Newsweek: Chrysler Sputtering

NEW YORK--This week’s Newsweek magazine is reporting that DaimlerChrysler’s cash reserves are dropping to dangerously low levels, with company insiders acknowledging they may shrink to as low as $2 billion by the end of the year--a 78 percent decline from two years ago. If the reserves fall to that level, the automaker would be the poorest in Detroit. GM and Ford each have cash reserves of more than $13 billion, which they consider crucial to surviving a downturn.

Detroit Bureau Chief Keith Naughton reports in the Dec. 11 issue (which hits the stands this week) that with auto sales slowing, DaimlerChrysler is going to need a healthy rainy-day fund more than ever, or its turnaround will be even more difficult to engineer. Instead, the cash from DaimlerChrysler’s reserves is being used to make up for the huge losses in the U.S. unit, to pay for German Chief Executive Officer Jurgen Schrempp’s acquisition of stakes in other automakers, including Mitsubishi, and to cover Chrysler’s new-product budget.

The 1998 merger of Daimler-Benz and Chrysler Corp. became a disaster almost from the start, undermined by a transatlantic culture clash and a damaging exodus of talent, according to the piece. “The executive blood-letting has become so common that some Chrysler troops have taken to playing ‘the dead executives game,’ a contest to predict which Chrysler executive will be the next to go.”

Naughton reports that when top Chrysler executive Jim Holden and Schrempp met over dinner in Stuttgart, Germany, this past Nov. 12, Holden expected to present his turnaround plan, but he never got the chance. Company insiders tell Newsweek Schrempp arrived at the executive dining room with written notes on how Holden had failed in his year as Chrysler’s CEO and fired him.

But the contrast in corporate cultures also hindered the merger, Naughton writes. When both sides would meet in New York for supervisory-board meetings, each Daimler executive would arrive in a chauffeur-driven Mercedes S-class sedan, while the Chrysler brass would all ride in a single minivan they dubbed “the clown car.”

Despite its first financial loss in nine years, a stock price plunge and an $8 billion lawsuit filed against it by DaimlerChrysler’s third largest shareholder, Kirk Kerkorian, CEO Schrempp tells Newsweek “there is a division line between a good strategy and an operational problem. What we are trying to do is implement what I think is a great strategy.” In an interview with European Business Editor Karen Lowry Miller, Schrempp refuses to speculate on possible job cuts in the U.S., but insists that Chrysler can be fixed. “I’m sure that with those excellent people at Chrysler and with the new management, we will most certainly provide a restructuring plan in February, which shows there will be a turnaround at Chrysler.”

Schrempp says the plan will be divided into “milestones” that will allow the financial markets to check progress. “I think as we go along and deliver, we will regain credibility for what we are doing.”

Commenting on whether former CEO Bob Eaton dumped Chrysler just before it ran into trouble, Shrempp says “nobody was taken for a ride. Everything was done in a really transparent way. I think we had all the details that were required to implement a merger of equals. So I’m firmly convinced it was a fair transaction for both sides.”