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Can Dieter Zetsche shift mega-merger into high gear?

He saved Chrysler. Next up: Fix DaimlerChrysler.

Christine Tierney / The Detroit News

STUTTGART, Germany

Juergen Schrempp's airy office in a tower in DaimlerChrysler's Moehringen campus has been empty since Christmas. The antique English furniture is gone. On a wintry day in early March, the door was locked and the entire 11th floor was unoccupied. DaimlerChrysler AG's new CEO Dieter Zetsche, Schrempp's successor, works across town in a '50s-era high-rise in the gritty district of Untertuerkheim, headquarters of former Daimler bosses for 85 years.

His office overlooks a sprawl of warehouses built around the first Mercedes-Benz factory. "I see trucks coming in, and engines rolling out -- everything that's part of the core activities of an automotive company," Zetsche said.

From his command post in the thick of the action, he is moving swiftly to overhaul the $180 billion company and deliver the benefits promised in the 1998 merger of Daimler-Benz and Chrysler Corp.

Zetsche is dismantling barriers between the car divisions, drawing on his deep knowledge of both. Engineers in Germany are now discussing a joint platform for the next Mercedes A-Class and Chrysler cars -- a project that would have been unthinkable a few years ago.

In the seven months since he left Auburn Hills, the former Chrysler CEO has already tackled the biggest problems at Mercedes. He is cutting its German work force by 9 percent, has realigned its sales network and scrapped or sold unprofitable models in the Smart minicar lineup.

He has also reorganized the heavy-truck division, and is now streamlining DaimlerChrysler's administrative ranks.

But Zetsche's most eloquent gesture has been his decision in January to move the global headquarters back to Untertuerkheim, the birthplace of Mercedes-Benz.

The building where he works vaguely evokes Ford Motor Co.'s Dearborn headquarters overlooking the historic Rouge facilities.

"The move is very symbolic, bringing the top executives back to where the top executives of the company used to be, and back to a place where you can smell the oil from the factories -- literally," said Heinrich Reidelbach, vice president for international procurement at DaimlerChrysler.

Mercedes veterans are relieved to see the luxury carmaker restored to prominence after years of being managed -- some say mismanaged -- by bosses in Moehringen who tapped its funds to bankroll their expansion plans.

"There were two centers of consciousness -- one being Daimler and the other Mercedes. In the past, we saw a lot of infighting and friction," Zetsche said in an interview. "Our intention is to have just one company."

His goal is to see that DaimlerChrysler makes the most exciting, high-quality vehicles at the lowest possible cost. "This is very basic, but I believe it's what we need."

Senior executives accustomed to debating global strategy in Moehringen are now poring over vehicle sales and productivity figures. Decisions are coming down faster as Zetsche eliminates entire layers of management -- starting with his own job heading both Mercedes and DaimlerChrysler.

"That move takes one whole layer of dialogue out," said Chrysler CEO Tom LaSorda. "In a company this size, that means a lot."

Zetsche disbanded the high-level executive automotive council, set up in the fractious early years of the merger to explore parts-sharing across the brands. Those decisions now are taken once, by the management board.

Not everyone can find their place in the rapidly changing organization. Many employees view Zetsche's return with trepidation, fearing he has adopted a tough American approach. Managers aligned with rival factions during the CEO succession fight worry about their future.

Zetsche has no patience for intrigue. In a memo sent to employees last fall, he issued a clear edict: Politicking is now verboten.

The new no-nonsense style reflects Zetsche's direct manner, but also mounting pressures on Mercedes and Chrysler.

"The competition is different now from what it was in the past, and then, the process of integration requires time," said Thomas Weber, a board member in charge of group research and development at the Mercedes Car Group.

"We had difficulties at first with the cultures and languages, but the organization has learned that we're stronger together than on our own."

Luxury carmaker tarnished

Barely recovered from its last crisis, Chrysler is being buffeted by the troubles of its Detroit rivals General Motors Corp. and Ford. It would have reported a steep drop in fourth-quarter earnings if it weren't for the proceeds from the sale of a proving ground.

Mercedes has been humbled after a terrible year that included its largest-ever vehicle recall, the discovery of dodgy dealings in the European sales network that led Mercedes to fire some managers, and its first loss in 13 years.

The carmaker is trying to gain traction by launching new vehicles with cutting-edge safety and environmental technology, but it faces a crowded field of rivals.

Its new flagship S-Class sedan is selling well, but the R-Class sportwagon carries $7,700 in incentives -- a hefty sum for a new model, according to analysts at auto research site Edmunds.com.

"The Japanese are becoming very successful in the luxury car business with Lexus, Infiniti and Acura," said Willi Diez, head of the Auto Industry Institute in Geislingen, a town near Stuttgart.

Even luxury carmakers have to be leaner. "That's the point Dieter Zetsche is making," Diez said.

Previous managers introduced turnaround plans at Mercedes and prodded the divisions to work together better, but Zetsche is in a unique position to kick the transformation into high gear.

