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   1. History of Chrysler Corporation
   2. History of Daimler-Benz Corporation
   3. Short Summery of Current Position of DaimlerChrysler
   4. Reasons for Merger and New Opportunities
   5. Opportunities in New Markets
   6. Decrease in Price of Materials Bought from Suppliers
   7. Decrease in R&D Expenses per Production Unit
   8. Confluence of Technologies of Both Corporations
   9. Double Strength of the New Corporation
  10. Market Concerns
  11. New Corporation
  12. Achievements of the New Corporation
  13. Survey of Recent Stock Performance
  14. Comments on some of Financial Ratios of the New Corporation
  15. Government Concerned that…
  16. Environmental Issues in the New Corporation
  17. Conclusion

                       History of Chrysler Corporation
      It would be true to say that Chrysler Corporation was  born  long  ago
before the year 1925 (when it was officially established).  It  was  started
as a result of Walter P. Chrysler’s efforts to create a car  that  would  be
affordable and competitive in the market. The first  car  would  incorporate
four-wheel hydraulic brakes and a high-compression six-cylinder engine.
      In 1924, New York for the  first  time  saw  a  car  that  became  the
ancestor of all generations of Chrysler’s cars.  It was  the  Chrysler  Six.
The car was not allowed to be presented at the  New  York  Automobile  Show,
because it was not in production.   But  to  put  it  in  production  Walter
Chrysler needed to raise external funds.  Eventually he came up with a  very
inventive idea—to park his car in front of the building in  which  the  show
took place.  Going to the show, exhibitors and investors  had  a  chance  to
see the Chrysler Six.  Chrysler’s efforts led to  success—a  Chase  Security
Banker underwrote a five million dollars issue of Maxwell Motor  Corporation
(the company of which Walter Chrysler was a  chairman)  debenture  bonds  to
finance future development.
      In a year Walter Chrysler purchased Maxwell Motor Corporation, renamed
it to Chrysler Corporation and became the only owner of it. The new  company
was growing very fast.  By the end of  the  year  Chrysler  Corporation  had
3800 dealers in the United Stated alone.  The profit  that  year  was  about
$17 million.
      In 1934, the company introduced Airflow to the market.   This car  was
a result of engineer Carl Breer’s and Orville Wright’s work.  They had  been
working on a new generation of cars with a  teardrop  front.   Unfortunately
this car did not match customers’ tastes.   However  the  company  recovered
thanks to  innovations  like  ball  bearings  treated  with  Superfinish,  a
forerunner of the automatic transmission (fluid Drive), and the  color-coded
“Safety-Signal” speedometer.  The company continued  this  success  in  941,
when it introduced the luxury-oriented Town &  Country  wagon.     This  was
the company’s first minivan with nine-passenger seating and  a  rear  hatch.
Besides that, it was the first minivan with genuine  wood  exterior  panels.
This model was in big demand.
      On August  18,  1940,  the  company  was  shaken  by  grief:  Chrysler
Corporation’s founder, Walter P. Chrysler, passed away.
      In 1955, Chrysler Corporation debuted its “master  piece”—Chrysler  C-
300.  This car was the most powerful full-size car in the  world,  and  soon
won twenty out of forty races conducted in 1955.
      Chrysler Corporation played a big  role  in  production  for  military
service during World War II.   The  company’s  full  capacity  was  directed
toward production of tanks and 40mm trailer-mounted anti aircraft guns.   In
total, Chrysler participated in sixty-six military projects that were  worth
of more than 3.4 billion dollars between 1940 and 1945.
      With the  beginning  of  the  era  of  space  conquest,  the  Chrysler
Corporation actively participated in the construction  of  powerful  engines
used to launch astronauts into orbit.  NASA chose Chrysler to construct  the
Saturn 1 and Saturn 1B launch vehicles, which were assembled  at  its  plant
in Louisiana.
      In May of 1998, an event took place that led to huge  changes  in  the
auto world.  Two of the world’s most profitable car manufacturers,  Daimler-
Benz and Chrysler Corporation, agreed to  combine  their  businesses  in  an
equal merger.

