Stuttgart, Germany: On Monday evening at Chrysler’s offices in Auburn Hills, Michigan, Dieter Zetsche held what is likely to be his last, and most poignant, session of ‘Ask Dr Z.’
Zetsche, the chief executive of DaimlerChrysler AG, became famous last summer as that affable German fellow with a walrus mustache, who answered questions about cars on a Chrysler website.
Now, the real Dr Z was fielding questions from 250 senior managers about why DaimlerChrysler had decided to sell Chrysler to Cerberus Capital Management, a New York-based private equity firm.
He argued that Cerberus, with its financial skills and huge investment in Chrysler plus a continued minority shareholding by Daimler, offered the “best possible future setup for Chrysler.”
Back at DaimlerChrysler’s headquarters here, Zetsche said in an interview on Wednesday that the decision to sell the company, which he led from 2000 to 2005, was “emotionally a very tough process for me.”
But by last fall, when Chrysler’s sales deteriorated and the car maker tumbled into losses, he said it was starting to become clear that there was no longer a case for keeping Daimler and Chrysler together.
The US auto market was simply too volatile, and the synergies between the Mercedes division of Daimler and Chrysler, which Zetsche had made a priority when he took the helm of DaimlerChrysler in January 2006, were disappointing.
Moreover, Chrysler’s emphasis on large vehicles was ill-suited to an era of high gasoline prices, making it vulnerable not only to Japanese imports but to its crosstown rivals, Ford and General Motors.
“There were a number of issues, which obviously expressed the downside risk even more,” he said. “I can’t give you an exact date. It was an ongoing process where you feel how you go, step by step, not always on a rational basis, but you start to move in one direction.”
Zetsche seemed at peace with the decision, which effectively turns back the clock to 1998 for Daimler. The company will revert to selling Mercedes-Benz cars and trucks, giving up its status as an all-in-one car maker but retaining two profitable speciality businesses.
“In my role,” he said, “I have to ultimately make judgements and decisions, based on business rationale.”
With its stock price severely depressed, DaimlerChrysler was itself at risk of being targeted by private equity investors. Zetsche noted that the disclosure in February that DaimlerChrysler was considering “all options” for Chrysler reduced that risk because the stock price soared.
The new Daimler, he said, will be a well-capitalized car maker focused on two of the fastest-growing segments of the market. Zetsche predicted that Mercedes, which has struggled in recent years, would give BMW a run for its money. “We are very much coming back,” he said.
Mercedes is on track to earn better than a 7% return on sales, Zetsche’s goal. It recently rolled out a new version of its small C-class sedan, and says it has booked 80,000 orders. The next milestone for Mercedes will be a redesign of its lynchpin E-class sedan in 2009.
Zetsche emphasized that Daimler and Chrysler would continue to have a link beyond merely a 19.9% financial stake. “We have this moral and ethical link, and I personally do,” he said. Maintaining a stake in Chrysler was important in persuading the president of the United Automobile Workers, Ron Gettelfinger, to support the sale to Cerberus, according to Zetsche.
On Saturday, the two men met for three-and-a-half hours, joined by Thomas W. LaSorda, Chrysler’s chief executive.
At the meeting in Auburn Hills, Zetsche said Chrysler’s managers seemed receptive, despite their questions. “It was really an atmosphere of a fresh start, of great opportunities going forward,” he said. “On a personal basis, we had a lot of hugs and strong emotions.”
Stephen A. Feinberg, the low-profile financier who runs Cerberus, was at the meeting to explain his firm’s philosophy. “It was of extreme importance that Steve Feinberg did not remain a mystery man, but was a face to look at and a person to ask questions to,” Zetsche said, adding that he “created a lot of confidence.”
While Daimler will now be known mainly for Mercedes, it still plans to roll out its Smart mini-car in the US in February. Smart recently set up a website that allows people to make a $99 down payment to reserve one. Within six weeks, 12,000 people had done so.
Zetsche said Daimler’s nine years with a US partner had made its in-grown culture more open. “People hired from the outside were killed in a hurry,” he said of the pre-merger company. “That has changed a lot.”
It also moulded Zetsche’s management style. “The five years I spent in Auburn Hills were professionally and personally the most important and the most satisfying years I spent anywhere,” he said.
Chrysler even made him something of a cult figure. After appearing in television commercials, Zetsche said he was stopped by strangers on the street. Six months ago, he recalled, he was waved through an airport line in New York by an officer who greeted him as Dr Z.
Daimler will soon decide whether to maintain English as the official language of the company—a step it took after acquiring Chrysler.
Zetsche said he strongly favours keeping English, but concedes that for reasons of efficiency, it may make sense to go back to German.
One thing that seems destined to end along with Daimler’s Motown adventure: Zetsche’s career as a TV pitchman. “I’m much happier with this day job than with my night job,” he said.