Darrell Davis has a two-pronged challenge - with a wild card thrown in.
Davis, CEO of DaimlerChrysler Financial Services North America in Southfield, Mich., must merge two companies and two cultures. Then there's the wild card: How much will Y2K problems hinder the process?
His new company was formed on paper in January, by combining Mercedes-Benz Credit Corp., based in Norwalk, Conn., and Chrysler Financial Co., based in Southfield. Davis, 59, is the former chairman of Chrysler Financial.
His new parent company, formed at the same time, is Daimler-Chrysler Services (Debis AG), with headquarters in Berlin. In addition to light vehicles and heavy trucks, the parent also finances ships and aircraft. Other nonautomotive business areas include Information Technology and Telecom Services divisions.
Debis says it is the fourth-largest nonbank provider of global financial services, after GE Capital Corp., Ford Motor Credit Co. and General Motors Acceptance Corp. For starters, DaimlerChrysler has its sights set on passing GMAC.
First, Davis must merge the two U.S. companies and their 5,150 employees - a process he says probably will take at least 18 months. He noted that the technical challenge of merging two giant computer-based accounting systems is complicated by the possibility of Y2K problems cropping up.
Davis also will be merging two cultures. 'Chrysler is flashy; Daimler is conservative. Chrysler is scrappy; Daimler is cautious,' Davis said in a speech at the Consumer Bankers Association auto finance conference in Atlanta last month. Staff Reporter Jim Henry interviewed Davis at the conference. Here are edited excerpts.
What are some of the synergies between Chrysler Financial and Debis?
There are a lot, if you think about it. Right away, you know that sometime over the life of doing business you are going to have to change systems. And instead of two systems, we'll have one system for accounting, one system for leasing, one system to handle the processes of your business. That's on the technical side.
I want to take the things we do really well and refine them. At Chrysler, for instance, electronic funds transfer - the way that money is handled - and the way that credit applications are approved, that is a competitive advantage for Chrysler. At Meredes-Benz, the way the customers are treated is a competitive advantage. We want to expand that (best-of-both approach) over the entire book of business that we do. We haven't begun to scratch the surface of what we offer each other.
Plus, we don't step on each other, anywhere. Mercedes-Benz Credit finances Mercedes-Benz, Freightliner and Sterling trucks. Chrysler is not in that business. Chrysler is not in that high line. ...
We said Mercedes was the benchmark on how the customer is treated. But why shouldn't the Neon customer be treated the same way? Wouldn't it be nice if we could do that?
Mercedes does a lot more leasing than Chrysler, right?
Chrysler has about 33 to 36 percent of our dealers' retail finance and lease business. I think Mercedes-Benz is probably roughly the same level ... only they are higher on leasing. Their lease share is high, our retail share is high. Although last month, we were doing about 50 percent (leasing penetration among Chrysler dealers).
Your lease share has picked up in part because you're taking lease business back that had been farmed out to GE Capital.
That all goes back to the early 1990s, when we were having troubles raising money, or at least at a price where we could move it in the marketplace. Now we are enjoying top credit ratings. One of the real advantages is lower funding costs. We've never enjoyed A-plus ratings before.
Does the Daimler merger give you access to even cheaper money?
Yeah, there is a cost-of-funds advantage to the merger, when you put the two credit companies together. Daimler-Benz had that higher rating earlier. It's a small advantage percentage-wise, but at a big enough volume it doesn't take much to add up.
Other lenders are backing away from leasing, and Chrysler appears to be getting more heavily into it. Is that a concern?
I think banks - all institutions, I shouldn't just say banks - have had some concern about residual risk. Everybody has some concern about high levels of subvention. Some of those chickens are now coming home to roost, and lenders have become less enthusiastic, less aggressive about leasing. So there is less competition for this part of the business than there was in the past. We've always been pretty conservative. We look at the Automotive Lease Guide (which sets suggested residual values) as being pretty steady, and we have been using ALG as a benchmark. We're in reasonably good shape, barring California falling off into the ocean, or some goofy thing happening to the economy that you can't predict.
You don't want a portfolio that is 100 percent Jeeps, or 100 percent minivans - although there are some financial institutions that have been going after just sport-utilities, or just luxury cars. We've tried to balance our portfolio. Say there's a dip in mid-sized cars. Your Jeeps can hold you up, or vice versa. We've been conservative all along, I think it's the market that has come to us.
How long do you expect the merger/transition period to last?
We are hoping to get through this in a relatively short period, and get on with our business. I feel pretty comfortable with where I'm at, and what I'm doing: I'm going to run the North American finance business. It's a pretty simple business, really - we loan money out, we collect it, we try to keep all the numbers straight.
About three years ago, we at Chrysler Financial took 83 branches down to 25. At first we said it would be over a three-year period, but when we got into it we realized we had to do it right away. And the feedback I got from people was that that was exactly the right thing to do, to get it over with. I should add, we don't see the merger as job-threatening to anybody. If anything, we want to grow the business. ...
We're talking about a couple of years to complete the merger. I'd rather see it 18 months or less, but I'm pragmatic enough to know that until all the systems can talk to each other, it's going to take all of at least a year or a year and a half. It (getting the merger over with) settles your people, it settles everything down. So, I would like to see it done sooner rather than later.
What are some of the pitfalls?
There are limitations on you, and one of them is that your systems have to figure out how to rationalize where it makes sense, and in order to do that, they have to be able to talk with each other.
The second is, in order to facilitate the system work, you have to be set on the Y2K business. We can't be sidetracked in the next 18 months to spend time on that. I think we're in pretty good shape. And, as I said, when you buy a new system, you only have to buy one, not two.
How do you feel about becoming part of a more highly diversified company?
Most of the new company is still a financial services company. Remember, I was raised in the Chrysler system. Typically, when we tried to do something like that (diversify), we have fallen on our face. But you know, Debis has been awfully successful at it. Part of it is that at Chrysler we never had the stay-with-it attitude that we should have had before doing something like that in the first place.
So if we see an opportunity for acquisitions, we should evaluate it. That's the only way we're going to be on a plane with the bigger companies, with Ford Motor Credit and GMAC. We don't necessarily want to be the biggest, but we certainly want to be the best at what we do.