient with the pace of a turnaround plan.
Chrysler's executive reorganization "seems like an absolute move of desperation," said Christian Breitsprecher, auto analyst with Deutsche Bank in Frankfurt. "Kicking out one guy and putting in a guy who doesn't really know the volume car business -- I don't know what kind of credibility he will have."
To the worried company executives in Stuttgart, the move is a bid to bring decisiveness and action to a deteriorating situation that already has pulled down the fortunes of a global automaker. To Chrysler's 125,000 employees, many of them stunned Tuesday by news of Holden's fate, the decision may be a recipe for poor morale, dissension and an accelerating flight of human talent.
When DaimlerChrysler's governing supervisory board meets Friday in Stuttgart, the board is expected to name Zetsche to replace Holden, effective immediately. Zetsche likely will be replaced by Eckhard Cordes as head of the automaker's commercial truck unit.
The positions of Chrysler veterans Gary Valade, head of global purchasing for DaimlerChrysler, and Thomas Sidlik on the company's management board are expected to remain intact. That would leave just two members from the former Chrysler on the management board, once the planned retirement of design chief Thomas Gale is effective at the end of the year.
Company officials in Stuttgart and Auburn Hills declined to comment beyond confirming that a supervisory board meeting is scheduled for Friday. But officials at both headquarters privately confirmed the coming executive changes.
The installation of Zetsche effectively dispels any pretense that the Chrysler unit is anything other than the North American unit of DaimlerChrysler.
Profit pressure
The decision to trade Holden for Zetsche culminated a series of disappointments for Schrempp, who is under increasing pressure from analysts, investors and even key members of the supervisory board to reverse the earnings slide at Chrysler, as well as eroding profits in other areas of the company.
New questions about the wisdom of DaimlerChrysler taking a 34-percent stake in Mitsubishi Motors Corp. emerged this week as the Japanese automaker posted widening losses for the first half of this fiscal year.
The North American market for commercial trucks is sliding, highlighting the larger role Zetsche's commercial truck unit plays in a DaimlerChrysler now shorn of its interests in aerospace, telecommunications, information technology and railroad equipment. Even profit growth at the hallowed Mercedes-Benz is slowing despite a booming luxury car market, higher sales of the top-of-the-line S-Class and a new compact C-Class.
Chrysler posted a $512-million operating loss for the third quarter and vowed to return to profitability in the final three months of this year. Analysts expect the Auburn Hills automaker to make just $100 million in the fourth quarter, though increasing pressure to raise costly incentives in the hot U.S. car market could well erase already small profits.
Holden's job was to reverse the trend. His call to cut $2 billion in costs from Chrysler this year fell far short. His ouster was greeted with apathy by DaimlerChrysler investors, who drove the automaker's stock price up just one cent on Tuesday to $46.40.
The decision to stockpile old-model minivans during the launch of the new model earlier this year left Chrysler with far more vehicles than it could sell without slapping $4,000 incentives on each one.
The see-sawing incentives during the second and third-quarters cost Chrysler dearly. Then came an unexpected decision in late October, announced the day after third-quarter earnings, to shut down seven assembly plants for one week. Holden told Schrempp about that move only after an industry analyst asked Schrempp about it.
'Record flame-out'
The end came over dinner Sunday at DaimlerChrysler's headquarters in the Stuttgart suburb of Moehringen. When it was over, Holden was facing the prospect of being the last American president of the automaker founded by Walter P. Chrysler in 1925.
A similar thing had happened only 15 months before to his former colleague, Tom Stallkamp. Instead of Schrempp, however, Stallkamp was given the ax by former Chrysler Chairman Robert Eaton, the same man who had promoted Stallkamp to be president -- and his heir apparent -- just five months before word of the DaimlerChrysler deal was announced on a London stage.
Eaton chose Holden as Stallkamp's successor. But now Holden was out and on his way back to his hotel room at the Steigenberger Graf Zeppelin hotel, across the street from Stuttgart's main train station. The next day, he hopped a company plane back to Detroit and arrived home in time to have dinner with his family.
In just a few hours, Holden became the latest casualty of the merger crafted by Schrempp and Eaton. Six weeks earlier, at the Paris Motor Show, Holden had made a joke about the prospect of losing his job anytime soon.
"Twelve months as CEO of a world-class auto company and two bad quarters would be a record flame-out time. I've set some records in my time, but I don't intend to make that one."
But his standing within Schrempp's management board clearly was eroding. In late September, DaimlerChrysler was forced to issue a "profit warning" saying that Chrysler likely would post a third-quarter operating loss of $500 million. Four weeks later, Holden ordered a production shutdown to lower inventory levels, a move that he later confessed eroded his credibility in Stuttgart.
"The problems Chrysler is dealing with right now won't get fixed easily," said John Casesa, auto analyst for Merrill Lynch & Co. in New York. "Whoever the boss is will find it won't be a quick fix in one or two quarters."
Tough times ahead
The apparent end of the Holden era, however short-lived, likely will not mean the end of turmoil at Chrysler's Auburn Hills headquarters or its assembly plants in the United States, Canada and Latin America.
Schrempp's installation of Zetsche is a calculated risk. The appointment could encounter fierce resistance from Chrysler stalwarts angry that the widely touted "merger of equals" turned out to be no such thing, a plan Schrempp admitted to in a recent published interview.
The larger risk could have been to do nothing. Analysts and some company executives worry that making such an abrupt change amid the launch of the all-important minivan and cost-cutting campaign just getting under way could derail the efforts. Other questions loom, too:
* Will leaders of the United Auto Workers, particularly President Steve Yokich, express their disapproval at yet another shake-up by pressing grievances inside selected plants? Or could Yokich decide to resign from DaimlerChrysler's supervisory board in protest?
* Could political leaders attuned to leadership changes at Detroit's automakers lodge public protests with Schrempp? And if they did, would it matter?
* Will Chrysler's salaried workforce, already worried that an intensified cost-cutting campaign could culminate in layoffs, withhold support for yet another new chief executive, this one with no historical ties to Chrysler and imported from Stuttgart?
* Will Chrysler dealers, bloated with more cars and trucks on their lots than they can sell, use the forced departure of Holden as a pretext to slow further their orders from Chrysler assembly plants?
Some answers may come as early as next week, when Schrempp and Zetsche are likely to appear at Chrysler's Auburn Hills headquarters. Holden's imminent departure and the arrival of Zetsche, with his clear line of communication to Schrempp, ensures that Stuttgart no longer can distance itself from Chrysler's failures while taking credit for its successes.
"Schrempp is in charge of Chrysler now," said Breitsprecher of Deutsche Bank. "Now there are no more excuses.
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