DAIMLERCHRYSLER Chairman Jurgen Schrempp is under pressure. While portraying himself as a champion of shareholder value, the company's stock price has more than halved since the November 1998 merger.
The big problem has been at the former Chrysler Corp. in North America. Incentives and a lull in new products led to a E618 million operating loss in the third quarter.
He responded to the problems in North America last week by firing Chrysler Group CEO James Holden.
D/C must also bring struggling Mitsubishi Motors into the group and turn it around.
Schrempp says he will lead a push to increase the share price next year by spending a quarter of his time telling DaimlerChrysler's story to analysts and investors.
Richard Johnson and Dorothee Ostle of Automotive News Europe interviewed Schrempp in Stuttgart on October 25, two weeks before Holden was dismissed.
How is business?
Things are OK. Obviously we have a Chrysler challenge. The reasons you know - product changes. We are working on the future products. There was a misunderstanding in the press on the other side of the Atlantic that we are cutting models or delaying models. We are not doing that.
What we try to do is get these product cycles harmonized. But all the products planned for Chrysler obviously will come.
We are looking at cost and efficiencies and things like that. We have the incentive game in the USA and in Europe. Chrysler is still on average below the incentives provided by GM and Ford.
In July Chrysler tried to reduce the incentives a little bit, hoping that others would follow, which didn't happen. So they had an increase in inventory.
Inventory is down now, fortunately. The shortest pipeline now might be down to 26 days, which is lower than GM and Ford. So that is under control and obviously as products come on line, new products carry much lower incentives.
Chrysler is a challenge, yes, but I like challenges.
Does you foresee a weak US market next year?
We anticipate that the market in the US, which I think this year will be about 18 million, will drop slightly. So we have to anticipate a continuous highly competitive situation with an advantage on our side in that we're now bringing new products.
Is the Chrysler challenge simply these two factors, incentives and a lull in new products, or do the problems run deeper than that? Are there other things you have to fix at Chrysler?
No, obviously it's the market. And as a result of the tough market the incentive game. Then there is the accumulation of many new products coming on line. You have extra cost when you replace a vehicle.
As it was planned, there are five new ones within a span of 12 months. This is quite a lot. So you have the burden of shutting down plants and running down products. In the USA you announce a new product very early. You have to try to sell the vehicles being phased out, which means higher incentives.
You also have additional expense of running the inventory down, because to finance an inventory of 80 days or 86 days, which at some times we had, is quite a burden. It costs you a lot of money. And we are now down to 26, which is very good.
How will you avoid this kind of new-product scenario in the future? You said you won't delay Chrysler models?
I've just spoken to [Chrysler Group CEO] Jim Holden and for the products we will bring out over the next five years we are looking at a better way to phase out predecessor models.
Why don't the financial markets understand what you are saying about synergies of the merger?
I think they want proof. They've heard it not only from us. Basically every joint venture and every merger is to a large extent argued on synergies. The market will want to see proof and they will see it as we go along already in 2000.
And people are a bit cautious when you have paper presentations and you say, 'Half a billion here, half a billion there.' I'm quite optimistic that in 2001 we will be able with hardware, with every bit, to convey the message as we go.
If you look at the savings it's staggering. And this is only Mercedes and Chrysler. Now we obviously have a whole team working on the third leg, Mitsubishi. There are tremendous opportunities there.
I'm excited about the company. Everything that we have said about the merger, even in terms of first-year synergies - the money is there.
We hear noises from the suppliers that we're pushing too hard. Yes, we do, but we're doing it on the basis of partnership. On the basis of saying, 'Look, this is a tough market. We're in the incentive game, which means you are in the incentive game, because we're partners for life.'
You're not concerned about endangering the excellent relations that Chrysler has had with its suppliers?
Chrysler is doing that - it is the Americans [putting on the pressure]. Nobody is coming from here with a whip and saying you must do it differently. It's Jim Holden's team and [Chrysler purchasing chief Tom] Sidlik and these guys. All they are doing is going to suppliers and saying, 'OK fine, this is the market, this is the incentives, and now everyone of us has to chip in - and you have to chip in as well.'
