When DaimlerChrysler (DCX) Chief Executive J?rgen E. Schrempp sealed the merger of Daimler Benz and Chrysler Corp. in 1998, he told shareholders to "expect the extraordinary" from the $157 billion, world-spanning auto company. Five years later, his grand scheme has proved extraordinary -- but for all the wrong reasons. Chrysler was supposed to produce a $2 billion operating profit in 2003. Instead, analysts expect a $360 million loss for the year. Despite new models chockablock with German components and styling, Chrysler's market share is eroding. Schrempp, 59, blames a tough U.S. market -- but savvy Japanese auto makers have increased U.S. sales and produced a profit.
Schrempp's woes don't end with Chrysler. Mitsubishi Motors Corp., 37%-owned by DaimlerChrysler, says it's expecting an operating loss of $404 million for the fiscal year ending in March. Mitsubishi went on an ill-advised credit binge, luring young U.S. buyers with generous terms. After mass defaults, Mitsubishi tightened credit controls, only to see its U.S. sales tank. Even Mercedes-Benz (DCX) took a body blow. Market researcher J.D. Power & Associates Inc. ranked the world's most exclusive luxury auto brand a dismal 26th in long-term quality. Schrempp declines to comment.
With all that has gone wrong since the Chrysler deal, it figures that Schrempp and team would be dragged into a courtroom. In August, Daimler paid $300 million to settle a class action that claimed Schrempp misled investors when he called the deal "a merger of equals." That was just a prelude to the $2 billion trial that got under way in December, in which billionaire Kirk Kerkorian, a former Chrysler shareholder, is suing Daimler for failing to pay a takeover premium.
Can it get worse? For shareholders, maybe: Schrempp's friendly supervisory board is already talking about renewing his contract.