Zetsche: Dcx, Chrysler Divorce Tough But Right

by : Correy Putton

In the fall of 2005, when Dieter Zetsche returned to Germany as the next CEO of DaimlerChrysler AG, one of his main concerns was to build solid cooperation between Mercedes-Benz and the Chrysler Group.

"Early on in my new assignment, I pushed the organization to leverage the merger to the maximum extent," Zetsche said Wednesday. But the effort had an inadvertent aftermath. Instead of finding new ways for Daimler and Chrysler to work together, "it defined the limits" of their potential cooperation, Zetsche said in one of his first interviews since DCX' announcement Monday that it was selling Chrysler.

After two years of striving hard to bolster camaraderie and productivity, the popular German executive who had rescued from the brink the ailing American division of DCX was executing a contract to sell Chrysler.

On Wednesday, DCX supervisory board unanimously approved the sale of Chrysler to private equity firm Cerberus Capital Management. "Even though I went through an emotional roller coaster in the past year, I'm glad of the outcome of the process," said Zetsche, who ran Chrysler for about five years. "I'm very confident we've found a strong, sound and sustainable base for a new Chrysler."

United Auto Workers President Ron Gettelfinger's unpredicted endorsement of the Chrysler sale Monday helped influence the other labor representatives on the supervisory board. Employee representatives hold ten of the twenty seats, and Zetsche said they seemed satisfied that the deal with Cerberus took into account the well-being of Chrysler's 80,000 employees. "That was my agenda as well," said Zetsche. "It was very much a consensus-based meeting. There was no controversy or tension."

The deal is set to close in the third quarter, to put an end to the turbulent nine-year merger of Daimler-Benz and Chrysler Corp. A few German papers have run jubilant headlines, such as the tabloid Bild, which declared "Finally, we got rid of Chrysler!"

But this week, DCX employees described the ambience in Stuttgart as odd. The sale of DCX American arm will allow the soon-to-be-renamed Daimler AG to reposition itself as a premium carmaker, with a market-leading heavy-truck business. But it also minimizes the potentials of the company at a time when competitors like Porsche and Volkswagen AG are joining forces.

Earlier this week, when Zetsche was asked why the DCX merger hadn't delivered on its promise, he said the company had overestimated the potential synergies between Chrysler and Mercedes. In retrospection, it was clear that efforts to share components were limited by the big price gaps between Mercedes and Chrysler product lines. He said DCX also miscalculated the impact that the transfer of Mercedes technology would have on Chrysler's brands and the pricing of its vehicles.

Zetsche said the decision to sell Chrysler occurred gradually. "There wasn't one triggering event," he said. On Feb. 14, the CEO stunned the world with his declaration that all options were under consideration for Chrysler. Asked when management narrowed the options down to a sale, he said: "There was no one day, but a gradual development, with a growing likelihood in one direction." Zetsche's ability to line up the whole supervisory board behind the deal shows his talent as a consensus-builder, but other aspects of the sale were handled clumsily.

"He either knowingly -- I think unknowingly -- put the company in play, turned it over to investment bankers and in the process demeaned the company and demoralized the work force," said Gerald Meyers, a business professor at the University of Michigan and former chairman of the AMC automaker acquired in 1987 by Chrysler.

Under the sale transaction announced Monday, Cerberus, a private equity firm is paying $7.4 billion for an 80.1 percent stake in Chrysler, and most of that will go into Chrysler's operations. DCX will keep 19.9 percent.

"With the support of DaimlerChrysler, all resources are available to develop a successful future for Chrysler," Zetsche said Wednesday. DCX is transferring Chrysler's industrial and financial services activities, free of debt, to Cerberus. On the other hand, Chrysler will bear the pension and health care liabilities, estimated at about $17 billion, for its employees.

Cerberus Chairman John Snow said this week that no further worker reductions were envisaged at Chrysler, which is already slashing 13,000 jobs as part of a restructuring plan announced in mid-February. Zetsche said Cerberus seemed pleased with the turnaround plan under way. But he said the deal did not include job guarantees. "I don't think in this kind of contract you could put in a paragraph that gives you these guarantees," he said.

Snow and Zetsche have noted this week that Chrysler might fare better under private ownership. It will come under less pressure from financial markets to offer short-term results, and its management, led by current CEO Tom LaSorda, will be able to concentrate on longer-term strategies. is clearing the air for the automaker and the new management is facing the challenges with high hopes. Zetsche said he would remain in charge until the deal is finalized. "Until the day of the closing, this is a company of DaimlerChrysler. Tom LaSorda and the management will report to me."