New Chrysler Boss Faces Old Problem

DETROIT (AP) â€” After two years of trying to make its trans-Atlantic merger work, DaimlerChrysler AG is still two companies divided by an ocean of troubles. <br><br>With the replacement of Chrysler president

Friday, November 17th 2000, 12:00 am

By: News On 6

DETROIT (AP) â€” After two years of trying to make its trans-Atlantic merger work, DaimlerChrysler AG is still two companies divided by an ocean of troubles.

With the replacement of Chrysler president Jim Holden by Dieter Zetsche on Friday, the vaunted merger of equals enters another time of doubt. U.S. workers are uncertain what the new regime will bring, with distrust stirred by statements from DaimlerChrysler's chairman that he never intended a merger of equals.

Chrysler's performance hasn't met Stuttgart-based DaimlerChrysler's expectations, with sales incentives erasing profits and production of the hot new PT Cruiser falling short of demand. Daimler and Chrysler also have been reluctant to share parts to cut costs, which might change with a new emphasis on saving money.

Zetsche's first job ``is to galvanize morale,'' said former DaimlerChrysler president Thomas Stallkamp, whom Holden replaced. ``How he does that I have no idea.''

With the purchase of a third of Mitsubishi and 10 percent of Hyundai, DaimlerChrysler chairman Juergen Schrempp now controls a business empire that stretches from Brazil to China, and builds vehicles from the tiny two-seat Smart car to 20-ton Freightliner trucks. But Chrysler has been the moneymaker, supplying half the company's revenues and, until recently, half its profits.

When Daimler-Benz AG and Chrysler Corp. came together in 1998, Schrempp and Chrysler chairman Robert J. Eaton billed the deal as a ``merger of equals,'' and promised to create a new, transcontinental corporate culture.

It soon became clear that the new culture was only the two old cultures that looked at each other warily, with the German side in a position of power. Since the merger, several top Chrysler executives have left â€” including Stallkamp, who was rebuffed in attempts to bring Daimler and Chrysler closer together â€” and the company's board of supervisors has tilted more toward the Daimler side.

But Chrysler employees were shocked when Schrempp was quoted in the London-based Financial Times two weeks ago saying he had never meant for the merger to be a marriage of equals, and that the deal was billed that way ``for psychological reasons.''

Stallkamp and others said the U.S. employees were now wary of the moves Zetsche and any new German managers he brings with him might make.

``There's a mountain of suspicion here that the Germans have dealt with the U.S. company in a duplicitous way,'' said Gerald C. Meyers, a professor of organizational behavior at the University of Michigan and the former CEO of American Motors Corp.

``What's stunning to me is the guy would say it even if it was true,'' Stallkamp said.

In a report Thursday, Standard & Poor's warned that the company's credit rating was under review, saying ``the exodus of management talent'' from Chrysler ``and the resulting dwindling morale heighten the risk that performance prospects for Chrysler will continue to fall well short of historically superior levels.''

The agency also questioned wheter a change in managment would be able to rectify those problems.

Another area where the merger has not lived up to expectations is in cost savings between Mercedes and Chrysler. There has been some sharing between the two sides in manufacturing and vehicle design, and research into fuel cells has been split, with Mercedes handling advanced lab work and Chrysler charged with figuring out how to build fuel cells into vehicles.

But Schrempp does not embrace the auto industry's thoughts that sharing basic vehicle structures between several models is the best way to grow profitably. The other five largest automakers in the world â€” General Motors, Ford, Toyota, Volkswagen and Renault-Nissan â€” share engines and frames broadly between brands or have plans to do so.

Since the merger, Schrempp and other Daimler executives have ruled out such moves between Mercedes and Chrysler, making it clear that keeping the quality image of Mercedes-Benz free of taint from the lower image of Chrysler was a top goal.

``The brand identity and a brand portfolio is a holy situation in our company,'' Schrempp said in July. ``Protection of the brand is the most important task in the company.''

Beyond morale and engineering, DaimlerChrysler faces a number of business problems, and several analysts have cut their expectations for the company in the past few days. Most of those concerns stem from Chrysler's problems with high incentives and startup costs in the United States and worries that Chrysler hasn't figured out how to solve them.

The company said Thursday it would close a plant in Belvidere, Ill., that makes the Chrysler and Dodge Neon for three days next week to cut growing inventories.

One bright spot for Chrysler was the popularity of its new PT Cruiser, but earlier this month the company warned its dealers that it can't build enough 2001 models to meet all the orders customers have made. Some buyers may have to wait until the middle of next year to get one and pay next year's prices.

Other concerns for DaimlerChrysler include a poor outlook at Mitsubishi, worries about large losses on vehicles leased in the United States, slower sales of commercial vehicles and weaker results from Mercedes passenger cars.

But the problems may finally be enough motivation for DaimlerChrysler to knit into a single company. Chrysler and Mitsubishi already share parts, and Schrempp said more cooperation between the two was in the works.

Stallkamp, who was seen by employees as the top defender of Chrysler's interests after the merger, said some 30-odd employees have called him in the past week. He's telling them Zetsche, who is now Daimler Chrysler's commercial vehicle director, will carry more influence with executives in Stuttgart and help establish a closer relationship.

``It's not the end of the world,'' he said.