We all like to party. Juergen Schrempp, CEO of DaimlerChrysler (NYSE:DCX), certainly did. But after 45 years working at the automaker, 10 of which he has spent as CEO, Schrempp has decided to end the party, three years before his contract terminates. Dieter Zetsche, who currently heads the American branch of the company, will succeed Schrempp as CEO.
Schrempp's resignation came on the eve of a U.S. Justice Department investigation into bribery allegations at the company and a mixed earnings report for its second quarter. Under Schrempp's hand, DaimlerChrysler's stock has declined by a third since the combined entity began trading in late 1998.
The Mercedes unit is one example of the company's troubles. In the fourth quarter of last year, Mercedes suffered a 97% drop in operating profit. And this past spring, 1.3 million Mercedes cars were recalled because of mechanical malfunctions, a problem that led Mercedes to post its first quarterly loss in more than a decade. Year to date, Mercedes' operating profit has dropped from $850 million to just $15 million.
Those numbers are an indication that management's actions have trickled down and materialized at the bottom line. In the past, Schrempp hasn't managed to get all the parts of his global company to function well at the same time. First it was Chrysler (which Zetsche revitalized), and now it's Mercedes. These ongoing problems have translated to uneven earnings reports and made for unhappy shareholders.
Although the global car manufacturer may not be a well-oiled machine currently, shareholders should have some reason for hope. Upon the news of Schrempp's resignation, DaimlerChrysler shares jumped 9.8%, signaling that investors view the move as a step toward getting all the cylinders of DaimlerChrysler's engine hitting and moving the company into the black.
Zetsche has a good track record. He has shown that he can step up to the plate and nurse an ailing company. The executive was the propelling force behind Chrysler's comeback from the red. In fact, Chrysler's manufacturing efficiency has improved to surpass most of its competitors in North America, though it still trails the levels of General Motors (NYSE:GM) and Toyota (NYSE:TM).
Running a global car company proved more of a challenge than Schrempp could handle. But Schrempp's successor is of a different character. Even better, he knows how to bring back a failing company, as seen in his previous work with Chrysler. Let's just wait and see whether Zetsche can get the party started for DaimlerChrysler's shareholders. His record certainly suggests that shareholders will reap the returns of the value that he will create down the road.
Read more about Daimler-Chrysler in the following articles:
Fool contributor Jennifer Schonberger does not own shares in any company mentioned here.
