Daimler, BMW Need New Mindset --- These CEO changes won't restart engines

Wilmot, Stephen.Wall Street Journal, Eastern edition; New York, N.Y.[New York, N.Y]22 July 2019: B.10.

1. Full text
2. Details

• Translate
• Full text

[Financial Analysis and Commentary]

The German luxury-car industry has stalled. Getting the engine running again may require fresher thinking than the insiders appointed to run both BMW and Daimler can supply.

Late Thursday, BMW said production chief Oliver Zipse, a "decisive strategic and analytical leader," would next month take over as head of the management board -- the equivalent of chief executive under Germany's two-board system.

The current CEO and former production chief, Harald Kruger, decided not to seek a second five-year term in office, perhaps because his contract was at risk of not being renewed anyway after a marked deterioration in the company's financial results and stock price.

Mr. Zipse is still a largely unknown quantity, but he embodies continuity. He has spent his entire career at BMW, including more than four years on the management board. He is portrayed in the local press as calm and consensus-seeking -- qualities previously associated with Mr. Kruger.

The CEO-elect doesn't seem the man to make a U-turn, which arguably is what BMW needs. Traumatized by the losses it suffered on its pioneering i3 electric-vehicle project, the company hasn't invested in a dedicated EV platform, unlike its German rivals Daimler and Volkswagen.

The result could be underwhelming products that get outcompeted by more tailored designs.

Daimler's problems are more operational than strategic. This makes them even harder to square with the company's choice of an internal candidate, Ola Kallenius, to succeed longtime CEO Dieter Zetsche two months ago.

The new boss already has been forced to issue two major profit warnings. One problem, almost four years after the Environmental Protection Agency served its epochal notice of violation to Volkswagen, has been the question of diesel fraud.

Regulatory investigations into and recalls of Mercedes-Benz diesel cars aren't going away, however long Daimler appeals against them. The company is due to set aside roughly 2.5 billion euros ($2.81 billion) in extra provisions for diesel issues when it reports second-quarter results this week.

Daimler also is provisioning a further 1 billion euros for an industrywide air-bag problem that emerged in 2013. The overall impression is that management has been sweeping problems under the carpet. Mr. Kallenius needs to tackle this even though he has spent his entire career at the company and has been on the management board since 2015.

He should also follow VW's lead with an initial public offering of Daimler's underperforming heavy-truck division and get out of the costly and unnecessary business of Formula One car racing. It won't help if Mr. Zetsche returns to Daimler as supervisory-board chairman in 2021 -- a proposed move that some investors are now fighting.

Executive life is a much cozier affair in Germany than in the U.S. The preference for continuity can be good for building expertise and brands. It may prove a hindrance when the established industry order is being disrupted, though, and problems can also fester.

It speaks volumes that investors' preferred German car maker these days tends to be the old laggard, VW. For the past 16 months it has been run not by a VW lifer but by Herbert Diess -- a former BMW executive. In Germany, that counts as change.

question: provide a summary that 1.identifies the company and provides a short description of its operations. 2. describes the business risk to which the article relates, 3. explains what accounts and perhaps assertions may be affected by this business risk, and the audit risks that it could create, and 4. identifies the effect that audit risks may have on the audit plan.