The Castration Of Daimler's Leadership: Only Three More Years For Dr. Z & Co.

It is unusual that the supervisory board of a large German corporation denies the dearest wishes of its Management. If the board does not like a wish, the wish usually won’t be rendered in the first place, the tight community of executive assistants will see to it. It would be most unusual that the board denies the wish of its CEO to run the company for another five years. Daimler’s board did the impossible: It denied Dieter Zetsche’s wish for another five-year contract, and gave Dr. Z. three years to get Daimler’s house in order. It’s a mission impossible. The mustachioed will sit out his career as a fall guy.

Daimler‘s and Zetsche’s target, to be the world’s largest maker of premium cars, has moved into a foggy future far, far away. What’s especially unnerving in Stuttgart: The Bavarian “peasants” and “upstarts” of Audi and BMW are far ahead, they are picking up speed and customers around the world.

European industry insiders, and the better informed media are taking the decision as what it is, “a warning signal,” writes Der Spiegel, “the board is at the end of its patience.”

Most of Daimler’s troubles are in the land that is home to the success of Germany’s automakers: China. The board fears that “Daimler’s luxury Mercedes Benz brand is losing out to Volkswagen’s Audi and BMW, particularly in the important Chinese market,” as China Daily can’t help to opine. Daimler is expecting flat earnings this year, mostly because it had been asleep at the wheel in the Middle Kingdom.

Especially in China, Daimler has become a victim of its institutional arrogance. The Benz brand has degenerated into the choice of affluent has-beens. The standard joke in China is that many Audis parked in front of a restaurant are signs of a party meeting. A row of BMWs signal a party by nouveau-riche hooligans. Whereas a parking lot full of Benzes indicates retirees having tea. Being a party boss or a rich hooligan is highly aspirational in China. Retirement not so much.

The castration of Daimler’s leadership has been made complete by castling Zetsche’s darling and crown prince Wolfgang Bernhard with truck chief Andreas Renschler. The 58 year old R&D chief Thomas Weber also received only a three year extension. The board tried to cover this with a new rule that says that top managers who will be 60 years or older during the next extension will only get three years. Other carmakers are led by more virile seniors. The current contract of Volkswagen CEO Martin Winterkorn, who will be 66 in May, won’t expire until January 1 2017. His Chairman Ferdinand Piech celebrated his 75th last year, and he hopes to live and work as long as Suzuki’s spunky Chairman Osamu Suzuki, who just turned 83.

Then there was the matter of the new contract of Legal and Compliance chief Christine Hohmann-Dennhardt. The former judge is 63 already. The board punted and delayed a decision until April, as Germany’s Handelsblatt heard. Then, that new rule is most likely forgotten.

In this both cynical and cyclical business, three years are not enough. The top of Daimler is set up for the fall. The competition is producing new cars faster than fertile rabbits, all the while Daimler received rancor for using a Renault engine in its latest A-Class, a sacrilege among Daimler’s aging customer base. The recent rise of the Euro already is blowing in the faces of German makers, it is especially chilling for highly “exportabhängig”, or export-dependent Daimler. Speaking of aging: Savvy insiders name Daimler as the next victim of Europe’s counting-down demographic time-bomb. Daimler’s customer core is around 60, and that segment is turning into a dying breed in Europe, very literally.

There are voices that say that there is a much higher order problem in Stuttgart. Daimler’s shareholdings are all over the place, and there is no big shareholder that puts his foot down and demands action. Credit Suisse analyst Erich Hauser opined to Reuters that part of the problem is “that no large Daimler shareholder, such as Kuwait, has a seat on the supervisory board like either the Quandt family does at BMW or the Porsche and Piech clans at Volkswagen.”

We have said that five years ago. But who’s listening to TTAC?

PS: Now that king and crown princes have been castrated, everybody is on the look-out for a new CEO. Three years is barely enough for such a search. Daimler’s CFO Bodo Übber is said to have the best chances at the moment. That’s just what Daimler needs, a bean-counter at the helm. But he is qualified. Übber is only 54.