You're totally supportive of Jim Holden and the job he's doing running Chrysler?
Absolutely, he's a great guy as a chief executive and he's a great guy as a partner and colleague and friend around the board. I'm not happy about the results, but I'm happy about the way he builds his team.
I'm very happy that were able to keep Tom Gale on board for another two years when he wanted to go with his yacht somewhere. And we have selected two [executives to replace Gale] like we have it here in Germany, where engineering and design are separate. Tom Gale had both responsibilities. Now we have [Chrysler product development boss Richard] Schaum and [chief designer] Trevor Creed reporting to Holden.
Jim Donlon, the DaimlerChrysler corporate controller who had moved to Stuttgart from Auburn Hills two years ago, recently moved back to Chrysler in America. It appears he has a very crucial job in terms of getting costs down over there?
Yes, but he is at an advantage because he walks in there and knows every nut and every bolt. He is the guy. Occasionally some people here on this side of the Atlantic were a bit concerned - not concerned - a bit surprised with his strict approach to matters. I asked the American side and they say he is not a very comfortable guy. He comes to the point. He is adamant. You must have very good arguments with him not to do something. So the advantage for us is here is a guy with the knowledge of the group. He has seen everything -Mercedes, the truck division, he knows how they operate. He is absolutely ideal.
Jim Holden said, 'Jurgen, do me a favor: I need him.'
You talked about the opportunities of Mitsubishi, but what about the risks. And what about the risks of Hyundai?
After almost 40 years in the company I've seen a lot of ups and downs. I've been involved in a few things. I was part of the team solving the A-class problem - that was a major crisis. I know how to approach things. The maximum risk - but it is highly theoretical - would be that we lose the money that we paid for the 34 percent stake.
But nobody would ever tell me that the stock price would drop to zero. This is out of the question.
So we have the risk that for a while, because of investments, or the markets not coming back, we're not getting dividends for our 34 percent that fast. I think that is a risk we can take on the basis of the strength of this company.
One reason why we bought only 34 percent was that we didn't want to consolidate Mitsubishi on our balance sheet.
Asia is 25 percent of the world GDP [gross domestic product]. I can assure you that 10 years from now it will be 30 percent. There's no doubt. But we have presently in Asia only 2 or 3 percent of our revenues.
People occasionally tell me, 'OK, Schrempp, you're not the youngest anymore, you could have a fantastic time if you would not do those deals.'
But just imagine not doing it and somebody comes back to me in 10 years - and 10 years is nothing - turning around and we still have 3 or 4 percent. Those markets would be growing 8 or 9 percent, while this market is growing 2 or 3 percent at the most.
At Hyundai the risks are basically zero, because we've gone in with 10 percent. Hyundai is one of the most profitable automotive companies. There is no restructuring to be done. There are no additional costs, there is no management problem. We are investing in a profitable company with a market share in Korea of 70 percent.
But why do you need Hyundai?
Korea is the second-largest market in Asia on the car side. And we need that market. And the best way to get in that market is with a partner and on a basically zero-risk basis. So what's my risk?
On the truck side we are the largest commercial vehicles manufacturer in the world, but with no real presence in Asia. So it was vital for us to get it.
Will you send more people to Mitsubishi?
The new chief operating officer [Rolf Eckrodt] is unwinding [Adtranz, D/C's rail equipment division that is being sold] in Berlin. He is in the loop. He [and Mitsubishi executives] have identified the posts together and we have a list of 40 or 50 candidates.
At what level will these people go in?
We are talking about the two or three levels under the board. We are talking about senior people.
Is the way that Nissan has been handled by Renault any kind of model for how you want to handle Mitsubishi?
We have an advantage because [Nissan President Carlos] Ghosn has been a bit of an icebreaker. We are obviously studying what is happening there. I have a feeling that Ghosn is doing a good job.
Will DaimlerChrysler take actions similar to the tough measures taken by Renault to fix Nissan?