                           History of Daimler-Benz

      On October 1, 1883, Karl Benz  started  his  own  company,  which  was
called Benz & Cie, Rheinishe Gas Motor Enfabrik. Benz’s  cars  increased  in
popularity after he started to  build  multiple  cylinder  engines  with  16
horsepower,  which  increased  the  speed.  The  sale  of  automobiles   was
increasing every year.  In the single year of 1901, Benz &  Cie  sold  2,702
vehicles.  By that time, Benz was selling his vehicles in  France,  England,
Russia, United States, and Singapore.  Two years later at  the  age  of  60,
Karl decided to retire from the car business and the company was taken  over
by his sons, Eugen and Richand.  On April 4, 1929, at the age  of  84,  Karl
Benz passed away at his house at Ladenburg.  At the present time, Karl  Benz
is considered to be a pioneer in car building in Germany and worldwide.   In
Germany, Benz is a history figure and often  there  are  signs  at  Mercedes
dealerships, which say, “Father Benz."
      During World War II both companies, Benz & Cie  and  Daimler-Mototern-
Gesellschaft, were ordered to change their  production  lines  for  military
purposes.  Both companies stopped making cars and began  the  production  of
Benz & Cie aircraft engines.  DMG was building the  aircraft.   1916  was  a
dramatic increase the number of employees in Benz and  DMG  factories.   The
number of workers of the Benz factories increased from 7700  to  12,000  and
DMG’s workers increased from 3750 to 16,000.  When the war was  over,  thins
became very difficult  for  the  German  car  builders.   Many  car-building
companies had stopped production and had  to  close  down  their  factories.
Both Benz and DMG were  greatly  affected  by  the  war  and  by  1924,  the
presidents of both  companies  signed  a  merger  agreement,  “Agreement  of
Mutual Interest,” which made them into one company.
      During  this  time,  the  Mercedes  model  became  very   famous   and
recognizable around the world.  Due  to  the  increased  popularity  of  the
model Mercedes, the new company was named Mercedes-Benz.  The name  Daimler-
Benz was used also.  For the next decade, the  Mercedes-Benz  dominated  the
German automobile market.  Mercedes sales were much higher  than  the  other
German car companies, such as BMW and Opel.
      In the early 1930’s history repeated itself with the  rise  of  Adolph
Hitler.  The management of Mercedes-Benz began gradually to lose control  of
the  company.   The  new  government  brought  the  vehicle   under   strict
regulation.  The whole German car industry was taken over  by  the  National
Socialists.  Hitler announced that the production of German  cars  would  be
“drastically reduced” (Kimer, p. 276, 1986).  In the mid 30’s the  Mercedes-
Benz factories were beginning to be used for military purposes.   This  idea
was given by Jakob Werlen, the former manager of  Mercedes–Benz,  who  later
became Hitler’s personal advisor of transportation.  An interesting fact  is
that Hitler had many kinds of cars, but whenever he was  photographed  in  a
vehicle, it was a Mercedes.  One of Hitler’s favorite models was his  parade
car, type 770, the “Grosser Mercedes”  (Kimer, p. 282, 1986).
      Wilhelm Kissel was a general director of the company in  the  mid  and
late 30’s.  He tried to keep his company free from  government  involvement,
but this  proved  to  be  too  difficult.   By  wartime,  the  Mercedes-Benz
factories were basically making  military  products.   By  the  time  Hitler
started the war with the U.S.S.R., Mercedes-Benz was  making  all  kinds  of
army equipment.  The German army needed the best machines and  Mercedes-Benz
factories were  producing  planes,  trucks,  tanks,  and  various  kinds  of
engines.  The most famous Mercedes war product was a military  plane  called
Msserschmitt.  This plane made  the  Luftwaffe  the  best  airforce  in  the
world.  The Msserschmitt was considered the best plane at that time; it  had
a Mercedes DB 600 engine, which made this plane much faster than  any  other
planes in the world  (Kimer, p. 283, 1986).
      In 1945, after the end of the war, all of the Daimler-Benz  factories,
much like the rest of Germany, were  ruined.   An  American  reporter  wrote
about what he had observed in Germany right after the  war  -  “Cities  were
dead, factories idle bridges  down,  rails  gone.   Rubble  was  everywhere”
(Kimer, p. 283, 1986). World War II completely  destroyed  Daimler-Benz,  at
one time the world’s largest automobile company.
      It took more than three years  to  rebuild  the  factories.   However,
many divisions of the company were  lost  because  they  ended  up  in  East
Germany.  At first the company was rebuilding U.S. army vehicles.  By  1949,
over 6,000 cars had been built and  the  main  focus  of  Mercedes-Benz  was
