DaimlerChrysler Management Steels Itself

Trips to the annual shareholders meeting are never much fun for DaimlerChrysler CEO Jürgen Schrempp.

But with his company in a serious downward spiral of late, the meeting on Wednesday should be especially agonizing. DaimlerChrysler's operating profit has dropped, its expansion strategy in Asia faltered and, at the beginning of the month, the Mercedes division announced the biggest recall of cars in its history.

The slip-ups will not only draw the ire of smaller shareholders this year, but the massive investment funds that hold as much as 10 percent of DaimlerChrysler's 1 billion shares. Union Investment, which holds 15 million shares, drew up a list of complaints ahead of the meeting.

Shadow over the brand

Among them, that DaimlerChrysler top management has had to regularly revise its profit expectations in recent years and that their profit predictions for 2005 to 2007 have been too inexact. The fund also targeted the recall of 1.3 million Mercedes built in the last four years, which began on April 2.

"The shoddy quality of the cars throws a shadow over the value of the brand in the long run," Union Investment wrote, according to reports.

Schrempp admitted as much in an interview with Der Spiegel newmagazine ahead of Wednesday's meeting. The company made a mistake by outsourcing the entire electronic components for their navigation and motor management systems, said Schrempp. As he drove around Stuttgart one day, the navigation system kept asking him to turn.

"By the third time, I realized that it wasn't my fault," he said in the interview.

"The discussion about quality," he said later, "is not good for Mercedes."

Division is Smart-ing

Neither is the money-losing Smart brand. Though the two-seat half-size cars made a splash upon being introduced in 1998, they haven't sold as well as anticipated. The introduction of new models in recent years has failed to lift sales.

After admitting losses of 2.6 billion euros ($3.3 billion) on Smart, Schrempp and his board announced a 1.2 billion euro restructuring program that will cut jobs and stop the introduction of further models.

That likely won't stanch the cascade of criticism and uneasiness among shareholders -- especially with an ongoing investigation by German prosecutors into several DaimlerChrysler employees accused of misusing company resources.

Last year, Schrempp's management team won approval of 88.49 percent of its investors, around 10 percent less than the year before. Shareholders of companies in Germany traditionally ratify a management's actions over the previous year. An investor only rarely refuses to give management approval.

Approval rating to sink

But this time around, the number of angry shareholders will only increase. Union Investment Fund has flat out announced it will not give the management its vote of confidence. Analysts say the fund management company SEB Invest and Germany's largest fund company, DWS Investment, will also likely withhold their approval.

"Daimler has repeatedly disappointed over several years," said Thomas Körfgen, the head of equity funds at SEB. "Every year, there's another division with a catastrophic development."