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Daimler's New Driver Won't Be Making Sharp Turns


International Business

DAIMLER'S NEW DRIVER WON'T BE MAKING SHARP TURNS

The personalities of the two men are remarkably different. Edzard Reuter, the 66-year-old chief executive of Daimler Benz, is a knowledgeable collector of post-Modern art and a lifelong member of the Social Democratic Party. His 49-year-old heir apparent, Jurgen E. Schrempp, is a bon vivant with a taste for big cigars and fine wines who joined the company as an apprentice auto mechanic more than 30 years ago. But it may soon be up to Schrempp to deliver on Reuter's dream of turning Daimler into an integrated high-technology concern, a sort of Teutonic General Electric Co.

Barring an unlikely revolt by Daimler's board of supervisors, Schrempp will be named on June 26 to succeed Reuter as CEO of Germany's biggest manufacturing company. He'll work closely with Reuter for 11 months and then move into the top job at the $61 billion auto and aerospace giant next May, when Reuter plans to retire. Schrempp has been the leading CEO candidate ever since Reuter appointed him CEO of Deutsche Aerospace (DASA) in 1989. His mission there was to weld a grab bag of outfits making engines, rockets, planes, and helicopters into a coherent company.

LONG-TERM FOCUS. That job was a small-scale version of what Reuter has been trying to do with all of Daimler--pool the technical knowhow of its autos to avionics units to create a high-tech powerhouse. Although he says the strategy is working, there's little evidence it will pay off any time soon. But Schrempp's nomination will be a clear signal that Daimler's biggest shareholder, Deutsche Bank, which has a 25% stake, is ready to stick with Reuter's strategy for now. The bank could change tack by backing Helmut Werner, 57, CEO of Mercedes-Benz. But it would run into hefty opposition from the powerful IG Metall labor union, which has seats on both Daimler's and Mercedes' supervisory boards. The union, which considers Werner anti-labor, nearly vetoed him for the Mercedes job in 1992.

Werner would be a far more popular choice in financial markets. "Daimler needs a revolutionary," says Alan Coats, an analyst at Paribas Capital Markets in London. "And Werner is much more of a revolutionary." Right now, he has his hands full remaking Mercedes. He's expanding production capacity from 570,000 units a year now to 900,000 by 1998. And he's rolling out innovative new products. He has already launched a new C-Class midrange sedan and a new model of the top-of-the-line S-Class.

Restoring Mercedes to robust health is critical to the whole of Daimler's strategy. The carmaker accounts for 70% of group sales and traditionally the bulk of its profits. Last year, Daimler racked up what Reuter admits were "dramatically rotten" results, posting a $1.1 billion net loss. Mercedes had operating losses of $790 million on sales of $40 billion. Schrempp's DASA unit lost $621 million on sales of $11.6 billion.

UNDERACHIEVER. The outlook is improving for Mercedes. Werner brags that the auto maker has cut $1.4 billion from its costs in the past two years. That's nearly half the $3.1 billion Daimler claims to have pruned in costs throughout the group. Now that world auto markets are picking up, Mercedes--and Daimler--are profitable again. But there's still a way to go. Analysts estimate that Mercedes' operating margins could top 4% this year. But they say its classy name should generate margins closer to 7%.

Schrempp and Werner may have been rivals for the top job, but they have been extremely circumspect in public about each other. In a recent interview with Der Spiegel magazine, Werner said he wouldn't regard Schrempp's nomination as a setback. Still, Werner set out his terms: "Such a large group [as Daimler] can only be sensibly led if individual companies have a very high degree of independence and responsibility."

The two men must work together if they are to restore Daimler's fortunes fully. Their biggest joint challenge will be to keep beating the cost-cutting drums even as bottom-line results start to improve. By the end of 1995, Daimler aims to have chopped its global labor force to 320,000, a 20% drop from 400,000 in 1992, at the start of its restructuring. And Schrempp may just be up to the task. Says one French aerospace executive of Schrempp's efforts at DASA: "He was no iron hand in a velvet glove--he took off the glove." Such tough tactics may also be just what Daimler needs to score as a high-tech player.

THE CHALLENGES

-- Complete Daimler's makeover into an integrated high-tech company

-- Prune more management and move more production abroad to cut costs

-- Restore Mercedes-Benz to its former role as Daimler's major cash cow

-- Consolidate Deutsche Aerospace to stanch its losses

DATA: BUSINESS WEEKJohn Templeman in Bonn, with bureau reports


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