DaimlerChrysler AG today (18/12/00) issued a letter to shareholders. The text
follows:
Dear Shareholder,
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The last few weeks have seen a high level of interest in DaimlerChrysler, with
a focus in particular on our Chrysler business. Under the circumstances we thought
that it might be useful to set out the situation for you as we see it.
Over the last five years, we have completely restructured and refocused the
DaimlerChrysler Group, from a diversified industrial company to one of the world’s
leading automotive manufacturers. In the process, we have shed not only a number
of loss-making and non-core operations, but we have also considerably improved
the cost structure of our automobile operations in Germany. This has been possible
thanks to the dedication and flexibility of our workforce. Our goal remains
to be the world’s leading and most profitable automobile manufacturer.
As we anticipated five years ago, the past three years have seen further consolidation
in the automotive industry, and a surge of alliances and partnerships. Throughout
the merger between Daimler-Benz and Chrysler, DaimlerChrysler led this process.
We followed through – in our partnerships with Mitsubishi Motors Corporation
and Hyundai Motor Company — with moves to position ourselves in the fast growing
markets of Asia. Although Chrysler is going through a challenging period right
now, we are confident that the Chrysler merger, the alliance with Mitsubishi
Motors and acquisition of a stake in Hyundai will bring us the world-wide growth
opportunities and the economies of scale we need in order to create long-term
shareholder value.
We are now present in all major world markets, we have brands and products
to appeal to a very wide variety of customers world-wide, and our product offensive
continues. Over the next five years, we will renew more than 80% of our product
range by launching up to 60 new models and our Asian partners will be modernising
their products in coordination with us. Different brands will develop different
models for different regions but where appropriate share components and systems.
Synergies such as these will improve our margins, reinforce our ability to innovate,
and strengthen the loyalty of our customers. For example, in Germany eight out
of 10 Mercedes-Benz customers buy another Mercedes-Benz.
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By GlobalDataIn 1999, the year following the merger of Daimler-Benz and Chrysler, DaimlerChrysler
reported an operating profit of 10.3 billion euros (adjusted for one-time effects)
and Chrysler reported an operating profit of 5.2 billion euros. For the Group
as a whole this was a record and for Chrysler it was their second-highest profit
ever. This year, Mercedes-Benz Passenger Cars & Smart and Commercial Vehicles
have continued to perform well, but Chrysler’s performance has become particularly
challenging since the summer. Preliminary estimates suggest that, despite losses
in the third and fourth quarters, Chrysler is likely to achieve an operating
profit of around 500 million euros for the year. DaimlerChrysler as a whole
expects to announce an operating profit of between 9.5 billion and 10 billion
euros, including one-time items, which are likely to total 4.5 billion euros.
Mercedes-Benz Passenger Cars is expected to produce a record level of earnings,
despite significant R&D costs for new models to be launched in the next
few years.
The production start-up of the new C-Class was extremely rapid, enabled us
to sell 47,600 new C-Class vehicles in the third quarter. Next year, we will
bring to the market the new SL as well as two additional variants of the C-Class
(the station wagon and the sports coupe) and, in 2002, we will launch the next
E-Class, the CLK successor coupe and the ultimate in luxury, the new Maybach.
Commercial Vehicles is an excellent example of our approach to global and segment
diversification.
This year we have been able to offset the downturn in the US heavy truck market
with a successful performance in the European and emerging markets and within
the van business. Thus, while the outlook for unit sales for the year as a whole
is a little lower than last year, we expect earnings to be slightly higher.
In the future, we also expect to develop our commercial vehicle business through
opportunities provided by our Asian alliance. The Services business has had
a challenging year, especially in the third quarter, due to pressure on residual
values in the US, but we have tightened up our control systems and our marketing
measures for used vehicles. We are confident that this business has an important
role to play in cementing long- term relationships with customers.
