Schrempp nightmare over

FRANKFURT - His dream of building a worldwide automotive group turned into a nightmare for thousands of DaimlerChrysler shareholders.

But yesterday they woke up to a new era with the share price jumping more than 10 per cent after Daimler abruptly announced that Juergen Schrempp, its much criticised chief executive, would go at the end of 2005, two years ahead of time.

JP Morgan analyst Philippe Houchois was enthusiastic about the news.

"It's a wonderful day for the auto industry as a whole. There is no supervisory board seat, no consultancy role or anything. It's as miserable an exit as you could think," he said.

Schrempp will be replaced by Dieter Zetsche, who helped return the Chrysler division to profitability.

The Stuttgart, Germany-based carmaker also said second-quarter profit rose 28 per cent, more than analysts expected.

"It was good timing [for Schrempp], since the strong quarterly results make it impossible to determine exactly just how big the Schrempp discount is," said MainFirst fund manager Anko Beldsnijder.

Schrempp transformed Daimler-Benz, Europe's largest industrial company, with the US$36 billion ($52.6 billion) purchase of Chrysler.

Since then, the company's market value has declined by 46 per cent as the US division struggled with losses and the Mercedes Car Group faced recalls. BMW passed Mercedes this year to become the world's largest luxury carmaker.

"Under his stewardship the icon that was Mercedes-Benz has been devalued," said Stephen Pope, an analyst at Cantor Fitzgerald in London.

"There has been a loss of fiscal discipline within the group as money has been thrown at Chrysler. The decision to acquire Chrysler in the first place has not been a great success."

The cheers of approval from the capital markets at his exit suggest Schrempp will be remembered most for his failed "World Inc" strategy.

Piecing together an empire that spanned the far reaches of the globe, the self-proclaimed champion of shareholder value presided over a decade of unparalleled decline as billions of dollars were spent year after year in a vain attempt to hold the group together.

At the core lies the 1998 merger between upmarket Daimler-Benz and mass market US carmaker Chrysler, which spawned volume growth but little else apart from massive restructuring costs and hefty losses, industry experts say.

The disastrous alliance with stricken Mitsubishi Motors later on, its loss-making Smart microcar unit and the current crisis at Mercedes-Benz went on to destroy more value.

"A catalogue of appalling judgments driven by all kinds of visions of grandeur. It's extraordinary that Schrempp could hang on for so long," said John Wormald, managing partner of consultancy firm Autopolis.

The 60-year-old native of Freiburg worked at DaimlerChrysler, and earlier Daimler-Benz, for more than four decades, starting as an apprentice mechanic in 1961.

He earned early praise as CEO after returning the group to its carmaking roots, moving away from the industrial conglomerate of his failed predecessor, Edzard Reuter.

But signs had already emerged shortly thereafter that his acquisition strategy might be flawed.

During his previous role as head of Daimler-Benz Aerospace, the company bought Dutch plane maker Fokker which subsequently raked up billions in losses before it went bust.

"Fokker was a leading indicator that management would later repeat its mistake in an even more grandiose style," Beldsnijder said.

But Schrempp survived, famously being quoted as saying that any other CEO would have been fired but "Daimler needed me more than I need Daimler".

In reality though Schrempp proved a calculating tactician who awarded loyalty and punished dissent, famously sacrificing star manager Wolfgang Bernhard to save his own skin after his former pupil earned the wrath of Daimler's powerful works council.

News of Schrempp's departure triggered a flurry of upgrades, such as at Merrill Lynch, which raised the stock to "neutral" from "sell".

"Considering that Schrempp has long been the lightning rod for shareholder dissatisfaction and anger after presiding over a series of value destroying initiatives ranging from Fokker Aerospace, Chrysler, Smart and Mitsubishi Motors, it was no surprise that the stock price greeted the news of his premature departure with massive enthusiasm," it wrote in a research note.

During a conference call later, Schrempp dismissed the notion that he had suffered a bitter defeat. "Clearly I'm a very happy man about the decision, the timing and the way the company goes," he said, saying the move agreed with the board followed a successful turnaround.

- REUTERS, BLOOMBERG