again the production of luxury cars (Kimer, p. 290, 1986).
      Within the next two years, the company was completely rebuilt and  the
number of employees since the beginning of the war  was  doubled.   Now  the
number of workers was almost 40,000.  By the year  1952,  Mercedes-Benz  had
built 100,000 cars and 250 in the United States.  In 1955,  the  new  models
220, 300, and 300S were introduced in a Frankfort Auto Show  and  the  model
300S was named the car of the year.  From that  time,  Mercedes  started  to
export more cars around the world.  However, most of the cars were  sold  in
Germany (Consumer Guide, p. 32, 1986).
      By 1960, the Mercedes was the number one selling car in  Germany,  but
at the same time, the BMW became a very close competitor.  Mercedes  lost  a
large share of the market to BMW.  This was a time when the company  started
to look for new markets.  The United States was a promising market  for  the
Mercedes.  In the early 60’s the company increased its sales to 50,000  cars
sold in the U.S.  (Consumer Guide, p. 46, 1986)
      However, in the mid 60’s, the sales went down.   The  new  190D  four-
cylinder diesel model did not sell well in the U.S.  and  Europe.   It  took
the company three years until it became one of the leaders  of  the  market.
In 1970, Mercedes introduced three new models, which they  called  the  “New
Generation.”  The new models were 280S, 280SE, and  280SL.   By  that  time,
the Mercedes  became  the  number  one  imported  car  in  England,  France,
Belgium, Holland, Switzerland, and Austria (Consumer Guide, p. 48, 1986).
      Another reason why the Mercedes became one of the most popular cars in
the world was its participation in auto racing.  In the late 60’s,  Mercedes
cars participated in nine races and won seven  of  them.   After  tremendous
racing results, people around the world wanted to purchase the  C-111  model
which would set up three new world  records;  however,  Mercedes  would  not
make this available to the public for sale.  The  company  was  receiving  a
thousand letters a day with offers buy the  C-111  model  and  in  1976  the
similar model C111-11 was introduced at the  Geneva  Automobile  Show.   The
new model had tremendous power.  It had 350 horsepower,  and  it  could  get
from zero to sixty mph in six seconds.  Its top speed was  190  mph.   Also,
the C111-11 Diesel set a new record in durability by running at a  speed  of
156 mph for 10,000 miles straight  (Consumer Guide, p.55, 1986).
      In 1982, the 190 series was one of the  best  selling  models  in  the
world.  The 190 model was a small sized car which  opened  for  Mercedes  an
entirely new market.  In Germany, this model became a best  selling  car  in
1985.  This was a very important establishment for Daimler-Benz because  the
190 model became the number one selling small car in  Germany,  leaving  the
long-time leader, BMW, in second place (Consumer Guide, p. 64, 1986).
      In the early 1990’s, the Mercedes market share in  the  United  States
was greatly decreased.  The reason  for  this  was  that  the  Japanese  car
companies  started  to  produce  luxury  cars.   For  example,  Toyota   was
manufacturing  Lexus,  Honda  was  manufacturing  Acura,  and   Nissan   was
manufacturing  Infiniti.    These  cars  today  are  becoming   increasingly
popular  among  Americans.   However,  German  management  found  a  way  to
overcome the competition by building   a  Mercedes  factory  in  Alabama  in
1994.  Now, a large share of Mercedes cars sold in the U.S. are produced  by
American labor.  Producing Mercedes in the U.S.  has  solved  many  problems
for the company.  Many people in the  U.S.  have  an  opinion  about  buying
American-made cars with the purpose  of  supporting  the  American  economy.
The second problem was that tax on imports was greatly  reduced.   The  cost
of a German laborer was 50% higher than an American laborer in Alabama.   By
building  cars  in  the  United  States,  all  these  problems  were  solved
(Fortune, p. 150, 1997).
      Similarly, Mercedes used the same strategy in South America.  It built
a new plant in Brazil.  This plant decreased the  prices  of  the  cars  and
made the purchase of a Mercedes  more  affordable  for  the  South  American
region (Motor Trend, p. 123, 1997).
      In  the  past  five  years  the  demand  for  4x4  vehicles  has  been
increasing.  Two years ago, Mercedes came up with a new M-class jeep  model.
 The price of the is jeep is around $34,000, which is competitive  with  the
American-made Chevy Blazer, Ford Explorer,  and  Grand  Jeep  Cherokee.   By
making a jeep, Mercedes is keeping up with its competitors  for  this  share
of the market.  The new jeep is a success because  it  was  named  the   4x4
truck of the year for 1998.

