Twice, in 1995 and 1996, Daimler-Benz and Chrysler Corp. had talked about a merger but couldn’t come to agreement. In January, Daimler Chairman Jeurgen Schrempp called Chrysler’s Robert Eaton and suggested they try again.
“As a matter of fact, I was thinking about the same thing,” Eaton said Thursday in London as the two men explained details of the roughly $40 billion merger to create DaimlerChrysler. “We began talks in January, the talks grew earnest in February and got extremely intense ever since then.”
Schrempp observed that Eaton was doing more than thinking–“he already had his analysis ready.”
In less than five months, the two men appeared to have come to business–and personal–understandings. In their announcement from London’s Dorchester Hotel, Schrempp said he expects to work well with his partner.
“We share the same passions,” Schrempp said. “I have the feeling he’s a good guy, because we smoke the same cigars.”
The two men intend to share the chairmanship for three years, at which point Eaton, now 58, said he plans to resign, leaving Schrempp, 53, in charge. Until then, “We are not going to divide anything. We are both going to be involved in everything,” Eaton said.
If they’ll be equals, how will they settle a tie?
“If we can’t resolve an issue, we should both resign,” Schrempp snapped.
One issue it took two days to resolve was the name of the combined company.
“The very last issue was the choice of ChryslerDaimler or DaimlerChrysler,” Eaton said. The winner was DaimlerChrysler, “because it sounded better and had a lot of class.”
It also reflects the nature of the combination: When all is said and done, Daimler-Benz shareholders will possess 57 percent of the new company. But what isn’t clear is whether the new DaimlerChrysler will at heart be a German company or an American company. The American Automobile Manufacturers Association, which has refused membership to foreign carmakers with U.S. production operations, isn’t sure.
“I don’t know the answer to that question, and I’m not sure (Chrysler officials) know the answer to that question,” said association spokesman Jay Hyde.
Analysts generally dismissed that question as irrelevant; DaimlerChrysler will be a truly global company, they say. And that’s precisely what Eaton and Schrempp have in mind.
“We are leading a new trend we believe will change the future, the face of the industry,” Eaton said, predicting more global mergers will follow.
Schrempp added that “our purpose was not to put pressure on the others as it was that we wanted to be in the lead. In the next 10 years there might only be eight or nine (automakers) left, and we decided one of them would be DaimlerChrysler.”
Toyota Motor Corp.–long miffed that it’s barred from joining AAMA–issued a “welcome to the global auto industry” statement to its industry colleagues, though it tempered the sentiment with the observation that Toyota began building cars with General Motors in California in the 1980s and has three assembly plants producing cars and trucks in the U.S. to Mercedes’ one.
Rumors had Chrysler engaged in merger talks with BMW AG of Germany, which has been trying to buy Rolls-Royce Motor Cars.
At the London announcement, Eaton denied speculation that Daimler had been Chrysler’s second choice. “We didn’t talk to BMW because there would have been too much product overlap,” Eaton said.
(On Thursday, Volkswagen AG of Germany agreed to buy Rolls-Royce from Vickers PLC for more than $700 million, topping BMW’s bid. But European auto analysts said they expect BMW to up the ante and start a bidding war.)
DaimlerChrysler will be the world’s fifth-largest carmaker, with a product line ranging from Mercedes-Benz luxury cars to Chrysler’s Jeeps and pickups.
There is little product overlap, which Eaton and Schrempp said means there is no threat of jobs being cut or production facilities closed.
That announcement suited the United Auto Workers, which represents 70,000 hourly workers at Chrysler. UAW President Stephen Yokich said he’s cautiously optimistic that the merger “could be a win-win situation.”
A sticking point is Mercedes-Benz’s non-union plant in Tuscaloosa, Ala., which opened last year. “We would probably say off the bat they should come under the Chrysler agreement,” Yokich said.
“That matter will be left up to the workers,” Schrempp said.
Last year, Daimler had revenues of nearly $70 billion and Chrysler almost $60 billion–roughly $130 billion together. No. 1 automaker GM’s revenues were more than $178 billion, and No. 2 Ford had $154 billion.
DaimlerChrysler will be established as a new company. Current Daimler shareholders will receive one share of the new company for each share they now hold. Chrysler shareholders will get 0.547 shares of the new company for each share now held. The deal values Chrysler shares at about $62, compared with Thursday’s close of $53.50.
The deal also includes Chrysler’s long-term debt of $2.3 billion.
Eaton said DaimlerChrysler will realize a $3 billion annual cost savings from sharing parts and components, which some take to mean that DaimlerChrysler would be able to hold the line on–if not reduce–prices.
But, as Burnham Securities analyst David Healy pointed out, “It’s more likely any savings will trickle down to the profit statement rather than to consumers.”
Top management of the two companies seem to reflect the global blend. Before taking the top job at Chrysler, Eaton was head of GM’s European operations. Chrysler’s No. 2 executive, Vice Chairman Bob Lutz, speaks fluent German.
Schrempp, who speaks fluent English, was president of Daimler’s heavy-duty truck unit in Cleveland from 1982 to 1984.
DaimlerChrysler will maintain headquarters in Stuttgart, Germany, and in Auburn Hills, Mich. But with Eaton planning to leave in three years, there is concern among the Chrysler ranks that the merger will end career advancement among senior U.S. executives. Schrempp tried to dispel such fears.
“I’m not going to stay on forever, and any executive from either side of the Atlantic has the potential to step into my job,” he said.
He noted that Daimler’s Freightliner heavy-duty truck operations and its Mercedes-Benz U.S. distributor of its cars and sport-utility vehicles are run by Americans.
But it was clear from Thursday’s news conference that not all details are settled.
Eaton, for example, said the automakers will share components, technology and product, starting perhaps as early as this year.
“We’re talking of a lot of possibilities that we’ve turned over to the product groups to further refine,” Eaton said, suggesting each automaker would share a common platform on which to build a future car carrying both nameplates, such as Ford and Jaguar are going to do in the 2000 model year.
But Schrempp offered a slightly different view of sharing.
“We aren’t great believers in common platforms as we are in building specific products for specific customers. We’re going to exploit a components strategy,” he said, which means that Chrysler and Mercedes might share engines, transmissions, brakes and unseen internal parts rather than, say, building a Mercedes C280 sedan off the same platform as a Chrysler LHS sedan.
