Tuesday, May 15, 2007

Who Needs Chrysler Anyway?

News that Daimler was getting rid of Chrysler drove Daimler share prices up briefly. And commentators in Germany agree: Daimler is much better off without its sick, American cousin.

Will Daimler be better off without Chrysler?

Will Daimler be better off without Chrysler?

In 1998, when Daimler-Benz merged with Chrysler, then Daimler boss Jürgen Schrempp described it as a "marriage made in heaven." Fitting, then, that the divorce comes via the sale of Chrysler to a company named after the three-headed guardian of the Underworld.

Cerberus, a private equity firm, picked up the ailing American carmaker for €5.5 billion ($7.4 billion) in a deal announced on Tuesday. But the sale will actually ending up costing the German car giant Daimler hundreds of millions of dollars -- Cerberus insisted that Chrysler be debt free before the deal could go through. Daimler will maintain a 19.9 percent ownership share and the two companies will continue working together on several joint projects.

The sale was long expected and DaimlerChrysler spent the last two months weighing a number of offers for Chrysler, which lost €1.12 billion in 2006. The company is also going through a painful restructuring which will see 13,000 jobs cut by 2009 -- a far cry from the euphoria nine years ago when Daimler-Benz bought Chrysler for €27 billion with the intention of building a global carmaker. German commentators on Tuesday pick up the pieces.

Center-left Süddeutsche Zeitung, in an editorial entitled "The Daimler Debacle," writes:

"Schrempp thought he was one of the greatest; he thought he could rule the global market. In reality, he built his business on the backs of employees, customers and shareholders and, in the end, lost many billions of euros. The one-time star manager has failed dramatically on the global stage."

Photo Gallery: The DaimlerChrysler Saga

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"A number of questions remain open: What does Cerberus have planned for Chrysler in the mid term? Will the sale still be seen in a positive light down the road? Will the company be stripped only later? Will the finance acrobats juggle Chrysler only until an automaker from China or India decides -- and can afford -- to use the company as a springboard into the US market?"

"Chrysler ... will continue to build cars. For decades, the company has lived from gas guzzling pick-ups, minivans and SUVs. Now, the company's hopes depend on 34 new small and fuel-efficient models. Chrysler hopes the new products will help it win back customers from Asian competitors. After all, the sale of Chrysler doesn't solve the America carmaker's fundamental problem: Too few people want to drive a Chrysler."

Conservative daily Die Welt on Tuesday takes a look at the dream Daimler had of creating an automaker that reached across the globe:

"Those who now say that global companies can't work, ignore reality. In almost every branch, there are successful companies that have realized such a vision. Daimler, on the other hand, can be pointed to as an example as to why, when measured in stock value, none of the German industry icons are among the 20 largest in the world.... When it comes to large takeovers and fusions, Daimler has regularly made mistakes and hasn't been able to solve the resulting crises."

Center-right Frankfurter Allgemeine Zeitung celebrates the break-up as an opportunity for Daimler to return to success

"With the sale of Chrysler, an American mass-producer, which could never do justice to Mercedes' reputation for quality, disappears from the company name. With the sale ... Zetsche has freed the high-quality carmaker from the significant burden of paying for the healthcare and pension costs of US employees."

"Daimler is worth more without Chrysler. Nobody can calculate how much Schrempp's vision of a global company ended up costing stockholders.... Now, freed from Chrysler, Daimler will be able to demonstrate just how strong the German brand is. Premium vehicles from Mercedes are a synonym the world over for 'Made in Germany.' And even though the American and Asian adventure cost Daimler a lot of energy and money, Mercedes is healthier today than ever before. ... Hardly any other company could have withstood such a 20-year strategic odyssey only to find itself again in relatively good shape."

Financial daily Handelsblatt takes umbrage with the idea that Chrysler somehow caused the fusion's failure and points to Daimler management's own shortcomings:

"Business decisions, and especially fundamental philosophical shift, are always risky. One can't just point to Schrempp's failures. One could also point to the fact that DaimlerChrysler, for years, was a prime example of bad corporate governance. Schrempp, his chairman of the board Hilmar Kopper, and workers' council head Erich Klemm spent long stretches managing the company like little princes and paid hardly any attention to management and board recommendations. Without this trio, a lot would have played out differently, and better. Only if Daimler in the future follows the rules of good management, takes its own management board seriously, and doesn't fill its board with yes-men, will the company perhaps be able to avoid further losses."

Finally, the Financial Times Deutschland takes a look to the possible future of Chrysler, and is not optimistic about what it sees:

"Given the ongoing weakness of the American automobile market, Cerberus would be advised to make its strategy for Chrysler public as quickly as possible. The first step will likely be drastic cost-cutting measures.... Even if Cerberus head John Snow on Monday danced around the topic, Chrysler is facing dramatic job cuts -- the company's production capacity must be reduced to match Chrysler's shrunken importance in the auto industry.... For a private equity firm with few connections in the industry, cutting costs is pretty much the only tool available to show success in the short term. In a couple of years, Chrysler, from the point of view of Cerberus, must have regained its stock-market health and bring in more than the €5.5 billion investment -- hard to imagine from today's perspective. Ongoing turnover problems show that the market simply doesn't need Chrysler -- and outside of America, the brands Chrysler, Dodge and Jeep don't have a role to play anyway.

-- Charles Hawley, 1:15 p.m. CET

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