DaimlerChrysler Corporation

founded: 1925

Contact Information:

headquarters: 1000 chrysler dr. auburn hills, mi 48326-2766 phone: (248)576-5741 fax: (248)576-4742 toll free: (800)chrysler url: http://www.chryslercorp.com

OVERVIEW

Chrysler Motors Corporation in 1998 announced an imminent merger with Daimler-Benz, which resulted in the creation of DaimlerChrysler, a new German company with headquarters in Germany and the United States. Both companies have very distinct product lines and compete in different markets for different customers (except in the sport utility vehicle category). DaimlerChrysler, in the 2000s, has started expanding into global markets where only one of the former companies may have previously been competing. The largest proposed industrial merger in history—valued roughly at $92 billion—combined two giant companies with similar corporate cultures to create a single entity capable of becoming one of the world's leading designers and producers of cars and trucks. DaimlerChrysler is an automotive and transportation giant that lists its passenger car brands as Maybach, Mercedes-Benz, Chrysler, Jeep, Dodge, and smart. Commercial vehicles are produced under the Mercedes-Benz, Freightliner, Sterling, Western Star, Setra, Thomas Built Buses, Orion, and American LaFrance brands. In addition, in 2000 the company formed an alliance with Mitsubishi Motors and owns 37 percent of that company. In May 2002 DaimlerChrysler and Mitsubishi Motors Corporation expanded their alliance to include the Hyundai Motor Company to establish a joint venture company called Global Engine Alliance to design and construct in-line four cylinder gasoline engines. The engines will be used by Chrysler Group, Mitsubishi Motors, and Hyundai Motor Company.

COMPANY FINANCES

Following slumping sales in 2000 and 2001, DaimlerChrysler announced that some signs of rebounding occurred in 2002 in spite of the 2001 total operating loss of $1.9 billion thanks to poor management decisions and the ongoing customer reluctance to buy in the United States, Japan, Argentina, and Europe, among other markets. The Chrysler Group, following a large loss and massive employee layoffs in the United States in the first quarter of 2001, posted an adjusted operating profit of $111 million for the first quarter of 2002. That, largely stemming from the sale of 1.1 million cars the first quarter, coupled with strong international sales of smart and Mercedes Benz brand lines, gave DaimlerChrysler an operating profit excluding one-time effects of $0.9 billion for the first quarter of 2002. Unless the global economy sputters again, or if a threatened strike among German autoworkers does occur, the company cautiously saw itself returning to modest profitability by 2002's end or 2003. But small profits were not good enough, or so says the battle cry of DaimlerChrysler shareholders at the April 2001 annual meeting in Berlin, a nearly 13-hour marathon, which was less like a stockholder meeting and more like a rowdy soccer match as up to 10,000 shouting angry holders of stock expressed anger, disappointment, or frustration—and some hecklers even cried out for the removal of Jurgen E. Schrempp, CEO and chairman of the board of management since 1995. Schrempp is also under fire from Mercedes Benz aficionados who say the quality of the Mercedes has gone downhill. Shareholders uniformly blasted the ambitious global mergers and alliances that had increased DaimlerChrysler's size but yanked all profits out of the pockets of shareholders. Payouts for stockholders in 2001 amounted to about half what the stock was worth at one point in 1999 before the yoking of Daimler-Benz and Chrysler, and shareholders learned that 1999 profits could not possibly be attained before 2005, if then. In short, either DaimlerChrysler achieves stunning financial turnaround by 2002 or Schrempp may find himself in the same jobless situation that many Chrysler execs found themselves following the Daimler-Benz and Chrysler merger—thanks to Schrempp's aggressive purging of those who disagreed with the merger. In articles in the Washington Post and other newspapers, a pattern has emerged with Chrysler from the 2,700 employees who lost their job building buses and trucks for Chrysler's Freightliner subsidiary or the tens of thousands connected to Chrysler whose long-term loyalty was rewarded with little-notice firings: many people are angry and many say the company gave them false hopes and assurances.

ANALYSTS' OPINIONS

Business writer Michael Craig poked fun at DaimlerChrysler top dog Jurgen Schrempp's ruthless decision-making following the financial problems of the early 2000s that accompanied the marriage of Daimler-Benz with Chrysler to form DaimlerChrysler. Schrempp "told Chrysler it would be a merger of equals, then scared off or dismissed all the executives responsible for the renegade culture that originally motivated Daimler to make the deal," wrote Craig. But Rod Lache, analyst with Deutsche Bank in New York, wasn't joking when he told the Detroit News that the turnaround DaimlerChrysler's Schrempp has likely overoptimistically hoped for is in jeopardy because of pricing pressures. "A lot of the assumptions the company made are going to be difficult to achieve."

