Schrempp: Bowing out

Frankfurt, July 28 (Reuters): DaimlerChrysler's embattled chief executive Juergen Schrempp will leave at the end of the year, the carmaker said in a shock announcement on Thursday that eclipsed good earnings and sent its shares soaring.

Daimler said Schrempp, whom disgruntled investors accused at their annual meeting of poor performance and shoddy leadership, had volunteered to hand over the reins of the world's fifth-biggest automaker to Chrysler chief Dieter Zetsche.

The news boosted DaimlerChrysler's stock ? the laggard so far this year among European carmakers ? more than 10 per cent. They traded at 39.87 euros at 1120 GMT, up 9.7 per cent.

DaimlerChrysler’s debt rallied. Five-year credit default swaps on the company fell two basis points to 72, meaning it costs 72,000 euros a year to insure 10 million euros of the automaker’s debt against default, a trader in London said.

Schrempp’s leaving added some 3.7 billion euros to the firm’s market value. The stock has underperformed sector peers by half since Daimler-Benz’s 1998 merger with Chrysler, which Schrempp trumpeted as creating the first truly global carmaker.

“This is the day I’ve been waiting for,” said JP Morgan automobiles analyst Philippe Houchois. “It's a wonderful day for the auto industry as a whole.”

Chairman Hilmar Kopper said now was the best time for the CEO to go.

“The supervisory board and Prof Schrempp are in full agreement that the end of the year 2005 is the optimal time for a change in the leadership of the company,” Kopper said.

“The decisions of the supervisory board have been made unanimously after a thorough process,” he said.

Although Schrempp’s contract runs until 2008, he will only draw his salary until the end of this year, a spokesman said, insisting Schrempp had left voluntarily and not been forced out.

The 60-year-old globetrotting German executive has worked at the group for 44 years, 17 of them as CEO.

Despite criticism, Schrempp had remained firmly in the saddle thanks to support from Kopper, labour unions and Deutsche Bank, which has a 10.4 per cent stake.

Zetsche, 52, helped turn around the number-three US automaker at a time of ferocious competition in North America. The German manager gets a five-year stint as group CEO. He is succeeded by Chrysler chief operating officer Thomas LaSorda.

Zetsche’s track record at Chrysler inspires confidence, Sanford Bernstein analyst Stephen Cheetham wrote in a note to clients, keeping his “market perform” rating.

Still, “we do not believe his appointment materially changes our view of the company’s normal earnings power, and the largest of sacred cows ? the group’s value-destroying conglomerate structure ? is unlikely to be slaughtered near term.”

Analysts said Zetsche was unlikely to divest Chrysler but questioned whether he would want to keep its 30 per cent stake in Airbus parent EADS for the long term.

Schrempp’s decision to build a carmaker with global reach led to the merger with Chrysler and its investment until last year in Japan’s struggling Mitsubishi Motors Corp.

Both deals hurt profits and created management headaches while diverting attention from luxury division Mercedes Car Group. As head of Daimler’s aerospace division, Schrempp also bought now-defunct Dutch aircraft maker Fokker.

The group’s second-quarter operating profit fell 20 per cent to 1.67 billion euros ($2.02 billion), easily beating expectations thanks to a surprise operating profit at Mercedes.