DaimlerChrysler AG said yesterday that chief executive Juergen E. Schrempp, who oversaw the 1998 takeover of Chrysler Corp., will resign at the end of the year and will be replaced by Dieter Zetsche, president of the Chrysler Group.
Zetsche will take over at a tough time for the world's fifth-largest automaker. DaimlerChrysler is struggling to revive its fortunes and restore its once-lustrous Mercedes-Benz unit, beset by reliability issues and slumping sales. Zetsche has been lauded for returning Chrysler to profitability over the past two years by cutting costs and rolling out a new line of trendy cars.
Partly because of Chrysler's strength, DaimlerChrysler reported yesterday a 28 percent increase in second-quarter profit. The automaker's shares rose 9.8 percent yesterday.
Schrempp, who started his 44-year tenure at the company as an apprentice mechanic, had been sharply criticized by investors for a series of perceived management miscues. Along with the Chrysler merger, critics faulted Schrempp for acquiring a stake in Mitsubishi Motors Corp. in an attempt to expand DaimlerChrysler's reach. The Japanese company has performed poorly, squeezing DaimlerChrysler's bottom line. In addition, DaimlerChrysler's flagship Mercedes division has been hurt by recalls and losses.
"The Supervisory Board and Prof. Schrempp are in full agreement that the end of the year 2005 is the optimal time for a change in the leadership of the company," Hilmar Kopper, chairman of the supervisory board of DaimlerChrysler, said in a statement.
Some industry analysts said Schrempp's departure is long overdue. "It's a mystery how he's hung on for this long," said Maryann Keller, an independent auto industry analyst based in Connecticut. "His decisions have cost the company billions of dollars."
DaimlerChrysler's market value has shrunk by nearly half since the merger.
Zetsche's success in reviving Chrysler positions him well to spread the recovery to the rest of the company, Keller said. Zetsche boosted the division's sales by rolling out popular new models including the Dodge Magnum wagon and the big-grille 300 sedan. Both vehicles are powered by the unit's powerful "Hemi" engine, a technology offering increased horsepower. Chrysler developed the Hemi years ago, and Zetsche revived it. He also improved profit by closing down Chrysler factories and streamlining production.
"He managed to build a sense of unity at Chrysler at time when the unit was unraveling," Keller said. "He stepped in and was able to make Chrysler work again."
Still, Zetsche takes over a company that will have to make a number of changes if it expects to remain competitive with innovators such as Toyota Motor Corp. His big challenge will be to revive the Mercedes brand, said Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business. "They need to define themselves in the luxury market," he said. "Their cars are too bland and don't perform well enough."
The Chrysler division also will have to improve the reliability of its cars and move into the market for environmentally friendly and hybrid cars, Morici added.
In its earnings report, DaimlerChrysler said profit totaled $892 million for the quarter, compared with $194 million for the corresponding period a year ago.
Revenue was boosted by a 4 percent increase in worldwide vehicle sales to 1.3 million, the company said. Revenue totaled $46.5 billion, up 4 percent. The Chrysler Group posted a 4 percent gain in operating profit, to $658 million. The Mercedes Car Group reported a 98 percent decline in operating profit, to $15 million from $850 million, because of a slump in sales of the S-Class and M-Class models and increased raw material prices, the company said.