BOOM & BUST: THE CHRYSLER STORY

Chrysler shriveled under Schrempp

1998 - 2007

Juergen Schrempp, center, with two of his Daimler-Benz lieutenants, Dieter Zetsche, left, and Juergen Hubbert, saw many key Chrysler executives depart after the companies merged in 1998.
From the first day of joint operation — a champagne-soaked, two-continent extravaganza — the pretense of DaimlerChrysler as a merger of equals was slipping.

In a dark-paneled boardroom at the New York Stock Exchange, DaimlerChrysler co-Chairman Juergen Schrempp — an intense, chain-smoking German — and his shorter, quieter American counterpart, Bob Eaton, met with a pair of reporters.

After ceremonies to observe DaimlerChrysler's stock listing in Frankfurt on Nov. 16, 1998, and New York the next morning, the men were jubilant but winding down. From the head of the table, Schrempp handled most questions. Beside him, a more subdued Eaton puffed a huge cigar and occasionally added a remark.

But when Eaton, who already had announced he would retire before the German, was asked whether he would leave early, Schrempp intercepted the question. Abruptly leaning forward and slamming both fists onto the tabletop, Schrempp growled, "I need him!" Eaton remained silent.

'Cash machine'

From the May 7 announcement that Germany's Daimler-Benz AG and Chrysler Corp. would combine, many financial analysts speculated that the deal was more Daimler takeover than merger.

Those in the top ranks of Chrysler had no doubt. "Daimler was interested because we were a cash machine," Francois Castaing, a former head of Chrysler engineering, told Automotive News.

In 1998 and 1999, Chrysler was churning out annual profits of $5 billion or so. Castaing had a lot to do with that. The French-born engineer became head of product engineering after Chrysler acquired American Motors from Renault in 1987.

Under then-President Bob Lutz, Castaing and others adapted AMC's innovative product development approach to create a "platform team" process at Chrysler.

The system forged a team attitude among the senior managers reporting to Lutz. But as Daimler dominated the merger and Eaton failed to defend American viewpoints, some veteran Chrysler managers despaired.

"When you have a real merger of equals, the co-chairmen work side by side in the same office," said Castaing, who left his job as an executive vice president in early 1998 but stayed on as an adviser to Eaton until 2000.

Castaing was dismayed to learn Schrempp would be based in Stuttgart and Eaton in Michigan. "I didn't want anything to do with something like that," Castaing said.

Casualties
Key executive departures from DaimlerChrysler
 TITLEDATEREASON
Bob LutzVice chairman1998Retired
Dennis PawleyExec. VP of manufacturing1998Resigned
Chris TheodoreVP of engineering1999Resigned
Shamel RushwinVP of manufacturing1999Resigned
Tom StallkampPresident1999Ousted
Bob Eatonco-Chairman1999Retired
Jim HoldenPresident2000Ousted
Ted CunninghamVP of sales2000Ousted
Kathleen OswaldChief admin. officer2000Ousted
Tony CervoneCommunications chief2000Ousted
Tom GaleExec. VP of design2000Retired
Francois CastaingAdviser to the chairman2000Retired

Inner circle dissolves

Chrysler's inner circle was dissolving. Lutz, then 67, retired in June 1998 while the new company was being formed.

Schrempp watched the senior Chrysler managers he admired slipping away. When Executive Vice President Dennis Pawley signaled he would leave by Day One, Schrempp turned on his considerable charm.

Pawley, a one-time General Motors plant foreman, had established a Japanese-style lean manufacturing system at Chrysler. One autumn evening, over fried fish and beer at a table with other senior executives at a fishing lodge near Stuttgart, Schrempp asked him why he wanted to leave.

"I want to fish," Pawley replied, in a conversation reported by Bill Vlasic and Bradley Stertz in their book, Taken for a Ride. Schrempp replied: "Nah, nah, you are important. We're going to have all kinds of fun running this company, and you're not going anywhere."

But Pawley did. At 57, he had had enough of factories and nonstop air travel. He wanted to spend more time with his wife. By Day One, Pawley had left Chrysler and was setting up a manufacturing consulting business.

