Investor Says “Yippee-Ki-Yay” To Bernhard’s Promotion

One investor was so pleased that Wolfgang Bernhard had been promoted at Mercedes, he literally let out a cry of “Yippee-Ki-Yay”.

Daimler announced that Wolfgang Bernhard will take over responsibility for the production of Mercedes cars, a move which is also said to make him favourite to succeed current CEO Dieter Zetsche when he runs out of road.

Bernhard was Zetsche’s right-hand man for a while during his stint running Chrysler, before the Germans sold the company now controlled by Fiat of Italy. Bernhard left Daimler after sounding a bit too aggressive about his plans to cut jobs, but returned after a spell with Volkswagen.

According to Bernstein Research of London’s Max Warburton, Bernhard faced down the UAW and slashed 40,000 jobs during his tenure at Chrysler. During his time at Volkswagen, Bernhard took out 15,000 jobs and slashed the costs of each VW Golf by €1,000.

Yippee-Ki-Yay
This explains Warburton’s reaction to the news.

“He’s Back: Time For Investors To Say Yippee-Ki-Yay”, is the headline on Warburton’s latest research note.

Deutsche Bank was also pleased, but had a more circumspect reaction. Mercedes has made big progress cutting costs, but Bernhard’s promotion was welcome, as there was still much to do. Deutsche Bank thought Bernhard might also have a useful role to play in its talks with Renault.

“We analyse Mercedes to be in need of a mass-market partner for its entry level products due to lack of scale. Discussions with Renault are ongoing. It could be Dr Bernhard’s task to finalise these talks. Due to the strong reputation of Dr Bernhard, we see this announcement as positive,” Deutsche Bank said.

According to Bernstein’s Warburton, Mercedes has been making impressive progress restoring its profit margins, raising them to about six per cent in the last quarter of 2009, but still needs to make more cuts. Mercedes only makes 12 cars per worker a year, 15 per cent less than BMW, and 30 per cent less than Audi.

“The company now has a man well placed to make those cuts – if Bernhard is able to do even half of what he achieved at VW, then we can expect a structural lift in Mercedes margins,” Warburton said.

What now
What to expect from Bernhard?

“The Bernhard strategy – fixed costs, heads, pricing,” says Warburton.

Other investors joined in the euphoria.

“Wolfgang Bernhard is widely credited with an aggressive cost-reduction program at VW, the benefits of which are still being felt today, and Chrysler, which was at least initially very effective. We believe the market will like this news a lot, and it should raise speculation that there is more cost cutting in the pipeline at Mercedes,” said Dorothee Cresswell, autos analyst at Nomura International.
Cresswell warned that Bernhard will not have things all his own way.

Unions restrained
“Daimler’s unions remain very influential. When CEO Zetsche tried to relocate C Class production out of Sindelfingen and into Tuscaloosa (U.S.) and Bremen with a negative 3,500 head-count impact last December, the unions nonetheless forced through an employment guarantee at Sindelfingen,” Cresswell said.

So far the German unions have been restrained in their reaction.

Zetsche might also be a little uneasy.

“”In case its not obvious, Bernhard’s accession to the top job at Mercedes makes him favorite to be the next CEO, post Zetsche,” Bernstein’s Warburton said.