DaimlerChrysler AG will be a highly profitable company poised to pounce on new niches in Europe, North America and the developing world.
Chrysler Corp. and Daimler-Benz AG are already planning joint projects, Chrysler Chairman Robert Eaton said at last week's press conference announcing the proposed marriage.
The new company also plans to:
Combine purchasing to cut costs.
Expand production capacity.
Share many components.
Expand in Asia and Latin America.
Add new dealers in the United States and Europe.
'We'll probably start some things this year,' Eaton said. 'We've talked about a lot of possibilities already.'
If the deal is approved by shareholders and government regulators, the two companies will start merging operations next year.
'We will have the size, the profitability and the reach to take on everyone,' said Juergen Schrempp, chairman of Daimler-Benz.
Schrempp and Eaton mapped out the new company's immediate future in London Thursday, May 7, as they announced the historic merger.
The agreement calls for Schrempp, 53, and Eaton, 58, to be co-chairmen and CEOs for the combine's first three years; after that, Eaton will step down and Schrempp will assume full control.
Chrysler President Thomas Stallkamp, 51, will be the new company's president.
The merger, profound in size and ambition, will put added pressure on other global auto giants and regional automakers to speed development time, cut costs and match DaimlerChrysler's creativity.
At one stroke, it will create a company that would have earned $7.3 billion on revenue of $130 billion in 1997 as it sold 4 million cars and trucks.
Chrysler brings its profits, mass-market appeal and low-cost manufacturing to the table. Daimler-Benz contributes its impeccable quality, manufacturing know-how and gold-plated brands.
The takeover, valued at $38 billion based on Daimler's stock price last week, creates the world's fifth largest automaker and represents the largest foreign takeover ever of a U.S. company.
The primary goal: Create the most profitable automotive company in the next millennium, not necessarily the largest.
'This is much more than a merger; we are creating the world's leading automotive company for the 21st century,' Schrempp said.
While the combined company has immense potential, it also faces huge obstacles.
The two companies must combine engineering staffs with widely different cultures. Both, however, do use CATIA engineering software.
They must merge two supplier bases, although there already is some overlap. And both Chrysler and Daimler-Benz are weak in the mass auto market in the developing world.
Eaton and Schrempp said they will not take shortcuts to quick profits. Chrysler's brands, platforms and dealer showrooms will remain separate from Mercedes-Benz's.
The chairmen said they will not close plants or lay off workers.
While they will not share showrooms, they are looking at arrangements in which Chrysler and Mercedes-Benz dealerships share service, computer and other functions that customers do not see.
Schrempp and Eaton vowed that combining forces will create new jobs and require more plant capacity to meet anticipated consumer demand for existing vehicles and for new products now in the pipeline. They said Chrysler and Mercedes-Benz assembly plants are operating at or over straight-time capacity.
Before the stunning deal became public last Wednesday, Daimler-Benz acknowledged it was considering the construction of a new plant, probably in Europe.
Ultimately, there may well be some sharing of platforms, Eaton said. 'But believe me, in no way would we ever compromise the brands,' Eaton said. 'I believe and Juergen believes that the brands are the most important thing that any company owns. We may never get to the point where we're sharing platforms.'
DaimlerChrysler will quickly benefit from the sharing of engines, transmissions and components, the chairmen said.
Eaton said there will be no co-mingling of brands in the United States or Europe, but the number of Mercedes-Benz and Chrysler dealerships will grow on both continents.
'It's very important we keep the brands apart,' Schrempp stressed. 'We are a multi-brand company and have brands for different segments of the market. That's our philosophy.'
APPLAUSE FROM SIDELINES
Most industry analysts, consultants and observers praise the combination as a perfect match.
Jack Kirnan, stock analyst with Salomon Smith Barney in New York, said it will create 'a global powerhouse in the luxury car and light-truck markets and a better growth platform than either company could have achieved on its own.'
He identifies the largest risks as the 'vastly different cultures' at the two companies and the industry's poor track record in previous mergers.
'Chrysler needed to reinvent itself,' said Dan Gorrell, president of Strategic Vision, a consulting firm based in San Diego. 'They had gone as far as they could, since it would be tough for them to continue forward with their weaknesses in cars' as opposed to light trucks.
'This will substantially change the balance of power in Europe, not to mention among the Big 3,' he said.
By linking up with an automaker that enjoys a worldwide reputation for high-quality vehicles, Chrysler's quality should improve, said Alan Baum, director of North American forecasting at IRN Inc., a consulting firm in Grand Rapids, Mich.
'Quality has always been Chrysler's Achilles' heel,' Baum said. 'Consumers and the industry love Chrysler's product designs, but there still is that hesitancy by the consumer on Chrysler quality.'
Schrempp and Eaton pointed to cost savings to be realized almost immediately. They expect to save
$1.4 billion during 1999, Daimler-Chrysler's first full year of operations. In three to five years, the expected savings will be at least
$3 billion annually.
About one-third of the projected savings will come from sharing computer systems, parts warehousing, transportation and a host of other administrative operations; one-third from combined purchasing; about 15 percent from shared product development; and another 15 percent from corporate synergies, the executives said.
'We will immediately centralize the purchasing function,' Schrempp said. 'We believe our suppliers are our partners. If our suppliers get greater volume and get economies of scale, it's to their benefit and our benefit.'
He noted Mercedes-Benz and Chrysler have 'extremely limited overlap.'
'Daimler-Benz has the premium engineering and know-how and high technology; Chrysler is excellent in manufacturing, particularly low-cost manufacturing,' Schrempp said.
'On outsourcing, Chrysler is (the) benchmark,' he added. 'Just imagine, what you can derive when you bring those together. Daimler-Chrysler will, quite simply, be stronger, more innovative and more competitive in each of our markets.'
Contributing to this report were Staff Reporters Kathy Jackson, Jim Henry and Mark Rechtin and Automotive News Europe Staff Reporter Beatrix Israel.