FAST FACTS: About DaimlerChrysler Corporation

Ownership: DaimlerChrysler is a publicly held company traded on the New York Stock Exchange.

Ticker Symbol: DCX

Officers: Jurgen E. Schrempp, Chmn. of the Board of Management and CEO, 57; Dieter Zetsche, Chrysler Group, Pres. and CEO, 49

Employees: 372,000

Principal Subsidiary Companies: DaimlerChrysler Corporation oversees many subsidiaries. Some of the most well-known are Mercedes-Benz, Chrysler, Dodge, Jeep, Sterling, Freightliner, American La-France, Setra, Plymouth, Powertrain, Setra, Evobus, Lenkungen GmbHn, DaimlerChrysler Aerospace (Dasa), Adtranz, and Alle Server.

Chief Competitors: DaimlerChrysler's top competitors include General Motors, Ford Motor Company, Toyota, Volkswagen, Nissan, Fiat, Honda, Kia, Hyundai, and Mazda.

HISTORY

In 1925 the Chrysler Corporation was incorporated by Walter Percy Chrysler. Chrysler was a former vice president of General Motors who had resigned over policy differences and had gone on to restore the Maxwell Motor Corporation to solvency. He designed Maxwell's first Chrysler automobile and exhibited it in 1924 in the lobby of the Hotel Commodore in New York City, since a vehicle not yet in production could not be displayed at the New York Auto Show. The car was a major success—the company sold 32,000 vehicles at a profit of $4 million before the year's end.

Following the success of his first car, Chrysler designed four more automobiles—the 50, 60, 70, and Imperial 80—named for their maximum speeds, which surpassed the 35-mph top speed of the Ford Model T. By 1927 the Chrysler Corporation had firmly established itself with sales of 192,000 cars, becoming the fifth largest company in the industry.

Chrysler realized the need to build his own plants in order to exploit his firm's manufacturing capabilities. Dillon Read of the New York banking firm of Dillon Read and Company had bought the Dodge Corporation of Detroit from the widows of the Dodge Brothers and reached an agreement with Walter Chrysler. In 1928 the Dodge Corporation became a division of the Chrysler Corporation, and the size of the company increased fivefold.

The manufacture of Chrysler, Plymouth, and Dodge cars was suspended during World War II while Chrysler converted to war production. Chrysler's wartime service earned it a special Army-Navy award for reliability and prompt delivery. Some of its main war products included the B-29 bomber engines and anti-aircraft guns and tanks.

The company began experiencing three significant problems in the immediate postwar period: a loss of the initial enthusiasm and drive that had helped its constant innovation and experimentation in the early days; an exhaustion of engineering breakthroughs; and changes in American tastes and the increased demand for sleeker, less traditional models of cars. In addition, Chrysler, confident of its reputation and war record as a patriotic company, did not focus on marketing to the American public, which was then a crucial, fast-emerging trend in the auto industry.

L.L. Colbert, a lawyer, became the president of Chrysler in 1950 and hired McKinsey and Company, a management consulting firm, to put Chrysler sales back on track. The result was three reforms: development of international markets, centralized management, and a redefined engineering department. Colbert's reforms did not significantly improve Chrysler's competitiveness though.

Lynn Townsend was hired to be the new corporate head in 1952. He consolidated the Plymouth and Chrysler car divisions, closed some unproductive plants, reduced the workforce, installed an IBM computer system to replace 700 clerical staff workers, and enhanced sales by providing the best warranty in the industry. Within five years Lynn Townsend had revitalized the corporation. A Space division was formed that became the prime contractor for the Saturn booster rocket. By the end of the 1960s Chrysler had plants in 18 different countries.