Certain things - not all things. But you will appreciate it is politically easier to do it once the ice is broken. The two companies [Nissan and Mitsubishi] are different. Their strengths and weaknesses are different. We might have to fill posts in different areas, but the principle will be the same.
Other than allowing things to take their course in North America with new products et cetera, are there any other short-term measures you can take to improve the share price?
What comes to mind is a share buyback. We got permission under German law at the last shareholder meeting. We can do it and we might - at the right time.
The other thing is that we will extensively go out. We employed a lady from London [Elizabeth Wade] to run our investor relations.
I have so many prizes in my office for investor relations work. We get prizes for being open, for providing numbers, for fast response. But I have not received the prize for excitement, for fire, for marketing. So I told [Wade] that we have to go out - I have to go out - particularly in 2001.
I will spend at least 25 percent of my time in the investor community with analysts to convey and document our story.
My American colleagues do it, but nobody in Europe does it that way. I've talked to a number of my peers at American companies and I asked them, 'What are you doing in Wall Street? How much time do you spend? How do you approach that?' Those guys, two or three times a year, go on shows for a week or for two weeks. At least I want to try it.
If you're going to spend 25 percent next year, how much time do you spend talking to analysts now?
This year we had our typical sessions in New York when we saw analysts and we saw investors and we have analysts' conferences or analysts' conference calls. That I have done.
I still believe one of the deficiencies we have presently is that we are not getting the full message across.
But I'm not so despondent about what has happened.
What amazed me was in 1999 our results in net income and in operating profit were the best in the world. Yet our stock in 1999 dropped by 30 percent. So it is not only immediate financial results, it is obviously perspective - and we have a tremendous story to tell.
How much time do you think you have to get that message across until your shareholders get unpleasant?
I have a good situation for a German chief executive in that I not only have the German supervisory board, but I have a shareholder committee, where we talk business like an American board. They are very convinced that what we're doing is perfect, what we are doing is excellent and I have no doubt that our stock will appreciate considerably over time - as long as what we're doing is the right thing. We must not try to manipulate the market in the short term.
Are you considering any other radical measures, such as spinning off Chrysler?
That would be the ultimate in stupidity. Either we want to be the No. 1 automotive company or we don't. The most successful company in the automotive industry will have to cover all potential markets. Why should I undo something because of a short-term problem?
Do you see Mercedes Benz brand entering new segments - below the A-class, above A-class, below C-class?
Not below A-class. Anything that is above A-class, if there's some niche open, we would do. But we cannot see any niches open at the moment.
What about the off-roader segment?
We are in the off-roader segment.
Sure, but aren't you very close to Jeep and aren't you moving even closer to Jeep?
Jeep is positioned differently than, for example, the M-class or the G-Wagen. This is the kind of thing we discuss in the automotive council and on the board: How do we position replacements when the replacements are due? Do we try to get them a bit further apart? Sometimes, not in this case, but sometimes you might want to place two vehicles basically in the same segment - one at the low-cost end, with less technology. And you place in the same segment one, obviously with a much higher price, with the latest technology.
Are you happy with the sales performance and profitability of the A-class?
I'm very happy. The A-class is now profitable, we just celebrated 500,000 A-classes. Who would have thought that when we were in the midst of the crisis? Only me and Jurgen Hubbert were convinced that we got it right.
And we are obviously working very hard on the successor of the A-class. We will introduce a number of interesting features, making that car for that particular segment even more interesting.
So is the car profitable?
The A-class is profitable. We are not yet profitable - but we're moving in the right direction - with the Smart.
The real breakthrough for the Smart will happen in 2003 or 2004, when we bring the four-seater Smart on line. Then we'll have a whole range.
Initially I think one of the mistakes was that they originally wanted to have an exclusive dealer organization with one product, with a volume of 100,000 annually. That concept was changed. It's still separated, but it's now part of a powerful organization.
Do you need more Mercedes-Benz capacity in Europe?
We are running everywhere to full capacity. We have extra shifts and things like that, but despite this good situation I would at this stage be very hesitant to add more capacity. We will add more capacity now with the four-seat Smart in Holland [at the NedCar plant], but on our traditional lines - no.