In the year before its merger with Daimler-Benz, Chrysler was the most profitable auto company in the world. But a series of missteps by executives on both sides of the Atlantic has turned the merged DaimlerChrysler's U.S. operations into a cash vacuum. Now the company has tapped two longtime Daimler executives to come clean up the mess. They're going to have a tough time keeping morale up among U.S. employees, who now realize their boss is 4,000 miles away.
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Thus ends any notion that the vaunted "merger of equals" between the U.S. company and the German one was actually that, though the fact that the company's 12-seat board of directors includes only two Americans should have been a clue.
Wolfgang Bernhard and Dieter Zetsche will be assuming the roles of COO and CEO, respectively, of DaimlerChrysler's U.S. unit. They are expected to bring Chrysler's spiraling operating costs into line through cost-cutting measures that may include layoffs. (According to reports, they have already begun removing U.S. execs and a worldwide televised address to employees was planned for today.)
Chrysler's already-flagging employee morale drooped further as it became clear that the once-proud American car company's absorption into a foreign entity is now complete. The very things that made Chrysler a great company are now anathema to its German partners. The culture clash may very well be what has triggered the dramatic reversal of fortunes: Where Chrysler had become the American car company most willing to take entrepreneurial risks, Daimler-Benz brought to the table engineering excellence and a culture of strict hierarchy.
Still, the mix of products between the two companies was so fitting that there was at least some belief that the cultures would morph into something ultimately more powerful.
But American market conditions have worsened significantly even as the two companies struggled to combine. And the losses attributable to Chrysler have now severely impacted the parent company's bottom line, with earnings for the fourth quarter of 2000 now expected to be $0.79 per share, as compared to $1.60 last year. Certainly the weakening Euro, the home currency for DaimlerChrysler, does not help the company's comparable earnings, but climbing costs at Chrysler have nevertheless taken a huge divot out of the bottom line.
Enough problems to go around
Recriminations are going to come from both sides of the Atlantic, and it's fairly clear that there is enough blame to go around. Recently, Chrysler has had a knack for snatching defeat from the jaws of victory: Even its critically and commercially acclaimed PT Cruiser has caused problems as the company failed to anticipate demand for the $17,000 car. Additionally, Chrysler has had significant competition in its profitable truck divisions, as Toyota (NYSE: TM) has released competent large pickup trucks and Honda's (NYSE: HMC) minivan division has made large gains.
In light of the announcements from last week, the company's stock lost more than 10%. Investors likely want to see gains in Chrysler's top and bottom lines, meaning that the company must realize more competitive lines and at the same time maintain prices and control costs in order to turn things around. Given the fact that the process of bringing new vehicles to market is measured in years rather than months or days, this could be a while in coming.
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