CHRONOLOGY: Key Dates for DaimlerChrysler Corporation

1925:

Walter Percy Chrysler, a former GM vice-president, incorporates the Chrysler Corporation

1928:

Dodge becomes a division of Chrysler

1942:

Production of cars comes to a halt as Chrysler concentrates on war machine production

1957:

Chrysler's space division is formed and Chrysler becomes the main contractor for the Saturn booster rocket

1963:

Chrysler revolutionizes the industry with a 5-year, 50,000-mile powertrain warranty

1974:

Chrysler continues manufacturing gas guzzlers through the Arab oil embargo; losses totaled $52 million

1978:

Lee Iacocca becomes the head of Chrysler

1980:

Iacocca secures a federal loan worth $1.2 billion to keep Chrysler alive

1983:

Chrysler pays off loan seven years ahead of schedule

1984:

The company boasts record earnings of $2.4 billion

1987:

Chrysler takes over the American Motors Corporation, getting the prized Jeep line along with it

1992:

Cab-Forward Design, for greater stability and handling, debuts

1998:

Chrysler accepts merger offer with Daimler-Benz

2001:

DaimlerChrysler losses approached $2 billion, and all remaining Chrysler top-ranking execs are replaced by execs from Germany

2002:

The company, remaining under fire from shareholders, vows turnaround but analysts are unsure if it can be done fast enough to preserve Chrysler brand name

Before the end of the 1960s, the domestic market was undergoing major changes—inflation was taking a toll, imports of foreign vehicles had increased, and crude oil prices had risen steadily. Chrysler, intent on fighting domestic competition, lost pace in the rapidly changing market and did not produce enough of its popular compact cars to meet consumer demand. In addition, with an overstock of larger vehicles, Chrysler reported a $4-million loss in 1969 in sharp contrast to its profit of $122 million the previous year.

John J. Ricardo succeeded Townsend as president and immediately began cutting expenses by reducing salaries, workforce, and the budget, and he experimented with the marketing of foreign cars. However, Chrysler blindly still failed to read the public mood. The company continued manufacturing large gas-guzzling cars even during the 1973-1974 Arab oil embargo in a market already dominated by Cadillacs and Lincolns. In 1974 losses totaled $52 million, and the following year's deficit was five times that amount. The company experienced a brief respite in 1976-1977, but that lasted all too short a time.

In 1978 Chrysler reported a loss of $205 million, causing great concern among the company's financiers. Chrysler saved itself from bankruptcy through highly charged negotiations with the federal government, which guaranteed loans up to $1.5 billion on the condition that Chrysler raise $2.0 billion on its own. Under the leadership of Lee Iacocca, an ex-Ford executive with a flair for marketing, intense self-promotion, media aggrandizement, and public relations, Chrysler recovered in spite of plant closures, layoffs, and a company-wide restructuring worth $577 million. The dedication and hard work of Chrysler's employees played a key part in the resurgence of the corporation, but Iacocca hogged all headlines to take much of the credit for the turnaround. Nonetheless, Iacocca's brash, never-say-die attitude might have just been enough to give the American people enough confidence in Chrysler products to bring the company back from the edge of oblivion (a fate many analysts wrongly had forecast).

The 1980s brought exciting changes to the corporate structure, as well as to the product lines. General Dynamics bought Chrysler Defense, and the loans that the government had guaranteed were paid back seven years early. The K-car debuted in the 1981 model year, and minivans, a category Chrysler pioneered, were introduced in 1983. A merger with American Motors put the Jeep and Eagle brands in dealers' showrooms. The sleek and speedy Dodge Viper concept car excited crowds at the North American Auto Show in 1989 and revived interest in Chrysler's products.

In 1992 Chrysler introduced the concept of Cab-Forward design. This concept made the wheels appear to be pushed forward, back, and out, creating greater stability and enlarging the passenger compartment. The 1990s saw the reporting of record net earnings for multiple quarters and the dedication of the world headquarters building in Auburn Hills, the European headquarters in Brussels, and the Chrysler Japan office in Tokyo.

Chrysler's reputation in the mid-to-late 1990s was earned for daring designs and its vaunted seven-year or 100,000-mile powertrain warranty. The Chrysler Cirrus had a sleek look in spite of its affordability when introduced in 1995, and the Sebring convertible combined the look and feel of a sports car with the roomy back seat of a sedan. In 1999, for its seventy-fifth anniversary year, Chrysler brought a protype to the 1999 Detroit Auto Show—a Chrysler PT ("Personal Transportation") Cruiser that appeared in dealer showrooms nationwide in 2001. Loaded with space saving gimmicks like a foldout bench to stuff in extra passengers, and combining a futuristic design with that of its historic 1934 Airstream and Airflow models, PT Cruiser was the last head-turner car devised by Chrysler engineers before the merger with Daimler-Benz.

