Shareholders in Berlin blame brass for failed strategy, and Dieter Zetsche confirms he's in talks with potential buyers of the money-losing Chrysler division
DaimlerChrysler (DCX) Chief Executive Dieter Zetsche confirmed on Apr. 4 that discussions are under way with potential buyers of the money-losing Chrysler division. "I can confirm that we are talking with some of the potential partners who have shown a clear interest," Zetsche said, adding that he would not disclose any details of the talks in order to maintain maximum scope for maneuver.
The statement was a small but psychologically important concession to mounting market pressure for assurance that a sale is moving forward (see BusinessWeek.com, 3/27/07, "Daimler: Pressure Mounts for Chrysler Sale"). Since Zetsche said on Feb. 14 that Daimler was considering "all options," including the sale of Chrysler, the group's share price has risen nearly 30%. It traded around $82 at midday on Apr. 4, down about 1%.
Despite relief that a deal is under discussion, investors pelted Zetsche and supervisory board members at the annual shareholders meeting in Berlin Apr. 4 with stinging criticism and sharp-edged questions about the company's failed merger strategy.
Sale Now Inevitable?
"Chrysler has been sick for many years and is dragging down the company" said Hans-Richard Schmitz, a lawyer and representative speaking on behalf of the Düsseldorf-based Association for the Protection of Minority Shareholders. "What's missing is a very clear and swift decision. I don't understand, Mr. Zetsche, why you are so hesitant?"
The market euphoria unleashed by news of a possible sale and a steady stream of leaked reports regarding bidders has now made a sale of Chrysler inevitable, say analysts, bankers and even DaimlerChrysler executives. "There's no turning back now," says one manager at the company. Daimler paid $35 billion for Chrysler in 1998, but the No. 3 U.S. automaker, which lost $1.5 billion last year, has proved a disastrous investment. Bids for Chrysler range from $4 billion to $8 billion, but don't include some $22 billion in pension and health liabilities at Chrysler, sources close to the negotiations say. Daimler might be forced to assume all or part of those costs in a divestiture.
That math angered investors, who are still wondering if Chrysler can be sold without a huge payoff from Daimler. "What'll happen if you don't find a bridegroom for Chrysler, or if they expect a dowry that's too high?" asked Henning Gebhardt, equities manager at German investment fund DWS, adding he would be "very happy" to see a divorce from Chrysler. "We don't know the structure for a sustainable business model at Chrysler if there is no sale."
Shareholders reserved the brunt of their fury, however, for Supervisory Board Chairman Hilmar Kopper, the former Chairman of Deutsche Bank (DB), for failing to act sooner to sanction management as errors multiplied across all divisions following the Chrysler merger. For many years Kopper (who has led the Daimler board for 17 years) stuck by former chief executive Jürgen Schrempp and defended the departed CEO's "World Inc." strategy, which also included a failed relationship with Mitsubishi Motors.
With Kopper set to step down Apr. 4 and cede the office of chairman to Manfred Bischoff, shareholders were determined to tote up the cost of his failed oversight and make their ire clear. "You, Mr. Kopper, did not intervene in steering the management of this company while they were steering the company into a wall," said Leonhard Knoll, a member of the board of the Association for the Promotion of Shareholder Democracy. "In no other company would a board like this be able to survive 20 years with this level of performance."
Emboldened by the dawning era of transparency and better corporate governance in Continental Europe, shareholders seemed to sense that their critique counted more than in the past. "Every time you open your mouth, Mr. Kopper, you blame someone else," said Manfred Klein, a shareholder from Saarbrücken who drilled Kopper about his unflinching support of Schrempp through years of mismanagement. "You have not taken responsibility for DaimlerChrysler's performance. You are not independent."
Don't Drop the Name
Ekkehard Wenger, a shareholder activist and professor of finance at the University of Würzburg, amended the agenda to include a proposal to drop Chrysler from the company's name, insisting that the struggling U.S. unit is damaging the Daimler brand image. The supervisory board recommended voting against the motion since the name is established globally. "The DaimlerChrysler name is established globally as a symbol of infinite mismanagement, failed quality, and destruction of shareholder value," countered Wenger.
The barbs directed against Kopper elicited vibrant applause from the 9,000 shareholders packed into a Berlin conference center. "This merger was a completely wrong decision from the outset," said Lars Labryga, representative of the German Association for the Protection of Shareholders. "The synergies touted in 1989 were utter nonsense."
One investor dubbed Kopper's era a "monarchy." The subdued supervisory board chairman, who several years ago lashed out at critical shareholders, spent most of the meeting with his head bowed and reddened cheeks, avoiding eye contact with the audience of hostile shareholders. Fumed shareholder activist Klein: "Mr. Kopper, this day is your biggest disgrace."
Not Green Enough
Zetsche also received a verbal lashing for the group's failure to develop fuel-efficient cars, especially at Chrysler. Some 75% of Chrysler's cars are large gas-guzzling trucks and sport-utility vehicles. Mercedes-Benz's premium cars are big fuel-burners as well. Zetsche insisted the group's newest generation of models benefits from lower emission levels and better gas mileage, citing some $6.9 billion invested last year in research and development, much of it for reduction of carbon dioxide emissions. But investors judged the progress inadequate.
"How can you say that the trend for fuel-efficient cars was unforeseeable?" asked one shareholder. "This group has failed to see the signs of the times. We have been limping behind the competition for five years."