During the course of the year, we have also taken further important steps to
focus our operations on the core automobile business. We have exchanged shares
in Dasa for a stake of more than 30% in EADS, whose shares have risen by more
than 20% since the IPO in July, Deutsche Telekom has taken a 50.1% stake in
debis Systemhaus, our IT services company, and we have announced the sale of
Adtranz to Bombardier. We will record substantial capital gains from these transactions,
which will result in significant one-time effects. We have also considerably
strengthened our commercial vehicle business through the acquisitions of Western
Star, a Canadian truck maker, and the outstanding shares in Detroit Diesel,
a US truck engine manufacturer.
In summary, through a series of strategic acquisitions and divestitures, we
have positioned the Group to be a world-class automobile manufacturer. Turning
now to why the situation at Chrysler began to worsen during the course of 2000,
the reasons for this were two-fold:
Firstly, competitive pressure in the US automotive market increased significantly,
as evidenced by the strong rise in sales incentives or discounts which are up
by over one third compared with a year ago, and are almost three times what
they were in 1997.
Secondly, Chrysler faced a number of specific challenges. We launched several
major new products – the new minivan, the PT Cruiser, the Dodge Stratus and
the Chrysler Sebring and convertible – this is good but launching so many products
in such a short space of time is expensive. New products entail significant
up-front costs, both in terms of marketing spend on the new product and the
need to offer discounts on the old product to clear stock levels.
Chrysler has also been hurt by the unusually fierce nature of the competition
that has occurred in the historically profitable niches in which it has operated;
the minivan, the sports utility and the pick-up truck segments. Our competitors
recognised the profitability of these segments, entered with new products and
increased capacity. Chrysler did not adjust its cost structure sufficiently
to take into account the changed conditions in the market. Decisive action has
now been taken to solve the situation at Chrysler. On November 17 with the approval
of the Supervisory Board significant changes were made to the Chrysler top team
addressing our very serious concerns about the performance of the business.
Dieter Zetsche, the new President/Chief Executive Officer of Chrysler, and Wolfgang
Bernhard, the new Chief Operating Officer, have been chosen to lead the Chrysler
team because of their past successes at DaimlerChrysler. Dieter Zetsche, Wolfgang
Bernhard and all the employees at Chrysler have our full support. The management
team has a wide-ranging mandate to reposition and restructure the Chrysler business
to enable it to regain its strong market position and to become highly profitable
again. Already we have begun to make the tough decisions necessary to restore
the business to full financial health; we have cut production to a more realistic
level to reduce inventories and we will rigorously examine every part of the
value chain. The management team will report fully on their plans in late February
and we will share these findings with you at the time of the announcement of
our full year results on February 26. In order to restore Chrysler to profitability
as soon as possible what is already clear is that we must restructure the business
– this will bring with it a cost. This expenditure however should also ensure
DaimlerChrysler maintains its position at the forefront of the modern automotive
industry.
In addition, Mitsubishi Motors in which we have 34% stake (consolidated at
equity) will refocus its business over the coming year. Again, we will give
more detail of this at the time of the announcement of our full year results.
In 2001 we believe that the competitive market environment will continue to
intensify and that our underlying financial performance, particularly in the
United States, will reflect this. Indeed, if the automobile industry, especially
in the US, becomes weaker in 2001 we will face a year which is even more challenging
than 2000. We have no doubt, that our strong overall financial position will
allow us to overcome the current difficult transition period within our business.
Recently several lawsuits have been filed in the United States making various
allegations about the 1998 Chrysler merger. We are firmly convinced that these
claims are without basis in fact or law and will vigorously defend against them.
At DaimlerChrysler we share a vision for the future. A future in which we continue
to do what we have always done so well — but do it better. By pooling the energy
and experience of our talented people and of the highly successful brands we
have built. By developing and leveraging our global resources and operations
to build and offer, the world’s best cars and trucks, in all segments and for
all markets. This is how we plan to deliver sustainable, long-term growth in
the value of your investment in DaimlerChrysler. In all of this, your continued
support for DaimlerChrysler will be crucial to the outcome.
Yours sincerely,
DaimlerChrysler AG
Juergen Schrempp
Manfred Gentz
