The problem at DaimlerChrysler is much more than lost market value–but lost value is the starting point. It’s just stunning. Daimler-Benz stock was worth $48 billion on Nov. 16, 1998, the day it issued an additional $36 billion of stock to buy Chrysler. As of Friday, DaimlerChrysler’s market value was only $39 billion–less than Daimler alone was selling for, predeal. Auf Wiedersehen to $45 billion–more than Daimler paid for Chrysler. Ford and GM stock have also fallen since Daimler bought Chrysler, and the U.S. auto cycle turned. But they’re down far less than Daimler. “It’s common to lose the premium [over the predeal market price] that you pay,” says Mark Sirower, head of Boston Consulting Group’s mergers-and-acquisitions practice, “but it’s rare to lose more than the entire market value of the purchase.”
But market value is only part of the problem. Last quarter, Chrysler lost $950 million (including a $440 million charge on vehicles it had leased rather than sold), while other U.S. carmakers coined money. With the market’s softening, further losses lie ahead. More than 25,000 layoffs loom. The Chrysler and Mercedes brands have been sullied. Chairman Jurgen Schrempp foolishly got himself caught between his 1998 statements to the SEC that DaimlerChrysler would be a “merger of equals” and recent interviews in which he said he’d always intended to reduce Chrysler to a mere division. Did he lie to Chrysler? Or is he reinventing history now to cover up his blunders? Who knows? Next he’ll say the company is only pretending to be messed up to make the competition overconfident.
And, of course, Las Vegas takeover tycoon Kirk Kerkorian is on the warpath. Schrempp, the multinationalist, seems to have confused German business culture with U.S. culture. In Germany pretty much the only stockholder to fear is Schrempp’s biggest owner, Deutsche Bank, which is the nexus of Germany AG. (Germany, Inc., to English speakers.) But in the United States you worry about all big holders. Especially Kerkorian, DaimlerChrysler’s third biggest holder, who’s ferocious, well lawyered and very proud. You dis him at your peril, as Chrysler’s old management found out. And Schrempp dissed him big time, by Kerkorian’s lawyer’s account. Kerkorian traveled to Berlin to see Schrempp this spring, but Schrempp had blown off the meeting and decamped to his ranch in South Africa. It’s not clear what Kerkorian’s game is. But for a relative pittance, he’s whacked Schrempp, stirred the pot and may be imperiling the chairman’s hold on his job.
To close: two thoughts. First, I hope Chrysler turns around, given how many jobs are at stake. But with morale so low, the market softening and German-American bickering going on, I wouldn’t bet on it. Second, Jurgen Schrempp wanted a place in business history. He’ll get it. But it won’t be quite the place he had in mind.
