Daniel Howes: Merger cruelly gave Chrysler to world
Daimler deal left U.S. auto icon stripped but globally savvy
Of all the delusions of grandeur in the fusion of Germany's Daimler-Benz and America's Chrysler, perhaps none is more telling than the aborted attempt in 2000 to create a "virtual headquarters" on the upper floors of the historic Chrysler Building in New York City.
It would symbolize that the most audacious deal in German corporate history was ensconced at the epicenter of global commerce in the house that Walter P. Chrysler built, that the combined company was something other than what it became -- a voracious consumer of shareholder wealth and human capital.
Former Chairman Jürgen Schrempp, architect of the failed nine-year deal, never got his office in the Chrysler Building. But the so-called "Merger of Equals" he and former Chrysler Chairman Robert J. Eaton engineered, now being unwound by the private equity shop Cerberus Capital Management LP, should be remembered for the lie it was and the lives it changed.
For the executives, almost all of them American, publicly discarded as the German owners tightened their grip on a company they ultimately could neither combine nor manage. Gone were Stallkamp, Holden, even Eaton.
For Chrysler's $36 billion price tag in 1998 that dwindled to a paltry few billion nine years later. It was a massive destruction of capital that dwarfs General Motors Corp.'s Fiat fiasco and says as much about Daimler's arrogance and over-hyped acumen as it does Detroit's undeniably broken business model.
For the 40,000 Chrysler employees, blue- and white-collar, who walked out the doors during waves of corporate restructuring, their exodus ultimately an exercise in prettying up Chrysler so the masters in Stuttgart could dump it, and cheaply, too.
For the families -- including mine -- who decamped to Germany to be part of (or to cover) a brave, new transatlantic experiment that aimed to revolutionize the global auto business. Aside from making Chrysler the preferred whipping boy of Deutschland AG, it mostly did nothing of the sort.
False synergy, bad deal
DaimlerChrysler was a big promise that seldom delivered. Its mastermind, Schrempp, badly misunderstood Chrysler's weaknesses and overestimated the "synergies" the deal would deliver by underestimating the antipathy his own troops felt for Chrysler and the idea of melding any of it into Mercedes-Benz.
And that never really changed, even after Schrempp dispatched Dieter Zetsche in 2000 to Auburn Hills to fix Chrysler. Thousands lost their jobs; six plants were closed; the product portfolio was torn apart and rebuilt.
The "disciplined pizzazz" championed by Zetsche and COO Wolfgang Bernhard, essentially the fuel that propelled Zetsche into Schrempp's job and Bernhard to Mercedes and then VW, quickly fizzled into recrimination.
Chrysler's market share dropped. Inventories ballooned to embarrassing heights. Gaps in the product roll-out became critical mistakes. Relations with dealers soured badly. Quality suffered, and profitability evaporated.
And the German boss who led Chrysler to that point, who starred in Chrysler commercials, who owned many of Chrysler's problems but left them for others to clean up, was now in the top job in Stuttgart. There, Zetsche plotted a retreat that is stunning in its swiftness and finality.
'Change or die' writ large
The good news about Cerberus buying Chrysler is that it suggests smart financial people with a record of turning profits see opportunity where others (based in Stuttgart) see futility, book losses and cast blame.
But it won't be easy.
Union leaders who just last week decried private equity investors as vultures angling to "strip and flip" companies like Chrysler emerged from meetings Tuesday with Cerberus principals to declare open minds -- however much they were pried open by the irreversibility of Daimler's decision to sell.
Whatever. However optimistic the heads of the United Auto Workers and the Canadian Auto Workers sound now, they and their members are likely to be facing the kind of dramatic change that could save the Detroit-based auto industry from mass suicide.
The harsh reality of private equity investors is that they aren't in business to lose money year after year, to cut contracts that are uncompetitive on their face or to tolerate the cultural sloth that brought Chrysler and its cross-town rivals to their ugly pass.
In keeping with its DNA of change-through-crisis, Chrysler could become the crucible for change in a domestic industry that can't change fast enough to meet the challenges being mounted by Toyota, Honda, Nissan and Hyundai, among others.
For all the angst associated with Chrysler's nine-year marriage to Daimler, Chrysler matured from a parochial and the most North America-centric of Detroit's automakers into a savvier, more globally aware player.
It dropped diesel engines into American cars and successfully sold them abroad. Its CEO, Tom LaSorda, cut the first deal with a Chinese automaker to build small cars in China, badge them as Chrysler Group vehicles, and ship them to the United States.
Its German parent showed Chrysler a bigger world, and that's good because that's where it's going to have to play to survive.
Daniel Howes' column runs Mondays, Wednesdays and Fridays. You can reach him at (313) 222-2106, dchowes@detnews.com or http://info.detnews.com/danielhowesblog.
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