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January 25, 2006
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DaimlerChrysler Creates New Management Model

  • Integration leads to organization that is faster, more flexible, leaner and more efficient

  • Together with other ongoing efficiency programs, G&A costs are expected to be reduced by 1.5 billion Euros ($1.78 billion) per year, G&A staff reduced by up to 20 percent over three years

  • Supervisory Board agrees to realignment of functions within the Board of Management

STUTTGART, Germany - DaimlerChrysler today introduced a new management model designed to enhance competitiveness and promote further profitable growth. The new model will further integrate the company's functions, focus the operations within DaimlerChrysler on core processes, and encourage internal collaboration. Moreover, it will reduce redundancies and remove management layers.




"Our objective in taking these actions is to create a lean, agile structure, with streamlined and stable processes that will unleash DaimlerChrysler's full potential," said Dieter Zetsche, Chairman of the Board of Management (BoM) of DaimlerChrysler AG. "We're going to build on a strong product portfolio." In 2005 alone, DaimlerChrysler launched 17 new products, giving it one of the youngest product lines in the automotive industry. The company plans to continue its aggressive level of investment.

"Over the last several years, we focused on our automotive business and started to streamline the core processes in our divisions," said Zetsche. "But to safeguard our future in this competitive global industry, we need to apply that same equation across all general and administrative (G&A) functions ... with the added dimension of adapting to the needs of our business."

The preliminary work for this new model began in mid-2005 with a high- level internal team.

The program focuses on the company organization and the processes that are used throughout the DaimlerChrysler enterprise.

Among structural changes is a consolidation and integration of G&A functions, such as Finance and Controlling, Human Resources and Strategy. These areas will be centralized to report to the respective head of that function throughout the entire company. Redundancies between staff functions at the corporate and operating levels will be eliminated, thereby reducing the complexity of the organization. A more integrated G&A organization will result in more consistent processes, and reporting and decision-making will become shorter, faster and more efficient.

"We want our divisions to concentrate on the automotive core processes - development, production and sales," added Zetsche.

The consolidation of corporate functions will occur throughout the company. The earlier decision for Dieter Zetsche to serve a dual role as Chairman of the Board of Management and concurrently as Head of the Mercedes Car Group, will now be reflected in the organizational structure as well. BoM members Bodo Uebber and Rudiger Grube will also continue to have dual roles: Uebber for Finance and Controlling, as well as DaimlerChrysler Financial Services; Grube for Corporate Development (including Information Technology) and DaimlerChrysler's participation in EADS (European Aeronautic Defense and Space company). That will effectively reduce the number of BoM members to nine (from 12 about one year ago).

The address on the corporate letterhead will also change. The German BoM members currently based in Stuttgart-Moehringen will relocate in May 2006, along with their staffs, to Stuttgart-Untertuerkheim, and therefore closer to production. This means the DaimlerChrysler headquarters function will be located in Stuttgart-Untertuerkheim and Auburn Hills, Michigan. Several support functions and non-G&A functions will stay in Stuttgart-Moehringen.

On the basis of the new structure, the company will standardize the most important processes within and across divisions, according to best-practice criteria.

Cooperation between the Mercedes Car Group and the Chrysler Group will become markedly closer, according to Zetsche, but "a clear priority within this effort will continue to further strengthen brand identity. You can expect to see more examples of collaboration especially when we can transfer knowledge between the groups, much as Chrysler Group tapped the rear-wheel- drive expertise of Mercedes-Benz in the development of the Chrysler 300C."

"Beyond that," added Zetsche, "you will also see more examples of clearly defined 'project houses' where engineers from different divisions work together for the benefit of the whole company." A current example is the joint project to develop hybrids, where Mercedes-Benz and Chrysler engineers are working side-by-side (with General Motors and BMW specialists). This joint team is creating a new two-mode hybrid system that will power future vehicles from the brands of both divisions. A second example is the collaboration on the world's cleanest diesel technology called BlueTec, between Commercial Vehicles, Mercedes Car Group, and Chrysler Group.

Several other organizational changes will also be made. Corporate-wide Research and Technology will be merged with product development of Mercedes Car Group under BoM member Thomas Weber. The new organization -- Group Research & MCG Development -- will continue as the research center of competence for the entire company. Within this realignment, the new function will take on more responsibility for advanced engineering activities of all automotive divisions.

This action is expected to reduce the time-to-market of future technologies, keep research focused on customer-relevant innovations, and eliminate redundancies.

The Commercial Vehicles Division, headed by BoM member Andreas Renschler, will also undergo changes. It will focus on commercial trucks as its core business and operate under the name Truck Group, while the Bus and Van business will be reported elsewhere. The following operations will continue in Truck Group: Trucks Europe/Latin America (Mercedes-Benz), Trucks NAFTA (Freightliner, Sterling, Thomas Built Buses), Mitsubishi Fuso Bus and Truck Corporation, and Truck Product Creation. The new structure will create further synergies between the regional truck units and brands, and allow the Truck Group to accelerate its profit potential initiative called Global Excellence.

Meanwhile, the financial and operating results of Bus and Van operations will be reported in a new segment called Van, Bus, Others. The direct management of the Bus and Van businesses will permit a stronger orientation toward the unique needs of customers and markets in these product segments. Due to the commonality of powertrain and components, the Bus business will report to the head of the Truck Group; the Van business to the head of the Mercedes Car Group.

In total, the new management model will reduce the cost of administrative functions at DaimlerChrysler, in an effort to reach benchmark levels. Together with other ongoing efficiency programs (such as MCG's CORE program), G&A costs are expected to be reduced by 1.5 billion Euro ($1.78 billion*) per year. The net effect of today's announcement will be 1 billion Euro ($1.18 billion) per year.

Preparation to implement this comprehensive program will start immediately, and take three years to fully implement. It is expected to require an overall expenditure of about 2 billion Euros ($2.37 billion) from 2006 to the end of 2008.

Due to the elimination of redundancies, consolidation of staffs and optimization of processes, headcount will be reduced by about 6000 employees over the three-year span. This represents roughly 20 percent of general and administrative staff (30 percent at management levels). These reductions will take place in G&A functions around the world.

At a meeting today, the DaimlerChrysler Supervisory Board agreed to the realignment of functions in the Board of Management, which will be implemented by March 1st, 2006.

The specific measures required to put the new actions into place are expected to be presented to the Supervisory Board for approval by the end of April.

*Conversions using Noon buying rate of 12/31/05.

(24 Jan 2006)

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