Road Rage Among DaimlerChrysler Investors

Small shareholders give the slumping giant's CEO a piece of their mind. The big question now: When will institutional investors chime in?

It was one of the longest annual meetings on record, lasting more than 12 hours. And one of the rowdiest. More than 10,000 DaimlerChrysler shareholders turned up at a cavernous conference center in Berlin on Apr. 11 to blast CEO Jürgen Schrempp and Supervisory Board Chairman Hilmar Kopper. Investors were furious over what they described as the biggest destruction of capital in German corporate history, resulting from the carmaker's overambitious global-expansion strategy.

"You've halved the shareholders' equity," charged Lars Labryga, the head of a small shareholders' association and one of more than 60 investors who took the floor. "Now, we have to wait until 2003 for you to be as profitable as you were in 1999." Another investor waved a large wall clock and called out: "Mr. Schrempp, time to go!"

It's no surprise shareholders are unhappy. The stock is trading at half its peak 1999 levels. Last year was Schrempp's worst since he took over in 1995. The best gauge of DaimlerChrysler's performance, operating earnings excluding exceptional items, tumbled 49%, to $4.9 billion, reflecting troubles at his big acquisitions, Chrysler and Mitsubishi Motors. According to Schrempp's recovery plan, announced on Feb. 26, DaimlerChrysler will not match its 1999 operating profit of $10.4 billion for at least three years. "A company shouldn't be squandering shareholders' money by acquiring bottomless pits all over the world," said Klaus Kessler, the head of another small shareholders' group. He awarded Schrempp a symbolic yellow card, the warning notice given to soccer players. "Next year," Kessler said, "we want to see different numbers -- or different heads."

TOO-PATIENT BOARD?

  The marathon session was rich in high drama -- but thin on suspense. Shareholders weren't expecting to topple Schrempp at the meeting. Nor did they really try. At the end, 94% of the shareholders who voted ratified the management's performance over the past year. However, slightly fewer, 88%, approved the actions of the supervisory board headed by Kopper. He represents the interests of Deutsche Bank, DaimlerChrysler's biggest investor with a 12% stake. It's in his hands that Schrempp's fate lies.

Kopper tacitly granted Schrempp at least another year when the supervisory board approved Schrempp's recovery plan for the company on Feb. 23. Shareholder Rudolf Eisemann summed up the impotence felt by many small shareholders when he said, "It's important for me to know how the supervisory board's controlling function works." An exasperated Labryga asked Kopper, who presided over the meeting: "Exactly what has to happen for you to crack down?"

For many shareholders, Daimler's growth gone awry was déjà vu. "This is the second time in five years that the company is in trouble because of an aggressive expansion plan," said investor Christian Strenger. Schrempp's predecessor, Edzard Reuter, was forced out in 1995 after a disastrous diversification into high-tech activities that led to huge losses. Kopper initially backed Reuter's strategy, based on a widely held view in the group that the venerable Mercedes-Benz business alone could not generate the kind of growth needed for long-term survival. After Kopper tapped Schrempp to take over, the latter dismantled Reuter's empire and set out to build a group focused on the automotive industry. Hence the acquisitions of Chrysler in 1998 and Mitsubishi last year.

With the supervisory board endorsing Schrempp's recovery plan six weeks ago, the shareholders' outbursts in Berlin rang hollow. But if the annual meeting wasn't the real thing, it presaged what's to come. The pressure on Schrempp -- and Kopper -- is real. This year is going to be even tougher than 2000. DaimlerChrysler has already forecast a first-quarter loss of up to $3.9 billion, including the costs of the Chrysler and Mitsubishi restructurings. Stripping those out, the operating loss is expected to be $700 million to $900 million.

TOUGH MARKET AHEAD.

  Analysts say the clock starts running down on Schrempp in the second half. That's when he will be approaching the first of the targets laid out in his plan -- a DaimlerChrysler operating profit excluding onetime charges of $1.1 billion to $1.5 billion for 2001. That assumes Chrysler's operating loss will not exceed $2.5 billion. Schrempp, looking worn but composed, reiterated at the meeting that Chrysler and Mitsubishi were essential pieces in his plan to turn the group into a successful, long-term global player. "They're not expendable," he said. But the CEO conceded that his future hinged on achieving his plan's milestones: "We're ready to be measured against them."

For the moment, Chrysler's restructuring is on track. "Sales targets for the first three months have all been met. And we now have a lower inventory than the rest of our competitors," Schrempp said. The U.S. car market was stronger in the first quarter than anticipated. But the company will be struggling to meet its targets in a deteriorating environment. In addition to restructuring Chrysler and Mitsubishi, Schrempp must cope with a deep slump in the U.S. truck market, weakening car and truck sales in Europe, and growing competition in the luxury-car segments. And if the management fails to deliver, it'll be the big investors clamoring for a change. Not with props and rhetoric. But discreetly -- and possibly definitively.

By Christine N. Tierney in Berlin

Edited by Douglas Harbrecht

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