DaimlerChrysler: End of an Unhappy Pair?

A split would leave both the U.S. and German units of the automaker to face uncertain futures; Daimler's CEO plans a risk-reducing minority stake in Chrysler

by Dietmar Hawranek and Frank Hornig

The impending breakup of DaimlerChrysler is fraught with risks for both sides. The Americans face the threat of a fire sale, while the Germans are more vulnerable to a corporate takeover. But investors are lining up to get a piece of the action -- and CEO Zetsche has a secret plan.

It was probably the biggest, most beautiful and most up-to-date Chrysler plant Detroit has ever seen -- and possibly the automaker's farewell gift to its home town.

The Jefferson North assembly plant came at a price tag of more than $1 billion. When the first Jeep Grand Cherokee rolled off the assembly line in 1992, it was still cause for celebration. As helicopters circled overhead, the CEO of Chrysler and the mayor of Detroit, accompanied by a large police escort, personally drove the vehicle from the plant to the exhibition halls at the North American International Auto Show. Once there, they drove up the steps and, bursting with pride and high spirits, crashed it through a large glass wall. That was in 1992, but it seems like yesterday to Dale Hunt. "We worked in three shifts," he says. "It was a huge success."

Now, 15 years later, Hunt sits in an office at the United Auto Workers (UAW) headquarters, across the street from the plant. As a regional manager at the powerful trade union, his current job requires that he deal with management initiatives which bear promising-sounding names like SMART -- and which ultimately mean job cuts.

When asked how many jobs have been cut so far, Hunt sighs loudly. He pulls out his calculator, makes a few phone calls and comes up with an answer: Almost 5,000 layoffs in his plant a few years ago, and now another 2,700. "And there's more on the way," he adds.

The worst part of it is that neither the union nor the employees have any idea what exactly is going to happen. The DaimlerChrysler restructuring plan currently calls for layoffs totaling 13,000 jobs at Chrysler. But how many more jobs will have to go if Stuttgart-based Daimler completely divorces its erstwhile dream partner?

How many factories will be closed if financial investors like Blackstone or Cerberus take over the company? What happens if Magna International, a Canadian automotive supplier, acquires a stake in Chrysler? Does Chrysler even stand a chance of surviving without Daimler in the long term? And what will happen with the remaining German part of the group?

There is just as much uncertainty in the offices of the German part of the group, Daimler, as there is in Detroit. It's true that many executives and staff at Daimler can't wait for the expected separation to finally become reality and put an end to former DaimlerChrysler CEO Jürgen Schrempp's dream of building a "Welt AG" ("World, Inc.") global corporation. The American partner has long been seen as a hugely expensive burden for Daimler. But all euphoria aside, even senior management at Daimler's Stuttgart headquarters aren't quite sure what will happen next, once Daimler suddenly finds itself on its own again.

Fear of a black hole
It seems like Mercedes-Benz and Chrysler just can't get along. But since CEO Dieter Zetsche began looking into a sale of Chrysler, the two companies suddenly seem terrified of going their separate ways, with both apparently afraid of falling into a black hole.

Executives and board members alike still have clear memories of corporate strategist Rüdiger Grube's endless PowerPoint presentations. For years, he used his many graphs and charts to explain, in painstaking detail, why Mercedes-Benz could only have a future if it formed a partnership with Chrysler.

According to one of Grube's diagrams, Mercedes, as a premium manufacturer that sold only about a million cars a year, was spending far too much money on parts. But by combining its parts procurement system with mass producer Chrysler, the Stuttgart-based firm could save billions, Grube argued.

Another chart showed that Mercedes-Benz could hardly afford to invest in new technologies if they would only be used in the relatively small number of luxury vehicles the company produced and sold each year.