            Short summary of current position of DaimlerChrysler

Company ownership: European, U.S.  and  other  international  investors  own
DaimlerChrysler; there are approximately  one  billion  shares  outstanding.
65% is made up of European investors.
Global Stock: DCX ordinary shares are traded on the New York  and  Frankfurt
stock exchanges as well as nineteen other major stock exchanges worldwide.
Group Headquarters: Stuttgart,  Deutschland,  and  Auburn  Hills,  Michigan,
Chairmen:  Robert J. Eaton and Jurgen E. Schrempp
Management Board: Consists of fourteen members, including the  two  chairmen
and the heads of the operation and functional divisions.
Supervisory Board: Consists of ten  shareholders’  representatives  and  ten
employees’ representatives.  The Supervisory Board  appoints  the  Board  of
Management and approves major company decisions.
Market Capitalization: Currently about EUR 80 billion (March 1999)
Investments: 1999-2001: EUR 46 billion to  be  invested  in  the  future  of
Automotive Sales: 4.5 million units in 1998 (Passenger Cars  and  Commercial
Employees:  466,900 at the end of 1999
Manufacturing Facilities: in 34 countries.
Global  Brands:  Mercedes-Benz,  Chrysler,  Plymouth,  Jeep,  Dodge,  Smart,
Freightliner,  Sterling,  Setra,  Airbus,  Eurocopter,  Ariane,  Debis   and
Product sold: More than 200 countries

Official Language: English

Financial Reporting: US-GAAP accounting with earnings reported quarterly.
                 Reasons for merging and new opportunities.
      In 1998, at the Detroit Auto Show, the  idea of cooperation of Daimler-
Benz and Chrysler Corporation was born. Schrempp, Chairman  of  Daimler-Benz
and Eaton,  chairman  of  Chrysler  Corporation,  began  negotiations  about
possible  combination  of  two  large  automobile  manufacturers.   “We  are
leading a new trend we believe will change  the  future,  the  face  of  the
industry,” Eaton said five months later when the deal was announced.
      The two chairmen acknowledged that  the  merger  would  not  be  easy.
Their own study of transnational mergers suggested that  70  percent  failed
to achieve the kind of success that had been anticipated.
      As a result of the long series of negotiations, a  new  company  named
Daimler-Chrysler was established.  The company would  manufacture  not  only
cars, but commercial trucks, trains and rockets as well.
      The goal of the merger was to create a company that would be  able  to
stand better against other world leading car producers like General  Motors,
Ford, Nissan, Volkswagen, Toyota and so forth.
      With the  creation of a new company, both of the old  components  were
going to benefit from the following:
 . Decreased R&D expenses per production unit
 . Confluence of technologies of both firms
 . Double strength in total
 . Opportunities in new markets
 . Decrease in price of materials bought from suppliers
                        Opportunities in new markets
      Both Chrysler Corporation and Daimler-Benz operate in quite  saturated
markets (in terms of their current products).  In order for  them  to  grow,
they will have to carry on those overseas markets, which  means  development
of products in accordance with preferences of the new markets.
      Developing new products for a different market segment or establishing
an additional brand might have  implications  for  the  positioning  of  the
existing product range.  Penetration into  completely  new  market  segments
for both companies would involve both high costs (new offices,  stores,  and
advertisement programs) and substantial risks for the companies.
      Another method for successful penetration and  establishment  in  new
markets  is  co-operation  with  another  manufacturer  who  already  has  a
successful brand  and  products  in  place  in  the  segments  where  it  is
represented.   In  this  way,  the  existing  product  portfolio  could   be
broadened without  any  risk  to  each  company’s  brand  identity  and  its
associations of exclusiveness.
      Daimler-Benz is well-known and recognized in Europe and  USA  for  its
high-quality cars and has firm customers;  however,  the  opportunities  are
limited.  The newly industrializing countries in Latin America and Asia,  on
the other  hand,  offer  good  prospects  for  growth—starting  from  a  low
level—to the premium products  segment.   To  penetrate  these  fast-growing
markets on any scale, however, it would be necessary  to  launch  new,  low-
priced products, possibly combined with the creation of a  new  brand  name.
The new direction will certainly require new funds  and  the  company  might
not be able to handle this hard task alone.   Another  possible  problem  of
penetrating  the  new  markets  in  Latin  America  and  Asia  is,  was  the
establishment of new offices, stores, research of  new  customer’s’  tastes,
and  advertisement.   To  cope  with   this   obstacle   to   its   success,
DaimlerChrysler seeks companies in those areas  for  possible  merger,  like
Daywoo, Mitsubisi and so forth.
      Chrysler has not penetrated  the  European  market  very  deeply.   It
certainly will be a good  opportunity  for  Chrysler  Corporation  to  start
cooperation with Daimler-Benz in order  to  penetrate  the  European  market
without additional costs for opening its offices and stores.
      At the same time, Chrysler has very a good market in North America and
can facilitate Daimler-Benz’s deep penetration into that market with  a  new
program of minivan production.