In 1998 Chrysler linked its fortunes with the oldest car manufacturer in the world, Daimler-Benz of Germany, accepting the latter's merger offer. The company's automotive heritage goes back to the 1870s when inventor and machinist Karl Benz perfected a two-stroke engine. The Daimler connection goes back to 1885 and Gottlieb Daimler's motorcycle with a four-stroke, single-cylinder engine. In 1886 Benz and Daimler had parallel successes. Benz was awarded a German patent for the first motor car, and Daimler found a way to insert an advanced engine into a carriage to make it a horseless carriage. Independently successful for decades in spite of Germany's vanquishing in World War I, Daimler Motoren Gesellschaft and Benz & Cie merged into Mercedes Benz in 1924, the "Mercedes" name being a pseudonym for well-known rally racer and Daimler salesman Emil Jellinek. The company's best-known car in Europe was its 1929 classic Stuttgart; the car had six cylinders and a 38 horsepower engine. In the 1930s the company became synonymous with great German engineering feats based on the superlative design and performance of the 500 K and the 540 K models. Daimler-Benz's pre-World War II glory days became days of shame as the company used Jews, Gypsies and others regarded as undesirable by Hitler's Third Reich to work as forced labor in the company's automobile factories. Beginning in 1983, the company offered apologies, psychological counseling, and eventually, reparations to the victims. It also supports the Holocaust Memorial in Detroit and European memorials to those who suffered because of actions by then company executives.

In the late 1990s, at the time of the merger, the Mercedes Benz name was synonymous with automotive quality and customer comfort and status. Daimler-Benz executives, however, perceived a need to appeal to other niche markets and to position itself more strongly in international markets. Daimler-Benz CEO Jurgen Schrempp predicted that DaimlerChrysler Aktiengesellschaft would soon be the leading global automaker. But in 2001 and 2002, with Chrysler sales sagging horrifically, Daimler-Chrysler found itself mired in fifth place among car manufacturers. The company's losses in 2001 approached $2 billion, and Schrempp fired whatever Chrysler top-ranking execs hadn't left on their own. Many rank-and-file employees at Chrysler continue to vilify Robert J. (Bob) Eaton, chairman of the board and CEO for Chrysler in 1998, who walked away from Chrysler with millions in his pockets after agreeing to merge. In 2001 Schrempp put another German executive, Dieter Zetsche, in charge of Chrysler's third attempt to avoid closing. In 2002 signs of small recovery were apparent, but few analysts were completely confident in Chrysler.

STRATEGY

DaimlerChrysler's immediate strategy is to somehow affect a "turnaround" to make Chrysler products profitable once again. To that end, company executives in recent years have created a document that lists the best properties and characteristics of Chrysler and Mercedes Benz each, in order to market each vehicle properly.

INFLUENCES

In the 1930s Chrysler's farsightedness helped the company survive the Great Depression far better than others in the industry that folded then or soon thereafter. Chrysler realized the dangers associated with rapid growth and the importance of maintaining flexibility in his vehicle models and designs. Although he had to pay more for car parts than other companies, he discontinued his policy of manufacturing as many parts as possible for his cars. On more than one occasion, Chrysler did not keep pace with the rapidly changing industry, particularly in marketing and converting from big cars to compacts, and suffered massive losses. Restructuring the organization, its processes, and strategies maneuvered the company to a favorable position in the industry by the time of merger in the late 1990s. But in the 2000s, unstable management, thin sales of radical new brands such as the PT Cruiser, and worker dissatisfaction with management helped spawn Chrysler's current crisis.

CURRENT TRENDS

DaimlerChrysler has been working to reduce the amount of time it takes for a vehicle to get from concept to market and has provided a benchmark for others in the industry. The company has a program in place for its suppliers to submit ideas for saving costs that resulted in identified savings of more than $1.2 billion in one recent years. In 2004, Chrysler campaigns will stress the best of each partner as it markets "American design and German engineering."

PRODUCTS

The Chrysler Corporation was known for many of its historical vehicles, which include the Imperial, New Yorker, Valiant, Barracuda, PT Crusier, the Viper, and now the now highly touted Crossfire. In 2004 DaimlerChrysler hopes to win back market share with two new streamlined models, the Pacifica, a six-passenger sport wagon with a splashy front grille and lights that should go head-to-head with Subaru's outdoor wagons; and the Crossfire, a two seat sports coupe with a 3.2-liter 90-degree V-6, 18-valve SOHC engine available with a six-speed manual or five-speed automatic transmission.

