Monday, July 2, 2007

After building DaimlerChrysler Financial, it's time to blow it up

Exec must undo combo he spent years creating
Brent Snavely
Automotive News
July 2, 2007 - 12:01 am

DETROIT -- After spending the better part of a decade combining the financial service arms of Mercedes, Freightliner and Chrysler into one company, Klaus Entenmann now must pull the companies apart.

It won't be easy.

Entenmann, CEO of DaimlerChrysler Financial Services Americas LLC, says Mercedes-Benz Financial and Chrysler Financial are especially interwoven. In the United States, Mercedes serves about 340 dealerships and Chrysler serves about 4,000.

Globally, the purchase of about one in three DaimlerChrysler vehicles, including commercial trucks, has been conducted through the financial arm, says spokesman Jack Ferry.

Entenmann says the biggest challenge is to separate the two captives' information technology functions, which had been merged.

"It's possible, but it takes a lot of effort to really make the separation happen and to make two companies stand alone again," he says.

Moving workers

In August, DaimlerChrysler Financial Services plans to begin moving about 400 people out of its current headquarters in suburban Detroit to another office nearby. About 800 people who work for Chrysler Financial will stay in the current location.

The split became inevitable in May when DaimlerChrysler agreed to sell a majority interest in Chrysler and Chrysler Financial for $7.4 billion to Cerberus Capital Management LP. That transaction is expected to close during the third quarter.

During the negotiations, Chrysler Financial was widely viewed as Chrysler's best asset. It was valued at $6 billion by Morgan Stanley analyst Adam Jonas in a research report in April.

"I think that Chrysler Financial was the reason Cerberus bought this company," says a person familiar with the negotiations.

DaimlerChrysler Financial declined to comment on speculation that Cerberus, which also owns 51 percent of GMAC Financial Services, would combine the two entities.

But Paul Knauss, who has been selected to become CEO of Chrysler Financial, told Automotive News in May that a merger with GMAC is unlikely.

Splitting up
DaimlerChrysler Financial Services and Chrysler Financial are splitting up because of the pending acquisition of Chrysler by Cerberus. The company boasts a combined global loan and financing portfolio of about $150 billion. In North and South America, the portfolio breaks out like this:
  • Chrysler Financial: $73.5 billion
  • Mercedes-Benz Financial: $19.1 billion
  • DaimlerChrysler Truck Financial: $9.9 billion
  • Other: $200 million
Total Americas: $102.7 billion
Source: DaimlerChrysler Financial Services Americas

Klaus Entenmann: "It's possible, but it takes a lot of effort to really make the separation happen."
Dealer, customer services

DaimlerChrysler Financial Services Americas provides inventory financing to dealers as well as loans and lease financing to retail customers.

In North and South America, the company manages a portfolio of $102.7 billion and consists of Chrysler Financial, Mercedes-Benz Financial and DaimlerChrysler Truck Financial. The truck financial arm supports Freightliner LLC, DaimlerChrysler's commercial truck division.

Chrysler Financial, with a $73.5 billion loan portfolio, is the largest division.

Entenmann says DaimlerChrysler Financial Services decided to stay in suburban Detroit to prevent a loss of employees.

"It was crucial for us that we do not lose any talent. And if we would move outside of the state we would lose a lot of the talent," Entenmann says. "Also, we need to hire people. And based on the economic situation you can find talent, I would say, as easy or easier than in other states."

Entenmann says separating the companies' information technology systems will be the most daunting part of the split.

"It will take a few months to make this happen," he says.

"I would say it's an emotional challenge because we put something together which was very successful," Entenmann added. "You have a lot of business friends in the company and you are going now in two directions that are also impacting some of work relationships and friendships."

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