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DaimlerChrysler’s Mitsubishi Denial Could Derail Chrysler Calls For Schrempp And Kopper To Go Schrempp’s Global Empire Vision Looks Dead, But Shareholders Gain DaimlerChrysler’s decision to end the disastrous dalliance with Mitsubishi Motors could lead to the break up of the troubled alliance with Chrysler, and the demise of the “Welt AG” strategy and its leaders - chief executive Jurgen Schrempp and supervisory board chairman Hilmar Kopper, according to investment bankers and financial experts. Mitsubishi was intimately involved in projects to make new small and medium-sized Chryslers and Smart cars, and the possible end of its relationship with DaimlerChrysler could call into question the economics of these projects, and torpedo a key element of Chrysler’s turnaround strategy. A couple of days after the news that DaimlerChrysler would take no further part in bailing out Mitsubishi Motors Corp, Rolf Eckrodt resigned as MMC’s president and chief executive officer. Hugo Dixon, editor of the Wall Street Journal’s “Breaking Views” column, said the rejection by the DaimlerChrysler board of the Mitsubishi bailout plan signals exasperation with the Schrempp regime and his grandiose plans. “It is the first de facto admission of strategic failure. And the responsibility must lie with the deal’s architect, Mr Schrempp.” Hard To See A Place For Schrempp, Or Chrysler “By walking away from the recapitalisation, Daimler is for the first time acknowledging that mistakes were made, raising questions about its broader global plans in volume manufacturing. This sets the board on the road to recovery. And at the end of that route, it is hard to see a place for Chrysler, or Mr Schrempp, in the group,” said Dixon. Dixon also described the decision as excellent news for DaimlerChrysler shareholders. The red ink will cease to flow, the management distraction will end, and more pressing issues can be addressed – “like quality problems at Mercedes or the little matter of a turnaround at Chrysler” In an editorial headed “Daimler debacle – A failed investment points to problems of corporate culture”, the Financial Times said that investors were hoping that this would mean the end of “Welt AG” – a German-controlled global motor manufacturer, and reminded us that since the Daimler merger with Chrysler in 1998, Schrempp had presided over a 37 billion euro loss in market capitalisation. No To Nissan “(The MMC acquisition) has been an unmitigated disaster. Having turned down a chance to buy Nissan Motors, DaimlerChrysler invested in a dud,” said the FT. Calling the DaimlerChrysler attitude a special case of corporate hubris to nemesis, the FT said Daimler’s top managers were serial perpetrators of strategic errors over many years. Schrempp and Kopper must go. “Both men have failed and should go, but the chances of this are slim,” the FT said. Investment bankers were no less scathing in their judgements of Schrempp and co, but were a little more circumspect with their language, probably with an eye on keeping DaimlerChrysler management sweet for future business deals. At Least Investors Are Happier Lehman Brothers said the Mitsubishi news was good for DaimlerChrysler investors, who had suffered over the years. “We suspect the Mitsubishi decision will raise hopes that further investor-friendly strategic U-turns could follow; any such hopes could have a measurable impact on an unloved stock,” said Lehman. But Lehman pointed out that the debacle raised concerns over Chrysler and Smart’s future earnings improvements because Mitsubishi had been closely associated in the turnaround of these underperforming divisions. Mitsubishi was sharing development of Smart’s new four-seater, the Forfour, and the Colt supermini, which is just beginning to be produced at a Mitsubishi factory in the Netherlands. Mitsubishi and Chrysler are sharing development of a family of cars for the U.S. – the Chrysler Sebring/Stratus and Neon replacements, and Mitsubishi is launching a new pickup truck to be built in a Chrysler factory. No Details DaimlerChrysler officials, at a press conference, hoped that Mitsubishi will somehow be able to take part in these projects, even though the Germans have pulled out of financing the Japanese company. Details of how this might be achieved were not forthcoming. Cooperation with South Korea’s Hyundai, in which DaimlerChrysler has a 10 per cent stake, is also apparently in jeopardy. Goldman Sachs saw some positives from the Mitsubishi deal, because it believed the main purpose was to gain control of the truck business Fuso. DaimlerChrysler now owns 60 per cent of Fuso and it now is a fully consolidated subsidiary. As for the decision to walk away from the bail out of Mitsubishi, Goldman Sachs said DaimlerChrysler would have needed to cough up more than half of the total $7.5 billion required. Positive “We view this as a rare, and surprising, example of capital discipline and regard it as a material positive for the DaimlerChrysler share price,” said Goldman Sachs. Also, Goldman Sachs understood that even if the Mitsubishi/ DaimlerChrysler relationship came to an end, it would not damage future products based on joint platforms because Chrysler owned the rights to them. Deutsche Bank wasn’t so sure that DaimlerChrysler could walk away scot-free. Daimler And Chrysler Again “All this puts a big question mark behind Schrempp’s World AG strategy. Joining platforms with Mitsubishi was an important part of Chrysler’s longer-term strategy, particularly for smaller and medium cars. Also the Smart project relied heavily on it. While this decision only concerns Mitsubishi it will probably spur renewed speculation around Schrempp’s position and with that even some speculation regarding the ties between Daimler and Chrysler,” Deutsche Bank said in a report. The investment rating agency Standard & Poors also thought Chrysler might be fatally wounded by Mitsubishi’s possible failure. Can Mitsubishi Fulfill Contracts? “(the failure) brings into question a key component of Chrysler’s turnaround strategy to improve its cost structure by sharing platforms and procurement activities with Mitsubishi. It is not clear to us that Mitsubishi will – under all potential scenarios – meet its contractual requirements,” said S&P. The FT’s Lex column was in the happy position of expecting no retribution if it expressed exactly how it felt about Schrempp, and Mitsubishi. It grabbed the chance with both hands. “The world can live without Mitsubishi Motors. It has a market capitalisation of $3.3 billion and debts of $10 billion. Its models are poor and its reputation not so much tarnished as obliterated. Last year it probably lost around $1 billion …….. and could lose three times as much this year,” said Lex in an article headed “Fried Schrempp”. Gives Cars Away “For an industry already burdened with over-capacity, there is little sense in preserving a company whose domestic (capacity use) is 60 per cent and which virtually gives its cars away in the U.S.” “Attention may also shift to Mr Schrempp’s future. With so much money already wasted on a flawed global strategy, there is a strong case for him to depart along with his vision,” said Lex. Neil Winton – April 29, 2004 |
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