Corporate Structure

Daimler's Electric, Cool-Eyed Traffic Test

Inside The 2015 Consumer Electronics Show
Conversation piece: The future isn’t just about flying cars. Source: Bloomberg.

Daimler might once again change tack. Ten years after its breakup with Detroit’s Chrysler, strategists are pondering a new legal structure: A holding company to steer the maker of Mercedes-Benz cars, with affiliated companies managing their own business operations. These latter include car and truck manufacturers, a well-heeled bank, and possibly a subsidiary offering services like car sharing. The strategists envision a more agile and decentralized company. Nothing has been decided yet, but Daimler Chief Executive Dieter Zetsche and Chief Financial Officer Bodo Uebber are leaving little doubt that they think changing tack makes sense.

Daimler is in a predicament. Sales and earnings are strong, but the market is unimpressed. Daimler and BMW are the two worst-performing shares in Germany’s benchmark index, the DAX. Investment and pension funds, Daimler’s most important shareholders, have little interest in the SUV boom in China. They are focusing less at units sold and returns generated – once the classic measures of success in the auto industry – and more on pacesetters that aggressively push new technologies and services into the market. That’s why electric car pioneer Tesla is worth much more than BMW today, even with its recurring losses. That’s also why ride-sharing service Uber – in spite of a dubious business model and an off-putting management culture – has been able to attract so much attention.

Investors still see Daimler as a company clinging to the past

The genie is out of the bottle.

Established automakers are now judged by their ability to transform themselves. In May, Bill Ford, great grandson of company founder Henry Ford, dismissed Ford CEO Mark Fields. He had done well by any traditional measure, increasing sales and maintaining market share. But that was no longer good enough for America’s second-largest carmaker. It risks being left behind in a new world of electric motors and self-driving vehicles. Mr. Fields’s successor is an industry outsider, Jim Hackett, who spent most of his career in furniture manufacturing. Inexperienced he may be, but he is not tainted by having worked for decades in the old auto industry.

Daimler is not ready to go that far yet – employees to a man and woman hope to see a gradual, gentle transformation. But this means investors a starting to criticize Daimler as a company that clings to the past. It still earns most of its money with internal combustion engines, even as a ban on diesel engines is looming right outside its front gates in Stuttgart. It is also in the crosshairs of investigators because the engines in its luxury Mercedes-Benz cars were not as clean as advertised. Beyond the question of fossil fuels versus electric, investors see a conglomerate that doesn’t quite know whether it’s an automobile or truck manufacturer – one with a bank (with a lending volume comparable to that of a medium-sized German bank), and a car-sharing service provider (with growing global operations).

Size is more hindrance than help in this new environment. As things stand, no single unit can operate truly independently of the whole. If the automobile division, say, wanted to intensify its joint-venture with Renault through an equity swap, it could only offer Daimler shares; if mobility service provider Moovel needed fresh cash to quickly scale up a successful business model, it would have to ask to dip into Daimler’s coffers. A holding structure of independent companies, each with its own shares, would also give Daimler the chance to create an equity-based incentive system that would appeal to many-a tech-industry whiz kid. More dynamic working environments, more exciting projects, and more opportunities to profit from IPOs could make Stuttgart as appealing as Berlin or Barcelona.

Much is already in the works. Mr. Zetsche has imposed a top-down revolution with his Leadership 2020 program. Its lofty aim is to replace a traditional hierarchical order with teamwork and swarm intelligence. A latecomer to the electric age, the Mercedes brand is at last making a splash in the industry with plans to introduce ten electric models by 2022. Like Uber, the company has a vision of self-driving vehicles. Unlike Uber, it also has the patents and engineers to safely put them on the road.

Daimler has good chance of prevailing in the new world of mobility – as long as the company modifies its structure. Unlike BMW and Volkswagen, Daimler does not enjoy the protection of an anchor shareholder. With a market capitalization of only €65 billion ($78 billion), Daimler could easily fall prey to corporate-raiding hedge funds. That’s why Mr. Zetsche would be well advised to forge ahead with a credible transformation – before others dictate the conditions or implement those changes themselves.

To reach the author: fasse@handelsblatt.com.

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