World

Shakeup At DaimlerChrysler

By CBSNews.com staff CBSNews.com staff

November 17, 2000 / 1:10 PM EST / CBS

DaimlerChrysler has fired Jim Holden, head of its money-losing Chrysler division, and replaced him with one of its leading trouble shooters, Dieter Zetsche of Germany. Zetsche becomes division president and chief executive officer effective immediately. The change had been widely expected.

The company, the world's fifth largest automaker, also announced that earnings projections would fall below forecasts, without specifying which period it was referring to and that its bottom line had been hurt by Chrysler.

In explaining the action DaimlerChryler said, "The dynamically changing market situation in the United States makes it necessary for a new management team at the Chrysler group to reposition and restructure the business."

The moves are seen as attempts to revive investor faith in the company two years after the world's biggest car industry merger.

A new business plan will be presented in the first quarter of 2001, the statement added. The company also said the market situation has become more difficult since third-quarter earnings were released - revealing hundreds of millions in losses at Chrysler.

"The Chrysler Group's results will fall below the latest prognosis, and will therefore influence the concern's bottom line," the company statement said.

The dramatic unmasking of merger as an overseas takeover may have been necessary to facilitate trans-Atlantic communications and turn around a flagging business, but analysts said the admission carries inherent risks.

"The question is will the new management team have the full loyalty and support of the whole Chrysler group," said Christian Breitsprecher, an auto analyst at Deutsche Bank. "For many within Chrysler, it will really now be clear it is a takeover and not a merger of equals."

Zetsche's first task will be gaining trust. But he also will have to adapt to running a business that operates under a much different set of fundamentals than the premium car niche, where he made his name.

"He knows the characteristics of a premium car business very well from Mercedes," Breitsprecher said. "At Mercedes, you don't have to give incentives at all. In the volume business, it is the key to everything."

The group also named Wolfgang Bernhard, another German, Chrysler's chief operating office.

It has been widely speculated that the issue of incentives - which have cut dramatically into U.S. profits - may have been one of the cultural glitches that led to the management change.

Still, analysts say it remains to be seen whether the changes will bring the sought-after turnaround.

"There's no silver bullet or easy answer," said Scott Merlis, an analyst with Wasserstein Perella Securities Inc.

Ousted Chrysler chief Holden was under growing pressure to stem the division's losses. The U.S.-based unit lost $512 million in the third quarter, its first operating los in nine years, and the company's stock price has been hovering near 52-week lows.

Sales of Chrysler, Dodge and Jeep vehicles have been erratic in recent months. Several models posted large declines -- and in an effort to move those vehicles off the lots, Chrysler has embarked on an incentive campaign coaxing consumers with ever changing sales and bargains. Holden had said at the same time Chrysler has been unable to raise prices due to stiff competition in the U.S. market.

DaimlerChrysler separately dismissed as speculation a report Friday that it's considering selling off at least part of Chrysler. Sources close to the company said the management changes made such a move very unlikely.