DaimlerChrysler AG's North American arm was seen as the problem area last month when the German company reported unimpressive financial results.
But DaimlerChrysler executives have acknowledged the company's struggles run much deeper than slipping profits in the United States.
Over the past couple of months, Chairman Jurgen Schrempp has dramatically reshaped the company, shedding billions of dollars of non-profitable businesses.
Most of that money will be reinvested in new programs for small cars and commercial vehicles as DaimlerChrysler concentrates on its core automotive business.
The revamping begins with Mitsubishi.
'We have decided to create an alliance council [with Mitsubishi] that will start on small cars. We are now going through every segment of the market and we will see what can we do now in terms of using sales networking by Chrysler for Mitsubishi and issues like that,' Schrempp said.
The Chrysler group still accounts for more than 40 percent of the company's revenues, so the company is working to restore the robust profits of recent years. But the short-term outlook is sobering.
First-half numbers show revenue of the entire company climbing 17 percent to $80.85 billion. But operating profits of $4.85 billion were nearly identical to the first half of 1999. And the rest of the year is going to be 'rough,' Schrempp said, with operating profits falling below those of 1999.
To deliver more profit, the company is cutting costs.
While the North American arm spent a total of $2.46 billion on marketing in the first quarter, it cut that down to $2.1 billion in the second quarter.
The cost of launching new vehicles is also being pared back, with flexible manufacturing processes in place that will cut up to $3 billion from new-vehicle launches through 2004.
But no part of the company is immune to cuts. For example, the ratio of workers to units produced at Mercedes-Benz is 9 to 100. At the Chrysler group, that ratio is 4 to 100. Even personnel levels at the company's Stuttgart headquarters are under close scrutiny, Schrempp said.
In recent months, DaimlerChrysler has discarded non-core businesses.
It sold a controlling stake in its Debis Systemhaus information technology business to Deutsche Telekom for $5 billion. The division accounted for less than 2 percent of the company's 1999 revenue, but keeping it competitive would have required enormous investments.
It also spun off its aerospace division, Dasa. That spin-off allows DaimlerChrysler to save at least $2 billion per year in research and development costs. Although 1999 revenue was up for the division compared to 1998, incoming orders were down and the business was seen as too volatile.
The company then spent about $2.4 billion buying or tying up with companies that build cars, trucks and engines. The purchases are aimed at filling gaps in DaimlerChrysler's lineup.
With a 34 percent stake in Mitsubishi, worth $1.95 billion, a new family of small cars is now under development, Schrempp said. Dubbed the 'Z-car' by engineers and product planners, the vehicle line, which will also incorporate Smart vehicles, will be built at the NedCar plant in the Netherlands. Z-cars will be marketed in Asia and Europe.
A $428 million equity stake in Korea's Hyundai Motor Co., will result in new commercial vehicles for Asia. It also gives DaimlerChrysler access to a formerly closed country and a sales network throughout the world.
Two new lines of medium-duty commercial vehicles in North America are under development, bolstered by the purchase agreements signed last month of truck maker Western Star Trucks Holdings Ltd., and diesel engine maker Detroit Diesel Corp.
But the stock price has yet to show signs of life.
DaimlerChrysler shares have been in the low-$50 range, having given back about 25 percent of their value during the past year.
The company still faces plenty of difficulties.
The small-car markets in Asia are fiercely competitive. In Japan, for example, Toyota Motor Corp. holds nearly 39 percent of the market, compared to Mitsubishi's and DaimlerChrysler's combined 10.8 percent.
But strategies like the Z-car will give the company a foothold and bring it closer to a goal of garnering 25 percent of the company's revenue from Asia, Schrempp said. Just 3.2 percent of the company's 1999 revenue came from the region.
Schrempp is determined to see his company succeed.
'I prefer chief executives who get it right, not chief executives who disappear if there's a problem,' Schrempp said. 'I've done it the last five years with great success and I will continue to do so.'