Chrysler gets tutor on revival

DaimlerChrysler

DCX CEO Dieter Zetsche appears at the premiere of the

Mercedes C-Class in Germany. The luxury division

has caught up with Audi and BMW in terms of profitability.

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DCX taps turnaround guru from Mercedes to guide Auburn Hills division back to black.

Christine Tierney / The Detroit News - - DaimlerChrysler CEO Dieter Zetsche hadn't been back in Germany a full year when the Chrysler Group that he'd restructured started losing money again. But investors' disappointment with Chrysler's woes was mitigated by relief at the brisk recovery under way at Mercedes-Benz.

On Oct. 25, as DaimlerChrysler disclosed a $1.5 billion third-quarter shortfall at Chrysler, it reported that its Stuttgart-based luxury carmaker had hit its earnings targets ahead of schedule. With operating profits rising to more than 7 percent of sales, Mercedes had caught up with BMW and Audi in terms of profitability.

With Mercedes back on track, Zetsche -- who has run the luxury carmaker since Sept. 1, 2005 -- dispatched its chief operating officer, turnaround Meister Rainer Schmückle, to advise Chrysler.

DaimlerChrysler officials say it's not a case of Germans telling managers in Auburn Hills what to do. They say it's no different from when Chrysler CEO Tom LaSorda, a lean manufacturing expert, advised Mercedes when it was struggling to cut costs.

Though only 46, Schmückle has a lot of experience, having previously overseen the restructuring of DaimlerChrysler's Freightliner truck company in Portland, Ore., and its Adtranz rail equipment unit.

He travels regularly to Auburn Hills but usually confers with his American colleagues through videoconferences.

"He looks at what the study groups are doing and offers his expertise, like an adviser. He might say, 'In my experience, it's better to do it this way,' " said a DaimlerChrysler manager familiar with the meetings.

Schmückle works closely with DaimlerChrysler's consultants McKinsey & Co. and shares their methodical approach.

"He goes through the entire manufacturing process, the vehicle development process, each supplier, each sub-supplier," said a Mercedes manager who spoke on condition of anonymity.

Described as reserved by people who have worked with him, Schmückle is tenacious in the implementation. "He doesn't just kick off the process," the manager said. "He follows up."

At Mercedes, managers must ensure initiatives move from the first level -- when they're good ideas, to the fifth -- when a financial gain is recorded. That 1-to-5 scale is still in use at Freightliner.

"He'd have sympathy for your excuse," a senior Freightliner executive recalled. "But then he'd say, 'What are you going to do to replace that initiative with something that works?' "

The Mercedes restructuring entailed thousands of job cuts and deeply altered the cosseted carmaker's methods. Before 2005, Mercedes had been profitable even though vehicle quality was deteriorating and its Smart minicar business was in the red.

Its leading rivals were sharing and re-using parts and modules to save money, but Mercedes still made each vehicle from scratch, including the latest S-Class sedan.

Analyst Christian Breitsprecher at BHF Bank says the C-Class launched in Germany last month is the first Mercedes built using many existing components. "It is hard to understand why Mercedes has only recently turned to a product engineering philosophy which has been known to be one of the key success factors of BMW," he wrote in a report.

Mercedes will build its next A-Class car using architecture that will also appear in Chrysler cars -- a once unthinkable notion.

But Breitsprecher questions whether there's enough overlap in the Mercedes and Chrysler lineups and vehicle prices to yield big savings. "The deep strategic review of Chrysler should lead to the recognition that Chrysler needs another partner for its long-term future," he wrote, echoing other German investors.

DaimlerChrysler's management will want to show that their plans will not only fix Chrysler but also help Mercedes.

"Mercedes is seen as the core," said analyst Jürgen Pieper at Metzler Bank. Looking at investment banks' average valuation of DaimlerChrysler's businesses, "Mercedes' value is $40 billion at least, and Chrysler's is zero."

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