Merc1

How dream marriage hit the rocks

The message he carried was a harsh one, and Dieter Zetsche had traveled more than 4,000 miles to deliver it in person.  Just days before, on Sept. 15, 2006, DaimlerChrysler AG had stunned the auto industry by forecasting a $1.5 billion third-quarter loss for the Chrysler Group, its second profit warning in two months.

Now Zetsche, the chief executive of DaimlerChrysler, had flown overnight from Germany for an emergency meeting at Chrysler headquarters with Tom LaSorda, the division's CEO, and a half-dozen of his top deputies.

When the door was shut on LaSorda's 15th-floor conference room, Zetsche unloaded.

"This is unacceptable!" Zetsche said, his voice rising. "This cannot continue. There are no more chances."

LaSorda seemed defensive, almost contrite. "We know what we have to do, and we'll do it," he said.

Time was running out for Chrysler. Asked later if LaSorda's job was in jeopardy, one participant said glumly, "We are all in trouble."

But nobody at Chrysler imagined just how much trouble lay ahead.

The turbulent marriage of Daimler-Benz and Chrysler was coming apart at the seams. Frustration in Germany had turned to anger over Chrysler's erratic performance.

Hailed in 1998 as a merger "made in heaven," the transatlantic union of two of the world's biggest auto companies had reached a critical juncture in fall 2006.

After 12 consecutive profitable quarters, Chrysler had imploded.

Inventories of unsold vehicles were choking dealers. Negotiations to cut health care costs for union workers had collapsed. Pressure was building in Germany to dump Chrysler before it capsized the entire corporation.

It was the beginning of the end of the greatest global experiment in automotive history.

Within nine months of Zetsche's meeting in Auburn Hills, Chrysler would be sold for $7.4 billion to private-equity giant Cerberus Capital Management.

And while the deal ushers in a new chapter for an independent Chrysler, the sale marks the failure of a merger that once held unlimited promise.

"It shows the problems of the fusions of big companies," said Willi Diez, head of the Germany-based Auto Industry Institute. "You have cultural differences. You have the problem of who really runs the company."

In interviews with dozens of people close to DaimlerChrysler, The Detroit News has reconstructed key events leading up to the May 14 sale of Chrysler. Most spoke on the condition they remain anonymous.

Summer sales dive

When Zetsche became DaimlerChrysler CEO in early 2006, the affable, mustachioed German executive was hardly thought to be the man who would sell Chrysler.

He had led Chrysler's last comeback as its chief executive from 2001 to 2005 and yearned to solidify the merger by bringing the German and American sides of DaimlerChrysler closer.

Instead, Zetsche would ultimately be disappointed by the inability to find synergies between Chrysler's mass-market cars and light trucks and the luxury vehicles produced by Mercedes-Benz.

Without broad synergies, Chrysler had to succeed on its own under LaSorda, a manufacturing specialist who inherited a truck-heavy lineup of vehicles that sputtered when gas prices soared in spring 2006.

As sales tanked, Chrysler's inventories grew bloated. Heavy incentives in the summer failed to move vehicles off dealer lots. An ill-advised advertising campaign starring Zetsche as the wry Dr. Z fell flat, heightening the tension in Chrysler's executive suite.

In July, Chrysler warned of a $600 million loss in the third quarter. But the second profit warning on Sept. 15 turned concerns about Chrysler into a full-blown crisis.

The disclosure came one week after another painful blow -- the decision by the United Auto Workers to withhold health care concessions to Chrysler that the union had given to General Motors Corp. and Ford Motor Co.

Insiders said Zetsche was furious at the union for rejecting concessions that would have saved Chrysler an estimated $300 million a year. Without the deal, Chrysler couldn't even keep pace with its struggling U.S. rivals.

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M

Curb Zone

 

RikfromBelgium

This was never a merger

Harry Plopper

I agree. It was advertise as a merger to please the US patriots. Operationally it was a takeover: of Chrysler by Daimler-Benz.

And this can be seen now clearly: "Daimler-Benz" sold Chrysler, not that these two "de-merged" / separated.



I see this relationship between Chrysler & Daimler-Benz not as a marriage but more like a DB being a foster parent to Chrysler, and now giving it away.

Hypersonic

Yep -- I've said that from the beginning.

So ...where does this leave Chrysler? will they survive? will someone else buy them?

Mirage77

Under Cerberus I don't know how they are going to have any long-term suvivability chances - they need to find an automotive partner who can lead them properly, one who knows the automobile market top down.

From what I understand, MB will still provide some assistance to Chrysler, but I wonder to what degree.

Harry Plopper

Chrysler, GM, and Ford should merge and create the AMC: American Motor Company.

Sell-off, or put on ice some redundant brands. Consolidate core businesses. Invest a lot in marketing!

It could work ...

Merc1

That would never work because of the name. Chrysler bought was left of American Motor Company back in the 80's. AMC was the brand that gave us Jeep, but also the AMC Gremlin and Pacer, two of the most awful cars to ever hit the ground. The AMC name alone would kill this.

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Hypersonic

The American motor industry is not well ....and the Chinese are on the horizon -- what do you think the future of the US auto industry really is?

Merc1

Personally I'm not worried about GM anymore, they're latest cars are their best ever, though they still don't build any segment leaders outright they're still more exciting and better executed than anything they've done since I've been alive.

Ford is a great worry, they don't seem to have a clue as to what they should be doing and they don't seem to have much on the drawing board either, a real mess.

Chrysler I think will bounce back, but it will have to be in other segments because they just wasted a huge chance to get things going by messing up the new Sebring/Avenger models so bad to the point where their head guy doesn't like them. Youch. Talk about "why would I buy one" syndrome if the company's head guy doesn't like them. If Chrysler can get that guy back who turned them around a few years ago (that German guy that went to VW) they can make it happen again. Chrysler used to have the most innovative and free thinking spirit out of the big 3, that is what they need again. The succes of the 300/Charger/Magnum proved that if design right, people will buy in droves, no matter what the name is or if it is American or not.

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Hypersonic

Thanks Marcus.

It just seems incredible that Ford are in such a mess. The US auto industry was once invincible. The British industry fell apart, the Italians are shaky, the French look bad too.

Is the Malaysian-built Proton sold in the US ....or have you been spared?

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