The attrition in Auburn Hills continued. In the first quarter of 1999, engineering Vice President Chris Theodore and manufacturing Vice President Shamel Rushwin left to join Ford.

A wild party

As Chrysler's management team unraveled, Schrempp tried to rebuild German-American camaraderie at a February management retreat in Seville, Spain. On the opening evening amid the hotel's Old World grandeur, dozens of executives ate, drank and smoked fine cigars.

But for two Chrysler executives there, the indelible memory came as the evening wound down. Eaton had been quiet and subdued all evening while an animated Schrempp regaled the group.

As usual, Schrempp's wife was not in attendance. But his longtime secretary, Lydia Deininger, was right beside him. Abruptly, Schrempp picked up the petite Deininger, slung her over his shoulder, said farewell to a startled cluster of executives and carried his secretary up the stairs.

"Eaton was out of it," said one executive who had refused a job offer from another automaker. "At that moment, I decided to leave. I came home and made the call."

Eaton had picked Tom Stallkamp to replace Lutz as Chrysler president in late 1997. But weeks before retiring in late 1999, Eaton fired Stallkamp, appointing Chrysler sales boss Jim Holden as the new president.

Less than a year later, as Chrysler sales continued falling, Schrempp abruptly sacked Holden. Days after being fired, Holden told Peter Brown, then the editor and now the editorial director of Automotive News, that Schrempp blamed him for lower sales.

So Holden followed Lutz, Pawley, Theodore, Rushwin, Stallkamp and Eaton out the door.

In May of 2000, Executive Vice President Tom Gale, Chrysler's highly regarded design chief, announced he would retire by year end and open a design consulting firm.

Two years after Daimler's takeover, the group that created Chrysler's platform teams and six years of prosperity had quit, retired or been fired.

Slashing costs

But the bloodletting at Chrysler wasn't over. In November 2000, Schrempp appointed Dieter Zetsche, an engineer then running Mercedes' commercial-vehicle division, to replace Holden. By then, the U.S. operation was no longer a cash cow.

Chrysler had failed to cut production to match falling sales. Finally, the company closed most plants and boosted incentives on unsold inventories. By the fourth quarter of 2000, the heady profits of 1998 and 1999 had degenerated into a $1.2 billion loss.

Zetsche cleaned house. Sales chief Ted Cunningham, chief administrative officer Kathleen Oswald and communications head Tony Cervone all departed. Zetsche ordered his COO, Wolfgang Bernhard, to slash costs.

"Daimler did rip out a lot of cost" after Zetsche took over Chrysler, said a former senior engineer. Before Zetsche, platform managers had allowed model-by-model variations to proliferate. Costs rose as Chrysler's lineup of cars and trucks shared fewer parts, the source said.

"Chrysler's platform teams realized they had gone too far on individualizing products and were [scaling] back," he said. "But under Dieter, we repeated history. We ripped out stuff that people noticed and went back to making cheap interiors and noisy cars."

Colleagues remember a Jeep platform team manager's embarrassment. Told to cut manufacturing costs on an existing model, he removed a low-washer-fluid warning light.

His daughter bought one of the de-contented Jeeps. One wet-but-sunny winter morning, she called from her car: "Dad, I'm out of washer fluid and I can't see. What happened to the warning light?"

'Hollowed out'

Chrysler's losses damaged Schrempp's status with his own board and emboldened skeptical shareholders who had opposed the Chrysler deal. German financial circles believed Chrysler was a loser that was draining Mercedes' resources.

When Schrempp was forced to step down in 2005, Chrysler lost much of its access to outside expertise for car development. As German investors increased demands to shed Chrysler, U.S. product programs lost focus.

By the time Cerberus Capital Management LP acquired the majority of Chrysler in 2007, industry critics rated most Chrysler cars below average.

Sixteen months later, Chrylser CEO Bob Nardelli admitted as much in a Dec. 9 U.S. Senate hearing. When Sen. Bob Corker, R-Tenn., suggested Chrysler had few competitive vehicles under development, Nardelli agreed.

Under Daimler, Nardelli said, Chrysler had been "somewhat hollowed out." 

You can reach Jesse Snyder at jsnyder@crain.com

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