DC Faces Angry Shareholders

March 18, 2001

Bad news continues to haunt DaimlerChrysler as the company's management struggles to defuse a shareholder rebellion in Germany and restore morale at the battered Chrysler Group in the United States.

Meanwhile, a report from analysts has raised concerns DaimlerChrysler's management has underestimated the losses at another of its major divisions, the commercial vehicle group. DaimlerChrysler's management insists it has factored in additional losses at Freightliner, the commercial vehicle group's North American unit, which has been forced to trim production since last fall and is now expected to lose money this year due to the softening demand for heavy trucks.

Analysts, however, now estimate that Freightliner is now sitting on an inventory of 45,000 used vehicles. The inventory is overvalued in today's market and an adjustment could require a writeoff of between $350 million and $500 million, putting more stress on the company's balance sheet.

DaimlerChrysler's German shareholders have now filed several resolutions sharply critical of the board of management board in advance of the company’s annual meeting in Berlin next month, the automaker disclosed.

"The Chrysler disaster that experts had expected has led to immense risks and losses for the event. The (investments) in Japan and Korea have already taken $7.1 billion … and are likely to create a situation threatening the company's survival. The ratification of the board of management's actions of the board of management would make a mockery of the sharheholders who already have lost half their assets while the board of management has increased it compensation fourfold," noted one angry shareholder from Munich.

Juergen Grasslin, another dissident shareholder and the author of biography of DaimlerChrysler Chairman Juergen Schrempp, stated the that Daimler-Benz/Chrysler merger has been a failure and has caused "great harm to the shareholders and employees of both companies."

DaimlerChrysler's management has replied to the contentious resolutions with a terse statement, stating the long-term strategy behind the merger remained sound and also said the company "will approach again our previous high level of profitability in 2003.”

"The claims made by Mr. Grasslin in connection with the DaimlerChrysler merger are incorrect and without any basis in fact," added the statement.

Layoffs pass over Auburn Hills

The company's management team also has to figure out how to repair the morale inside the Chrysler Group, where several hundred employees lost their jobs as the group tried to restore the group's profitability.
Roughly 2700 salaried employees were given pink slips late last week as part of the restructuring, which is supposed to cut 26,000 jobs from the company's payroll in the next three years. The bulk of the jobs, approximately 19,000, will be eliminated by the end of they year.

The Chrysler Group tightened up security, particularly around its big headquarters and technical center in Auburn Hills, Mich., where nearly 1000 salaried employees were laid off on what local television crews dubbed Black Friday.

"It's very sad and very unpleasant around here," said an employee who works at one of the Chrysler Group's plant in the Detroit area. "It was like that show Survivor," the employee said.

Ken Levy, Chrysler group vice president of communications, stressed the cuts have been carefully calculated to ensure the company's survival. "Chrysler is known for is known for its 'can-do' spirit…We are convinced the Chrysler turnaround will succeed," he added in statement released to reporters.

Levy also said the objective inside the company now is to get everyone focused on the company's future. DaimlerChrysler's management is vowing to have the Chrysler Group back in the black next year.

"The Chrysler Group and its employees are going through a very difficult time, but terms like "crisis," "black Friday,” "mass firings," target lists," are not appropriate. We have been very open about our business plans and the strategies were are implementing to turn around the current business situation," Levy spun.

The layoffs reached into virtually every nook and cranny of as the company as the automaker eliminated scores of supervisory and administrative positions. Even the company's fabled design staff was hit, company insiders said.

The layoffs underscored the sudden reversal of the Chrysler Group's fortune, since the group had still been hiring employees right up until the time its financial difficulties became apparent last autumn.

DaimlerChrysler AG reported last month that it lost $269 million or 27 cents per share in the fourth quarter. The losses included $1.3-billion loss by the Chrysler Group. For the year, the Chrysler Group earnings dropped more than 90 percent and were a major factor in the 49-percent decline in DaimlerChrysler AG's earning for all of last year, which dropped to $4.9 billion even after the company sold off major assets such as the company's computer services business.

In addition, the Chrysler Group anticipates an operating loss between $2 billion and $2.5 billion again this year. The loss includes a restructuring charge of $2.8 billion to cover the cost of items such as early retirements and plant closings, DaimlerChrysler officials said.

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