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DaimlerChrysler Kicks Off ‘Day One’

November 17, 1998

NEW YORK (AP) _ Now the hard work begins.

The world’s newest automaker, DaimlerChrysler AG, officially becomes a member of the global business community today when its shares begin trading on the New York and Frankfurt stock exchanges. Celebrations were planned at DaimlerChrysler plants and offices worldwide.

But when the ``Day One″ hoopla is over, ``Job One″ will remain: the daunting task of truly melding the corporate cultures of two distinctly different German and American corporations into one international transportation powerhouse.

``From the very beginning, that has been their major challenge,″ said David Cole, director of the University of Michigan’s Office for the Study of Automotive Transportation. ``How do you bring them together and get them to function on the same team?

``I think it’s doable, but it’s going to be very challenging.″

DaimlerChrysler executives insist a new culture will emerge in the months ahead, one that they hope will blend the entrepreneurial spirit and creativity of Chrysler Corp. with the topflight engineering and focus on quality that built Daimler-Benz AG.

But some in the industry wonder how open Daimler’s methodical, top-down culture will be to the looser team approach that is credited with turning Chrysler into the most profitable U.S. automaker just a few years after it flirted with bankruptcy.

Robert Lutz, who retired as Chrysler’s vice chairman in June after playing a key role in the company’s turnaround, said the supposed culture clash has been overstated.

``Anytime you blend two large organizations, even if they’re the same nationality, you will have some problems,″ he said Monday.

The merger’s architects, co-chairmen Robert J. Eaton of Chrysler and Juergen Schrempp of Daimler, have portrayed the creation of the new German company as a marriage of equals. While DaimlerChrysler will be incorporated in Germany, it will have dual headquarters in Stuttgart, Germany, and Auburn Hills, Mich. Its leadership will be divided almost equally between Germans and Americans.

Still, turf battles are inevitable in any such marriage. How many former Chrysler executives, rich with Chrysler stock options that can now be cashed in because of the merger, will opt to retire early or go elsewhere if they feel underutilized or slighted?

DaimlerChrysler executives acknowledge the merger won’t be easy. Their own study of transnational mergers suggests that 70 percent failed to achieve the kind of success that was anticipated. And there is no precedent for a German-American merger on this scale.

``We’re breaking new ground here,″ said Thomas T. Stallkamp, president of DaimlerChrysler Corp., the U.S. arm. ``There is no model for this. That’s both good and somewhat frustrating.″

DaimlerChrysler has set a goal of cutting $1.5 billion in costs in the new company’s first year.That savings is expected to come in large part from combining procurement, logistics and overhead.

There’s little overlap of products and markets, and management has decided not to blend product lines for fear of diluting the brands (you won’t find Mercedes-Benz cars in Plymouth showrooms, for example). That means there is less opportunity for savings than there might be with two companies that have more redundant vehicles and operations.

But the stock transaction, valued at $32.8 billion based on the companies’ share prices when the deal closed, has been embraced by industry analysts precisely because there’s so little overlap. Gary Lapidus of Sanford C. Bernstein & Co. says the companies complement each other.

``The halo of the Mercedes brand and Daimler’s engineering capability will help Chrysler improve its tarnished reputation on quality,″ he wrote in a recent report to investors. ``Chrysler’s lean management and unique business processes can help Mercedes-Benz re-engineer its way to a more competitive cost structure.″

Most analysts expect DaimlerChrysler to trigger a wave of more mergers as the industry continues to consolidate.

Michael Robinet of CSM Forecasting Inc., an industry consulting firm, said Peugeot and Renault of France ``are ripe for some sort of joint venture or merger,″ and Japan’s financially weak Nissan and Mitsubishi may be forced to find a stronger partner.

If their merger’s successful, DaimlerChrysler may try to gain a bigger presence in Asia, Robinet said. ``This merger begs another merger. Two to three years down the road it will set the stage for DaimlerChrysler to merge with a Japanese partner.″

Lapidus predicts the current 25 major automakers eventually will consolidate down to eight to 12 global companies. Without their merger, neither Daimler-Benz nor Chrysler would have survived as independent automakers, he says.

``Both lack the scale economies of the global, full-line producers like Toyota, Volkswagen and Ford,″ Lapidus wrote. ``By merging, Daimler-Benz and Chrysler are positioning themselves as one of the industry’s long-term players.″

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