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Daimler, Chrysler merger a failure
Retired business editor Jack Markowitz's columns are published on Sundays and Thursdays. He can be reached via e-mail.
Out of this sensational deal came something as marvelous as, well, the United Nations. Without the efficiency.
DaimlerChrysler, which was pitched to pass General Motors and Toyota as the biggest, most profitable automaker on earth, is still not quite one world.
The Chrysler half can't seem to recover the knack it once had -- under leaders such as Walter Chrysler and Lee Iacocca -- of recording profits. It went $5 billion in the hole in 2001, got into the black in 2002 but lost it all back in this year's second quarter, $1 billion red. Full year 2003 looks like a loser versus early hopes for $2 billion profit. Blame high-cost assembly plants, overcapacity in U.S. automaking, new products slow in coming and U.S. consumer rebates. They bite hard into profits.
Meanwhile the Daimler half of the company has other egg on its face, including unaccustomed raps for quality on some of it flagship Mercedes models. Nothing major, but any slip is embarrassing. The feeling is that Chrysler's delayed turnaround distracts German management. Business Week magazine reports some experts now view the $36 billion 1998 merger as one "colossal mistake."
People warned DaimlerChrysler Chairman Jurgen Schrempp this might happen if he tried to mix the standards of luxury and mass marketing. He promised fast integration then, but five years later, DaimlerChrysler still makes all of its money at the high-price end.
Put it all together and DaimlerChrysler's first-half profits plunged 80 percent to $773 million on an 11 percent drop in sales to $75 billion. The total value of DaimlerChrysler shares at merger time was $47 billion; now it's $38 billion. The biggest shareholder, Deutsche Bank, has lost $15 billion on its stake and openly wants out.
"Stalled" is the cruel, single-word headline Business Week gives its current report on this mess. "In Stuttgart (DaimlerChrysler's headquarters city), the fear and loathing of Chrysler is palpable," says the magazine. Many Germans feel the American partner is just a sinkhole for billions. CEO Schrempp, 59, is given perhaps one more year to deliver or go. He quadrupled his own salary after the merger, so it paid off in one way.
Officially, DaimlerChrysler still means to turn Chrysler around. But some experts foresee a sale or spinoff in whole or in parts. In effect, a reverse merger. The Jeep and Dodge truck lines are profitable; theoretically, they could make a company. What about those cars, though, in a U.S. marketplace of rebate-dripping saturation? Plant shutdowns might trigger political and union firestorms over lost pensions and health care benefits.
So here's yet another mashing of big companies into a monster company that hasn't worked. Not yet. Even with a whole world to serve.
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