In addition to heading Chrysler, he ran the heavy-truck division and has served as top salesman and chief engineer at Mercedes.

"He's one of the few top executives, maybe the only one, who has extensive experience in all three businesses," said Reidelbach.

That gives Zetsche familiarity with each automaker's strengths and weaknesses. Whereas Mercedes had been the company's traditional troubleshooter, dispatching experts to Chrysler and to Mitsubishi Motors, Zetsche is tapping Chrysler's expertise in efficient manufacturing.

In January, he put Simon Boag, former group vice president of assembly and stamping operations at Chrysler, in charge of production planning at Mercedes.

"That's a fundamental change," said Diez. "In the past, it was always: What can Mercedes do for Chrysler?"

Investors say the new emphasis on efficiency is long overdue. But it heightens uncertainty for people in Stuttgart accustomed to job security and comfortable working conditions.

White-collar employees in Moehringen worry about losing their jobs as the board members decamp, while factory workers say they are driven hard now.

Gueren Babuscu, a worker in Untertuerkheim, says life at the plant is tougher, with fewer people manning each station.

The perks are gone. Gloves and hand cream that were once freely available for workers handling engines are locked away in a cabinet. "One or two people have the keys, and you have to ask."

But, he added, "it's good that Dieter Zetsche is trying to save money by cutting administration jobs, not just shift workers."

CEO has the common touch

"Everybody feels we're in a time of tremendous change, and everybody has mixed feelings," said Thomas Breitling, a senior executive in Mercedes' research and technology department.

"At Mercedes, it's not usual to have dramatic reductions of staff. That's new for us."

Zetsche is cutting 8,500 jobs at Mercedes and 6,000 jobs across DaimlerChrysler's administrative staff. Most of those cuts will be in Germany, while Chrysler will try to achieve reductions with voluntary buyouts.

But just as Zetsche succeeded in restructuring Chrysler and eliminating 40,000 jobs without devastating morale in Auburn Hills, he is reaching out to employees in Stuttgart.

"I heard him when he came to the factory in Sindelfingen and said we had to reduce personnel by several thousands, and people there accepted it," Breitling said.

"He said the same thing in Moehringen a few weeks later. He's able to convey the message."

Last week, the company announced 300 job cuts at the Smart minicar business, on top of a previous restructuring, and canceled production of the ForFour sedan, which was selling poorly.

Investors had pushed the company to shut down the Smart brand, which has lost money each year since its 1998 launch. But Zetsche spared the iconic ForTwo.

"That shows you how precisely he differentiates and reaches his decisions," said Philipp Rosengarten, Frankfurt-based analyst at consultancy Global Insight.

"It's a smart move. The ForTwo makes sense; the ForFour didn't."

DaimlerChrysler is weighing a U.S. launch for the two-seater, which will be redesigned in 2007.

One of Zetsche's first moves as the new head of Mercedes was to reiterate goals to break even at Smart next year and generate a 7 percent profit margin at Mercedes -- in line with the profitability of successful luxury car companies.

"Most investors expect management to actually achieve this target," said Henning Gebhardt, head of equities at DWS, Germany's biggest mutual fund.

Ever since 2000, DaimlerChrysler has missed or postponed profit goals. In July, when Schrempp said he would step down before the end of his contract, investors were thrilled.

A decade earlier, however, they had roundly welcomed Schrempp, a charismatic figure who brandished shareholder value as his cause. He started out by dismantling the integrated technology concern built by his predecessor, Edzard Reuter.

Reuter had surrounded Mercedes with a collection of unrelated businesses, including a loss-making insurance company, and he moved the headquarters of the holding company to Moehringen. The modern, campuslike complex was originally designed to be sales and marketing offices.

"In the first years, Schrempp focused the company back onto the automotive sector, and that was the right thing to do," Gebhardt said. "But at the end, Mercedes had a margin problem and its reputation was almost ruined."

Schrempp's strategy to build a global automotive powerhouse foundered when first Chrysler, and then Mitsubishi Motors Corp., turned out to be in weaker shape than they first appeared.

Toward the end, Schrempp shunned the limelight. He turned over responsibility for future decisions to Zetsche after his departure was announced, although he remained until the end of the year.

The company will turn another page at the annual meeting on April 12, when shareholders are expected to elect former DaimlerChrysler executive Manfred Bischoff to the governing supervisory board. Bischoff, well-liked by the American directors, is in line to become the board's next chairman in 2007, replacing Schrempp's longtime protector, Hilmar Kopper.

A few weeks before taking over as CEO, Zetsche told aides he would not be moving into Schrempp's office. The elevators in Untertuerkheim are slow, but he joked that that gave him a chance to chat with employees.

"In Moehringen, I step into an elevator, and the only people I might meet are another board member or an administrative assistant," he said. "It's a totally secluded feeling where I personally couldn't survive."

For now, he has planted himself firmly at the center of the operations.
 
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