DaimlerChrysler AG Issues Letter to Shareholders
18 December 2000
DaimlerChrysler AG Issues Letter to Shareholders STUTTGART, Germany and AUBURN HILLS, Mich., Dec. 18 The
following is a letter to shareholders of DaimlerChrysler AG:
Dear Shareholder,
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 modernizing 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 ten Mercedes-Benz customers
buy another Mercedes-Benz.
In 1999, the year following the merger of Daimler-Benz and Chrysler,
DaimlerChrysler reported an operating profit of 10.3 billion euro (adjusted
for one-time effects) and Chrysler reported an operating profit of 5.2 billion
euro. 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 euro for the year.
DaimlerChrysler as a whole expects to announce an operating profit of between
9.5 billion and 10 billion euro, including one-time items, which are likely to
total 4.5 billion euro.
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 couple 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 recognized 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
