DaimlerChrysler Stocks Get Boost as Zetsche Takes Over Mercedes

DaimlerChrysler (DCX) stock rose as much as 2.9 percent on Friday as investors and analysts hailed news that turnaround expert Dieter Zetsche (search) would run its ailing Mercedes division as well as the group.

"This is very positive," said Karl Huber, fund manager at Activest in Munich. "They have found just the right man."

The world's fifth-biggest automaker announced on Thursday that Chrysler boss Zetsche, already slated to replace Juergen Schrempp (search) as the group's chief executive at year's end, would also take on the premium Mercedes division from next month.

Eckhard Cordes (search) a company veteran who had run Mercedes since October, quit when he didn't get the top job, leaving unfinished Mercedes' drive to rescue slumping profits.

Ferdinand Dudenhoeffer, a car sector analyst at B&D Forecast, played down talk that the dual role may be overwhelming.

"It would be too much for one man if he did not have a deep understanding of the car business and didn't know Mercedes, but Zetsche knows both," he said.

His deputy Tom LaSorda can be trusted to run Chrysler, while the group's commercial vehicles business is flourishing amid a global truck boom and its financial services arm operates mostly autonomously, Dudenhoeffer said.

This may leave Zetsche able to focus intensely on Mercedes without neglecting his group role.

A key question is whether the 52-year-old German will simply tweak Cordes's existing plan to resuscitate Mercedes profits and margins by cutting costs and boosting revenue, or instead clean house and launch a more drastic overhaul.

"Zetsche is not a man who changes everything and starts afresh. He is a man who has known the Mercedes and the DaimlerChrysler organisation his whole life. He was not at war with these people, just the opposite," Dudenhoeffer said.

"I don't think that a big cleanout is coming, but rather that Zetsche will head into the future with these people with great motivation, something he does well."

Zetsche joined Daimler-Benz in 1976 and held a variety of jobs at Mercedes-Benz before going into Commercial Vehicles and then Chrysler.

Adam Jonas at Morgan Stanley thought Zetsche was more likely to get his hands dirty by delving deeply into Mercedes and retrenching management if needed.

"I don't think Zetsche is the kind of manager that is just going to inherit an incumbent plan and not alter it significantly," he said, adding it would be pure coincidence if Zetsche came up with the same target as Cordes to boost Mercedes margins to 7 percent by 2007.

Zetsche won't tinker with the prime goals of addressing chronic losses at the Smart minicar business, lowering complexity and improving quality, Jonas said.

"The principle of the plan makes sense but the methodology or how they attack it could have Zetsche's own spin on it," he said, suggesting the new boss may not even shy from the idea -- so far taboo -- of closing down Smart completely.

Jonas thought a full shutdown would cost 3 billion to 4 billion euros ($3.7 billion-$4.9 billion), which on paper would not add value.

"But what it does is it eliminates one of the biggest risks to the Mercedes turnaround and the biggest potential distraction of management time and attention. We think investors would react positively if they took an aggressive tone," he said.

He likened this to BMW's decision in 2000 to rid itself of Rover, a move that cost a fortune but transformed the company.

DaimlerChrysler had been the European car sector's laggard until last month's surprise news that Schrempp would leave. Now it has performed almost in line with the DJ Stoxx European car sector index this year.

Reuters data show its stock now trades at around 12.1 times estimated 2006 earnings per share versus 10.6 times for archrival BMW and 9.8 times for the index on average.