Global dream's death leaves career in balance for DaimlerChrysler chief

FRANKFURT - The ink dried on Juergen Schrempp's three-year contract extension only days ago, but fund managers warn that DaimlerChrysler's chief executive now faces increasing pressure to step down.

Schrempp may have suffered his own personal Waterloo on Friday when Daimler's board voted to pull the plug on troubled Japanese carmaker Mitsubishi Motors rather than pump in billions of euros to keep the company on financial life support.

The decision effectively kills Schrempp's dream of creating a global automotive giant by severing its Asian platform.

He instigated the car industry's biggest merger in 1998 by joining Chrysler and Daimler-Benz, and later went on to build up stakes in Mitsubishi Motors and Korea's Hyundai Motor to gain economies of scale on three continents.

However, the reality of stubborn losses at Chrysler and Mitsubishi, integration problems and the erosion of shareholder value have made investors increasingly impatient.

Friday's abrupt strategy U-turn may have given DaimlerChrysler's shares a lift, but in the eyes of fund managers it inflicts further damage to Schrempp's standing as the head of the world's fifth-largest car-maker.

"For the past five to six years, there have only been problems, and these are due to the strategy of Juergen Schrempp, and the supervisory board chairman [Hilmar Kopper] who signed off on it every single time," said Deka Investment director and portfolio manager Michael Schneider.

"And it's our expectation that if it hasn't worked out after this long, one has to accept the consequences. Then it's time to say 'Right, that's it' and let someone else give it a try," he continued. Deka holds about 12 million shares in DaimlerChrysler and voted against the boards at this month's annual general meeting.

After frequent and often venomous calls for his resignation at the AGM, Schrempp's board was ratified by just 88.5 per cent of the shareholders attending the meeting, compared with 99.4 per cent in the previous year.

A fund manager from a UK firm, who spoke on condition of anonymity, said that Kopper's own credibility problem meant he could no longer shield Schrempp from being sacked if the other supervisory board members rebelled.

"This is likely the beginning of the end for Schrempp," he said.

The Daimler CEO was conspicuously absent from a conference call to explain the decision to journalists. He made no published statement and chief financial officer Manfred Gentz said Schrempp was "unavailable" to participate in the call. When asked whether any Daimler executives were considering resigning, Gentz replied that "any personnel decision is up to the supervisory board and no one else".

Nevertheless, the about-face in its strategy with Mitsubishi is tantamount to a public admission that Daimler's CEO got it wrong and the billions of euros analysts estimate were invested in Mitsubishi will never be recouped.

"The legs of Schrempp's chair are being sawed away," said Landesbank Rheinland-Pfalz analyst Michael Punzet, while WestLB told its clients the decision will lead to "a discussion whether today is the beginning of the end of the value-destroying global strategy."

Schrempp has presided over other acquisitions that have run into problems.

Having bought Dutch aircraft-maker Fokker during his days as head of Daimler's DASA unit, Schrempp was forced to sell the company only a few years later for a multibillion-euro loss. And the group has taken repeated hits from loss-making Chrysler.

Mitsubishi will be forced to scrape together funds from its Japanese stakeholders to keep it afloat and come up with its own turnaround plan.

DaimlerChrysler

Headquartered: Stuttgart, Germany; Michigan, United States.

Car brands: Maybach, Mercedes-Benz, Smart, Chrysler, Dodge, Jeep.

Truck brands: Mercedes-Benz, Freightliner, Sterling, Western Star, Setra.

Market value: €39 billion ($73 billion).

Sales: 3.85 million passenger cars; 501,000 commercial vehicles (in 2003).

Investments: Mitsubishi Motors 37 per cent, Mitsubishi Fuso Truck & Bus 43 per cent, Hyundai 10.5 per cent.