DaimlerChrysler CEO Gets a Bruising | Business| Economy and finance news from a German perspective | DW | 06.04.2005
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DaimlerChrysler CEO Gets a Bruising

As expected, DaimlerChrysler CEO Jürgen Schrempp got a verbal beating at the annual shareholder's meeting on Wednesday. The embattled CEO defended his leadership, but will go from the meeting with a black eye.


DaimlerChrysler's star has faded, and stockholders are angry

Urged on by the repeated applause of attending shareholders, representative after representative of DaimlerChrysler's biggest investors tore into the company and its embattled chief.

"Mr. Schrempp, the past five years have been marked by mismanagement," said Klaus Kaldemorgen, whose investment fund DWS owns 10 percent of DaimlerChrysler stock. "Shareholder patience is over."

CEO on the defensive

E-Klasse, E 350 mit Sportpaket

Mercedes' image is taking a beating

The US-German company and its veteran CEO have been reeling from a series of serious setbacks that have tarnished the car company's glowing image in the past year. The company's operating profit had to be revised, the Smart minicar division is undergoing a 1.3 billion euro ($1.68 billion) restructuring program, and the company began the biggest recall of cars in its history at the beginning of April.

Schrempp was well prepared for an onslaught of criticism at Wednesday's meeting in Berlin. In his address, he told the gathering of 8,000 that they would have to brace for six months of bad news due to the high oil prices, a weak dollar, recall costs and restructuring program in the Smart division. But he assured them that DaimlerChrysler was still performing satisfactorily.

"We reached our profit goals," said Schrempp, who has headed DaimlerChrysler for 10 years.

Brand is endangered

But it wasn’t the profit margin so much as the disturbing tendencies in important DaimlerChrysler divisions that bothered majority shareholders. Thomas Meier, the fund manager at Union Investment, drew applause when he criticized recent developments at Mercedes-Benz, Daimler's most valuable division.

After discovering defects in electrical components of Mercedes cars built after 2001, DaimlerChrysler launched a recall of 1.3 million cars at the beginning of April. The problems halved the division's profit margin last year from 3.1 billion to 1.67 billion euros, said Meier, whose fund owns 15 million shares.

"The brand Mercedes-Benz is endangered," he said.

Smart a "declaration of bankruptcy"

Smart mit Katze Grisu

The two-seat minicar Smart

The Smart division, which has yet to bring a profit since the two-seat minicar was introduced in 1998, came in for similar criticism. Fund managers took aim at the 3.8 billion euros in losses the division has posted. Recent efforts to revive the brand by expanding the selection of models have failed and analysts say Daimler has not been able to find a market for the cars.

The announced 1.3 billion restructuring program, which includes staff cuts, is a "declaration of bankruptcy," said Kaldemorgen.

Schrempp admitted to the failings.

DaimlerChrysler Hauptversammlung in Berlin

Juergen Schrempp explains the annual business report as a display illustrates the decreasing profit trend at the beginning of the annual meeting in Berlin on Wednesday.

"Mercedes-Benz quality was not upheld, and Smart needs to be brought back," he said.

Witholding approval

So does the share price. Compared to other automotive companies and the DAX index on the Frankfurt Stock Exchange, DaimlerChrysler stock performed poorly over the past year. Whereas the DAX was in the black, DaimlerChrysler stock dropped 0.6 percent in value, continuing a downwards trend in the past five years.

Last year, Schrempp's management team won approval of 88.49 percent of its investors, around 10 percent less than the year before. Shareholders of companies in Germany traditionally ratify management's actions over the previous year. An investor only rarely refuses to give management approval.

But Union Investment has already said that it will withhold its vote of confidence at the end of the meeting. Others are looking to follow.

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