CHRYSLER: SPEED, POWER, AND STATUS

If you're an affluent American, but you consider yourself a bit of a risktaker and a lover of fast, sleek, differently designed cars, you just may be one of the millions who have chosen a Chrysler product for your chosen vehicle. Whether it is the big and powerful Imperial of the 1970s, or the Dodge Viper of 2000, or tomorrow's car of the future, the speedy two-seater Crossfire, DaimlerChrysler has as many cars in its stable termed "classics" by car fanciers as any American manufacturer. When Chrysler merged with Daimler-Benz, many predicted great stylistic improvements for the European status favorite, the Mercedes, but instead that car has been derided and dismissed by the same fanciers in the 2000s. Having come back from more falls than Rocky Balboa in the "Rocky" movies, DaimlerChrysler now has to succeed without a bailout from the U.S. government, or else the German management, in order to preserve its Mercedes Benz line, may be forced, reluctantly, to scuttle the Chrysler division.

CORPORATE CITIZENSHIP

DaimlerChrysler in Germany has employers that make up 14 orchestras and miscellaneous music groups that play to raise funds for the World Childhood Foundation, founded by Queen Silvia of Sweden in 1999. With the aid of DaimlerChrysler and other corporations, its aim is to rescue children from lives of violence and deprivation.

GLOBAL PRESENCE

DaimlerChrysler's new slogan reflects its global expansion: "Innovation, Global Presence and Attitude, Leadership, Responsibility, Openness, Agility, Quickness and Excellence." DaimlerChrysler has taken a strong stand to build its presence in Asia, particularly as the market for subcompact cars expands. To this end, the company has acquired a 37.3 percent stake in Japan-based Mitsubishi Motors Corporation, profitable in 2002 for the first time in three years. DaimlerChrysler is affiliated with 11 factories in Asia. DaimlerChrysler's main plants are in Germany and the United States.

EMPLOYMENT

The company is down to around 372,000 employees in 2002, following massive layoffs between 1999 and 2002, according to the Knight Ridder newspaper chain. In 2000 the company employed 428,000 persons. Employees who were let go complain bitterly that they had been led to expect a merger but received nothing less than a corporate takeover by Daimler-Benz.

SOURCES OF INFORMATION

Bibliography

chrysler home page, 14 may 2002. available at http://www.chrysler.com.

craig, michael. "how to be a wealthy failure." business 2.0, 11 june 2001. available at http://www.business2.com.

"daimlerchrysler group with improved earnings in the first quarter of 2002." pr newswire, 25 april 2002.

daimlerchrysler home page, 14 may 2002. available at http://www.daimlerchrysler.com.

harnischfeger, uta. "daimlerchrysler tries to calm investors' nerves." financial times (london), 12 april 2001.

mason, anthony. "daimlerchrysler merger sours." cbs news transcripts, 7 january 2001.

muller, joan. "can this man save chrysler?" business week, 14 may 2001.

rubin, daniel. " both german, american shareholders unhappy with daimlerchrysler." knight ridder/tribune news service, 10 april 2001.

schmid, john. "daimlerchrysler upbeat despite chrysler group loss." the international herald tribune, 12 april 2002.

swoboda, frank. "a model comeback? chrysler, in 3rd crisis in 3 decades, hopes to be profitable by end of 2003, but it won't be easy." washington post, 13 may 2001.

tierney, christine n. "small shareholders give the slumping giant's ceo a piece of their mind. the big question now: when will institutional investors chime in." businessweekon-line, 16 april 2001. available at http://www.businessweekonline.com.

For an annual report:

on the internet at: http://www.investor-rel.com/chrysleror write: investor relations, chrysler motors corp., 1000 chrysler dr., auburn hills, mi 48326-2766

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. daimlerchrysler corporation's primary sics are:

3679 electronic components, nec

3711 motor vehicles and car bodies

3714 motor vehicles parts and accessories

6159 miscellaneous business credit institutions

6399 insurance carriers

also investigate companies by their north american industry classification system codes, also known as naics codes. daimlerchrysler corporation's primary naics codes are:

327211 flat glass manufacturing

333924 industrial truck, tractor, trailer and stacker machinery manufacturing

336111 automobile manufacturing

336211 motor vehicle body manufacturing

336399 all other motor vehicle parts manufacturing

522298 all other non-depository credit intermediation