Daimler Chrysler's Schrempp: Man With A Plan

The CEO is forcing out key U.S. execs--at what cost?

At least in the beginning, the guys from Daimler Benz and the guys from Chrysler Corp. got along like a bunch of fraternity brothers. Stoked with excitement about their historic merger and curious about each other's cars and cultures, they overcame differences of nationality and language. It was to be a marriage of equals. After marathon meetings in Switzerland on integrating the two companies, they even chugged beer together and clustered around a piano, bellowing German drinking songs.

But now, nearly a year later, the sounds emanating from DaimlerChrysler's German and U.S. headquarters are anything but harmonious. As Chairman Jurgen E. Schrempp prepares to streamline his management, he's purging several senior executives whose strong performance--and outspoken manner--is a threat to his dominance, say sources familiar with the plan. The most shocking casualty of his overhaul is Thomas T. Stallkamp, president of the company's U.S. arm, who headed the integration efforts over the past year.

A key exec during Chrysler's turnaround from a second brush with bankruptcy in the early '90s, Stallkamp is revered as the auto maker's spiritual leader following the $36 billion merger in November, 1998. He spent much of the early days answering thousands of e-mails from anxious Chrysler employees. That helped convince the troops it truly was a merger of equals, despite the announcement that their former boss, Co-Chairman Robert J. Eaton, would depart within three years.

SPINNING HEADS. Since then, morale has waned as employees have watched a parade of well-respected executives depart from Chrysler's Auburn Hills (Mich.) headquarters. Stallkamp's loss now would be painful, insiders say. "There are an awful lot of uneasy executives who probably will lose faith in the company," says Dennis Pawley, who retired from DaimlerChrysler's management board in January. If Stallkamp leaves, says another ex-Chrysler official, "that place would completely unravel." In Germany, Daimler execs say the weeping is overblown."

Schrempp's restructuring also unsettles some large investors, who are doubting how well the merger is working. No wonder. On Sept. 15, CFO Manfred Gentz stunned analysts with news that unexpected costs could reduce the $1.4 billion in expected savings from merger synergies. Yet hours before, Schrempp and Eaton had issued a more upbeat line on the company's prospects, raising the 1999 sales forecast to $155 billion from $148 billion. "Our heads are spinning," says one bewildered analyst.

Schrempp and Eaton insist the merger is still on track. Nevertheless, the company is under stress. DaimlerChrysler is getting squeezed by losses in its European smart car division, by heavy incentives on its U.S. models, and by a weak euro. Its stock has been pummeled. After reaching a high of 108 in the early weeks after the merger, DaimlerChrysler shares are now trading at around 70.

What has investors worried is the paltry evidence of efficiency improvements. Daimler and Chrysler continue to operate essentially as two companies, despite a steady stream of managers criss-crossing the Atlantic. One of the biggest opportunities for savings--combined purchasing--is getting bogged down because the companies have different specs for such materials as steel and vastly different ways of dealing with their suppliers.

Schrempp, eager to prove that DaimlerChrysler is a model for global mergers, wants to kick the integration into high gear. To do that, he plans to reduce the unwieldy management board from 17 members to 13. Besides Stallkamp, others expected to leave the board include Kurt J. Lauk, the respected German head of commercial truck operations who returned that division to profitability in 1997; Theodor R. Cunningham, a former Chrysler executive who now runs DaimlerChrysler's Latin American operations, and Heiner Tropitzsch, head of human resources in Stuttgart. The resulting board will have eight Germans and five Americans.

LOYALISTS? Schrempp's plan is to create three vehicle divisions and place a marketing executive in charge of each. James Holden, an up-and-comer at the former Chrysler, will continue to have responsibility for all Chrysler brands, including Dodge, Plymouth, and Jeep. Jurgen Hubbert will retain his post as head of the Mercedes-Benz division, and Dieter Zetsche, Daimler's top sales and marketing executive, who is now Schrempp's heir apparent, will move over to the commercial truck division.

The management changes were expected to be announced on Sept. 24, after a special meeting in Frankfurt of DaimlerChrysler's supervisory board, a group of outside directors and employee representatives who oversee the management board. Says one big U.S.-based auto investor: "If you wanted to look at it from the bullish spin, you might say that Schrempp will get everyone playing his way. He is creating his own team." But the investor favors a darker scenario: "He just wants his loyalists there, regardless of their track record."

Since he became CEO of Daimler-Benz in 1995, Schrempp hasn't hesitated to oust dissidents. In 1997 he pressured Helmut Werner, head of Mercedes-Benz, to resign despite his success at boosting the unit's sales and profits and expanding the product line. Then, Schrempp wanted direct control of the unit. A source close to him says the current situation is different: "It's not a power struggle."

Stallkamp did, however, have several well-known disagreements with Schrempp. He opposed a plan for a second megamerger with Nissan Motor Co. and resisted Schrempp's call for faster integration.

Last August, after a disastrous press conference in New York in which DaimlerChrysler execs announced disappointing first-half profits, Stallkamp met with analysts over dinner and blamed the Germans for mishandling the news, according to one analyst. In no time, his remarks made it back to Germany.

Pawley, who served on the management board with both Stallkamp and Lauk, agrees that the pair are "very opinionated, outspoken-type people who would not do what's politically correct." Still, he says, Schrempp wouldn't push them off for their assertiveness alone.

Whatever the personal relations, the growing dominance of Daimler leaves Stallkamp with little reason to stay. "After a year under the Stuttgart yoke, he has figured out that he doesn't really have a future there," says an industry source. And even Eaton, who has tried to remain involved, has been invisible in the recent overhaul. "There's only one leader, and that's Jurgen Schrempp," says Pawley.

Could the merger unravel? "It's going to get a little bumpy for a while, but I don't view that as an indictment of the rationale for the merger," says Merrill Lynch & Co. analyst John Casesa. Still, with management in turmoil and margins under pressure, DaimlerChrysler is not living up to its promise. Schrempp, navigating solo, will be the one responsible for any wrong turns now.