Daimlers Mitsubishi exit spurs Goldman Sachs consolidation

Updated: Nov 19 2005, 05:30am hrs
DaimlerChrysler sold the last of its shares in Japans Mitsubishi Motors Corp. recently, effectively ending Juergen E Schrempps grand scheme to create a global car company. DaimlerChrysler did not disclose the price of the shares, a 12.4% stake in Mitsubishi that it sold to the Goldman Sachs Group. But it said the sale would increase its income by $588 million.

When added to shares Goldman Sachs already owned, the move gives it a 13.4 % stake in Mitsubishi, making it the companys largest shareholder. And DaimlerChrysler frees itself from an automotive albatross that had been an embarrassment and a financial drain ever since it took a one-third stake in Mitsubishi in March 2000.

DaimlerChrysler initially paid $2.1 billion for the stake, in a move that came two years after the announcement of the trans-Atlantic merger between Germanys Daimler-Benz and Chrysler, the third- biggest American car company. The merger was the brainchild of Schrempp, who is stepping down at the end of the year as DaimlerChryslers chief executive, two years before his contract is to expire.

And in recent months, executives at DaimlerChrysler have been reviewing the companys priorities. They said, We have to look at where we want to put our focus, Thomas W LaSorda, the chief executive of the Chrysler unit, said in an interview recently. DaimlerChrysler, he said, has concluded that it is more important to focus on Chrysler, Mercedes and its commercial vehicles division.

LaSorda pointed out that Chrysler is contracting with specialty manufacturers to build vehicles, like the Crossfire, which is made in Europe. Those companies also build versions of Chrysler vehicles that are sold in different parts of the world. Long term, he said, smaller deals make more sense than a broader venture like the one DaimlerChrysler had with Mitsubishi. The industry also has excess capacity, LaSorda said, which makes these smaller companies eager for the business.

Mitsubishi was actually DaimlerChryslers second attempt at adding a Japanese division. Only months after the Chrysler merger was finalised, Schrempp was on the verge of a deal with the Japanese automaker Nissan, only to bow to heated objections from DaimlerChryslers directors, who felt that the transaction was happening too quickly.

Nissan ultimately teamed up with the French automaker Renault, which sent a young executive, Carlos Ghosn, to run the Japanese auto company. With Mitsubishi, a longtime Chrysler partner. Schrempp envisioned that Mitsubishi could work with Chrysler in the United States and the companys operations in Europe to develop engines and vehicles, greatly expanding DaimlerChryslers reach.

Before it could even be finalised, however, Mitsubishi said it had hidden defects on its vehicles, a sin in quality-focused Japan. DaimlerChrysler ultimately got a $200 million discount on its stake, paying $1.9 billion for a share that eventually reached 37%. But soon, it was evident that Mitsubishi needed more attention. In March 2002, Daimler sent one of its own executives, Rolf Eckrodt, to Japan, replacing Mitsubishis president, Takashi Sonobe.

Along with a turnaround, Mitsubishi also wanted a $1.5 billion cash injection from DaimlerChrysler, which was faced at the time with financial problems of its own at Chrysler.

DaimlerChrysler said no, began selling some of its Mitsubishi shares, and then announced in 2004 that it would withdraw its financial support from Mitsubishi. That forced Mitsubishi Motors to seek help from other members of the Mitsubishi industrial group in Japan, which in turn sought buyers for DaimlerChryslers remaining stake.

Daimlers sale of its last Mitsubishi shares is the latest in a series of steps taken by the company to get rid of some of its holdings and concentrate primarily on Chrysler and Mercedes, which is in the midst of its own turnaround plan. Last year, DaimlerChrysler sold a small stake in Hyundai, the South Korean auto company, and it is looking for a buyer for MTU, a diesel engine maker in Fredrichshafen, Germany.

The Mitsubishi sale comes as Schrempps successor, Dieter Zetsche, the former chief executive at Chrysler, has embarked on an aggressive plan to fix Mercedes, which has been hurt by quality problems and by heated competition from its German luxury rival BMW.

DaimlerChrysler plans to cut 8,500 jobs at Mercedes, which will cost the company $1.1 billion; the proceeds of the Mitsubishi sale presumably could help offset that cost. Mitsubishi, whose president is Osamu Masuko, will continue its development projects with various parts of Daimler, the automaker said in a statement recently.

Micheline Maynard / NY TIMES