Cigar in hand, Jurgen Schrempp last spring was maintaining what had become a ritual on his regular visits to New York City--holding court at the St. Regis Hotel's King Cole Bar with a cluster of DaimlerChrysler's top executives. When an old business acquaintance wandered over to wish him well, Schrempp responded expansively with introductions to "my management board." The acquaintance shook all hands and then said with a chuckle, "But Jurgen, where are the Americans?"
Then they were out of sight. Now they are out of jobs. Although the deal that brought Daimler Benz and Chrysler together two years ago was presented as a grand "merger of equals," Schrempp never had any intention of letting Americans run Daimler. This month the DaimlerChrysler chairman decided they couldn't run Chrysler either. Schrempp fired Chrysler president James Holden and brought in a Mercedes veteran, Dieter Zetsche, after it was announced that the U.S. automaker had lost $512 million in the third quarter, its first loss since 1991--and, by all accounts, the first of several to come. Zetsche arrived with his own German chief operating officer in tow and, on his first day at work last Monday, promptly canned three more Chrysler execs. That brought to more than a dozen the number of top managers who have retired, quit or been fired since the merger. "We used to be the best show in town," bemoans a longtime Chrysler hand who still has his job.
The troubled merger is a story of miscalculation--by Schrempp, who realized too late that he had bought a company that had already peaked, and by Chrysler's executives, who failed to adjust to the sea changes of an increasingly competitive American auto market. It also points to the troubles that accompany big transnational mergers--and Schrempp has a number of them going at the moment.
Having faced bankruptcy roughly once a decade for the past half-century, Chrysler is no stranger to market adversity. But this time around, the merger really threw the team off its game. As the entire auto industry braces for a slowdown (General Motors and Ford are warning of sales declines beginning this month and into next year), Schrempp and his new Chrysler team are struggling to come up with a rescue plan.
Chrysler's woes are extensive. After owning the minivan market and a good chunk of the ever popular sport-utility business for a decade, the automaker has watched its market share get sucked away in the past year by competition. Instead of offering fresh new product, Chrysler rolled out an "all new" minivan that looks a lot like the old one, with expensive frills like power doors. Overproduction has forced the company to offer incentives of up to $4,000, tempting a loss on every sale. Chrysler even bungled its hottest product. There wasn't enough production capacity to meet demand for the wildly successful PT Cruiser, a hybrid retro minivan/station wagon. So even as auto-industry sales surged to a historic high last summer, Chrysler was beginning to hemorrhage red ink.