contract extension Daimler Postpones Changing of the Guard

Dieter Zetsche will stay on as chairman of the German automaker until the end of 2019. It buys him time to steer Daimler into the electromobility era.
Glad to work longer.

Dieter Zetsche has secured a contract extension so he can run Daimler for three more years.

Mr. Zetsche has been chief executive of the world's third-largest car maker for the past nine years and was not necessarily expected to win a further extension.

On Wednesday, at the annual shareholders' meeting in Berlin, supervisory board chairman Manfred Bischoff elected to clarify the leadership question before Mr. Zetsche's current contract expires in 2016.

The move is a vote of confidence in Mr. Zetsche and a contrast to a setback two years ago when he was only been granted a three-year extension to his contract as chief executive instead of five. The then-chairman of the supervisory board cited concerns about how Daimler's business in China was developing, and labor conflicts.

After this reversal, the decision to give Mr. Zetsche three more years is a vote of confidence in measures he has taken to improve sales, revenue and profit figures.

Our company's reorientation is bearing fruit. manfred bischoff, Daimler supervisory board chairman

Mr. Zetsche's contract extension was also welcomed by the employee representative on the management board, Michael Brecht, who had called for "continuity" in the company's leadership.

The vote for Mr. Zetsche is also a vote against a few fellow members of Daimler's management board. Wolfgang Bernhard, chief of the truck division, and Chief Financial Officer Bodo Uebber had reportedly eyed Mr. Zetsche's position. Another potential candidate was Hubertus Troska, the head of Daimler's China division.

But when Mr. Zetsche retires, Mr. Troska and Mr. Bernhard will both be 59 years old and Mr. Uebber will be 60 – too old to represent a new generation at the top. It is now up to Mr. Zetsche to lay the groundwork for the future leadership team.

Someone likely to figure prominently is Ola Källenius, 45, who only became a member of the board in December. He is in charge of sales and marketing, and thanks to the company's strong sales figures, he has had the opportunity to shine.

Mr. Källenius is not the only up-and-coming manager at Daimler and Mr. Zetsche is currently assigning new tasks to a number of top managers in Mr. Källenius' age group.

Mr. Zetsche, 61, will have worked at Daimler for 40 years in 2016. He will now be able to move from his position at the company's helm seamlessly into retirement.

There was a celebratory mood at the shareholders' meeting. "Our company's reorientation is bearing fruit," said Mr. Bischoff.

Video: How self-driving cars may be.

Mr. Zetsche has expanded and focused Daimler's product range to include SUVs, compact cars and luxury limousines. At the same time, he cut costs after profit warnings in 2012 and 2013.

The premium brand Mercedes is again growing faster than rivals BMW and Audi.

The group's operating earnings of more than €10 billion were 25 percent higher than in the previous year. Shareholders received their highest dividend ever: €2.45 per share.

After Mr. Zetsche's speech reviewing these successes, the 5,500 shareholders attending the annual meeting applauded.

In the future, the focus at Daimler will be on electromobility and the car maker is spending billions to upgrade its plants in Germany.

Video: Mr. Zetsche checks out a self-driving car.

Despite the party mood, Mr. Zetsche still has plenty to do.

Daimler makes cars, buses, trucks and it also runs a banking business and Mr. Zetsche is in the process of streamlining its portfolio.

While Daimler's results for 2014 showed improvement, the group still isn't meeting some of its own targets. Sales increased 10 percent last year, but pre-tax profit stagnated, and earnings before interest and tax fell by 1 percent to €10.7 billion, or $11.6 billion. Net profit even fell 16 percent.

Daimler still lags behind BMW and Audi in building premium cars. Mr. Zetsche is determined for Mercedes to regain its position leading the world's luxury car market and Mercedes will present four new models in the first seven months of 2015. While the car maker could possibly overtake VW subsidiary Audi this year, it won't be as easy to catch up to market leader BMW. Daimler will have to increase capacity at its plants just to close the sales gap.

Looking ahead, Daimler's focus will be on North America and China, the company's most important markets. This year, Daimler is aiming to achieve significantly higher profits and improve sales in China.

On Wednesday, Daimler's share price rose 2.9 percent on Frankfurt's stock exchange.


Handelsblatt's Markus Fasse covers the auto industry, Martin Murphy writes about the automotive, defense and steel industries. Allison Williams also contributed to this article. To contact the authors: [email protected],  [email protected]