            Decrease in Price of Materials Bought from Suppliers

      One major benefit of the merger is that both companies can  save  lots
of  money  on  external  purchases.   First,  saving  will  take  place   in
purchasing raw materials from suppliers.  Before the merger, both  companies
had to buy from supplier separately. Everyone knows this law of the  market:
“the more you buy, the less you have to pay.”  Now  the  companies  purchase
everything together and the quantity of one batch is doubled, this  bad  led
to  significant  decrease  in  price  on  per-unit  basis.    For   example,
DaimlerChrysler already saved $1.4 billions in 1998. In turn,  decreases  in
price for raw materials will provide lower prices for the cars in total  and
increase compatibility of the new company.

      Decrease in R&D expenses per production unit

      Another positive aspect  of the merger is that both of  the  companies
can combine their  efforts  in  researching  and  developing  new  products.
Before the merger each of the companies had to conduct research  for  itself
and these costs were spread on per  unit  basis  among  all  products.   Now
these costs are spread on  a  significantly  larger  quantity  of  products,
which allows decreasing costs of the  research  and  development  per  every
production unit.  In addition, intellectual powers of  both  companies  will
now work for one huge company—DaimlerChrysler.  This factor will bring  new,
combined ideas into the new company.
“On April 17, 2000, DaimlerChrysler announced a new Virtual  Reality  Center
in Sindelfingen, Germany.  The  Company  estimates  the  new  facility  will
reduce costs of making  Mercedes-Benz  prototype  models  by  up  to  twenty
percent a shorten product development times while improving quality.”

               Confluence of Technologies of Both Corporations

      Both  of  the  companies  have  their  own  advantages,  in  terms  of
technological development.  Now, when all  these  advantages  represent  one
solid company, the new company has more chances for  surviving  in  the  car
manufacturing industry.  The following are evidences of  recent  innovations
in DaimlerChrysler.
       “DaimlerChrysler researchers  in  Ulm,  Germany,  have  developed  an
      infrared-laser night vision  system  that  significantly  increases  a
      driver’s visibility at night.  The system allows drivers to  recognize
      darkly clothed pedestrians and cyclists even at great  distances.   It
      also illuminates the road ahead over a distance  of  around  500  feet
      without blinding the drivers of oncoming vehicles.
      The system functions as follows: two laser headlights on the vehicle’s
      front end illuminate the road by  means  of  infrared  light  that  is
      invisible to the human eye.  A  video  camera  records  the  reflected
      image, which then appears in black  and  white  on  a  screen  located
      directly in the drivers’ field of vision, or else as a so-called head-
      up display on the windshield.”(Auburn Hills, April 5, 2000)

                     Double Strength of New Corporation

   One of the factors that investors are looking for  before  making  their
investment decision is a company’s  overall  stability.  Usually  the  large
corporations are considered to be stronger than small ones.
   The new size of DaimlerChrysler might lead to more stability,  which  in
turn could mean lower rates of return required by investors.   It  might  be
one of the new savings aspects of the company.

                               Market concerns
      The automotive industry has seen increased global  consolidation  over
the past two years, The New York  Times  reported.   According  to  industry
analysts, the consolidation is fueled by three major trends: brands  growing
in importance, manufacturers forging  into  difficult  markets,  and  rising
costs of technology.  While many industry experts see the  consolidation  as
inevitable  and  strategically  beneficial,  some  analysts  warn  excessive
consolidation could lead  to  diminishing  choices  and  higher  prices  for
      The Daimler-Chrysler merger is one of the few examples when the merger
benefits  the  competitiveness  of   the   market.    Chrysler   Corporation
manufactures  lower-range  trucks,  minivans,  and  sport  utilities,   when
Daimler-Benz majors in high-priced  vehicles.   No  significant  overlap  in
production will take place.  Since  both  of 

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