May 7, 1998
Germany's Daimler-Benz and the Chrysler Corporation formally announced their merger today, forming the fifth largest automaker in the world. Following a background report, Jim Lehrer and guests discuss the ramifications of the deal.
JIM LEHRER: We're joined now by Klaus Friedrich, chief economist for the Dresdner Bank Group, Germany's second largest bank; Harley Shaiken, Professor of Labor and Industrial Relations at the University of California, Berkeley; Csaba Csere, editor-in-chief of Car and Driver Magazine; and David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan Transportation Research Institute. Mr. Cole, for the automobile industry generally, how major a development is this?
A RealAudio version of this segment is available.
May 7, 1998:
A background report on the Daimler-Benz and Chrysler merger.
April 7, 1998:
Citicorp and Travelers announce a massive $83 billion merger.
November 10, 1997:
The bidding war for MCI finally ended with World Com's $37 billion bid .
August 6, 1997:
Margaret Warner leads a discussion of the new Apple-Microsoft Alliance.
July 23, 1997:
The EU approves the merger of two aerospace giants.
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Visit the Web site of Daimler-Benz
Visit the Web site of Chrysler Corporation.
"...one of the most significant events that we have seen in the last 50 or even more years...."
DAVID COLE, University of Michigan: Oh, this is absolutely huge. It's probably one of the most significant events that we have seen in the last 50 or even more years in terms of the structural change in the industry, and that really may signal a major final restructuring of the industry.
JIM LEHRER: There have been mergers before. There have been large mergers before. Why is this one so different?
DAVID COLE: Well, it really, I think, is in the context of the new world that we have where the boundaries are vanishing. We are in a true global environment as far as the industry is concerned. And if you're going to be successful in this business, you need economies of scale, strong economies of scale, and you need a global presence. And when you look at the match between products and geographic dispersion, this is a very good match. But it's a large match between two very strong and very prosperous companies.
JIM LEHRER: Mr. Csere, from Chrysler's point of view specifically, why was this a good deal for them?
CSABA CSERE, Car & Driver Magazine: It was a very good deal for them because it puts them on the track towards that bigness. These days consumer demand for product refining is incredibly high. There's regulations all over the world on emissions, on fuel economy, on crash, and it takes a certain size of engineering muscle to satisfy all these standards and still produce a car at a price that the customer wants. You've got to have a certain critical mass to do this. And by hooking up with Daimler-Benz, now Chrysler and Daimler-Benz together are a large enough company to do this effectively.
JIM LEHRER: And Chrysler could not grow on its own, in other words, is that what you're saying?
CSABA CSERE: Well, it's very hard to grow on its own. Chrysler is in the United States. The United States is a mature car market. It doesn't grow very rapidly. Chrysler has tried to grow in Europe. It's made some progress there, but Europe is also a very mature car market. So it's very difficult to grow yourself into a much larger car company.
JIM LEHRER: So a good thing for Chrysler?
CSABA CSERE: A very good thing for Chrysler.
JIM LEHRER: Now, Mr. Friedrich, for Daimler-Benz, why is this a good thing?
KLAUS FRIEDRICH, Dresdner Bank Group: I think some of the same reasons. Daimler has had problems in the last recession. They have restructured. They have become very lean and very mean and profitable. And now they're ready to go global. And when you want to go global, you cannot ignore the American market. And I think this is the move for the American market.
JIM LEHRER: So the point that Spencer Michels made in his piece that Mercedes-Benz sells very well here in the United States but it still only has 1 percent of the market is key to why they wanted to merge?
KLAUS FRIEDRICH: That's exactly right.
JIM LEHRER: Why they needed Chrysler?
KLAUS FRIEDRICH: 1 percent is not a significant share of the market. Daimler wants more.
JIM LEHRER: Yes. All right now, Harley Shaiken, how is this going to affect the work forces in these two companies?
HARLEY SHAIKEN, University of California, Berkeley: Well, I think it's going to have a positive effect on the work force, at least in the near term. There are several short-term things that could benefit the union. One, in the United States, Mercedes' new plant in Alabama is currently non-union. It's one thing to have a non-union Mercedes plant in Alabama and quite another to have a non-union Chrysler plant in Alabama. So the fact that this merger is taking place undoubtedly will put additional leverage for that plant to become unionized. Also, in addition to that, there are new talks that are going on as a result of the merger between the UAW and its counterpart, the I. G. Metall in Germany, and the Canadian auto workers in Canada. So this merger among two very large companies is, in turn, having an analog among its unions. And finally--I'm sorry--
JIM LEHRER: No. Go ahead.
HARLEY SHAIKEN: Finally, I think that what we are looking at is the fact that no layoffs in the near term is the dog that's not barking. It's not heard, but it's very good news for the workers in all three countries.
JIM LEHRER: How would you compare the two unions, the strength of the United Auto Workers and the counterpart in Germany?
A comparison of American and German unions.
HARLEY SHAIKEN: They're both very strong unions. They both dominate the industries in which they're primarily located, in this case automobiles. The German union has much stronger governmental backing, and the laws in Germany are much more favorable to the union. So it will be interesting to see to what extent that additional dimension within Germany passes over into this new combined entity in the U.S..
JIM LEHRER: Mr. Cole, do you have an opinion on that as to how this could affect these two unions, one in one country, one in another, both very strong and independent in their own rights?
DAVID COLE: I certainly agree with Harley that I think it's probably going to be good news. There are very different personalities between Chrysler and Mercedes. There are very different personalities between the two unions. I think the interesting thing here is the understanding that the only job security that an individual has, whether working on an assembly line or in a design studio, is a very competitive product in this expanding global marketplace. And the fact that this merger is occurring, I think, is going to really strengthen the prospects that the products and the business is going to be good, which is the real--that's where real job security is
JIM LEHRER: Now, Mr. Friedrich, there has been much discussion in the last 24 hours since this story broke about whether it's work force or management or finances, products, whatever, there are some cultural differences that have to be dealt with. How would you explain what they are?
KLAUS FRIEDRICH: Oh, I think it's a question of management. I think it is a question of learning. This is going on all over Germany now. If you want to go global, I think sooner or later you're going to confront the Anglo-Saxon management model. I think Daimler has done that already sort of internally, and Daimler is ready for it perhaps more so than many other German companies at this stage.
JIM LEHRER: What do you mean? What do you mean by that?
KLAUS FRIEDRICH: Well, I mean, the flattening of hierarchies. The old German model has a lot of different levels: director, sub-director, sub-sub-director, and so on. And everybody addresses each other by his proper title. This has been flattened out at Daimler already. So there is just a boss and then a team of people who work for him. That's the American model. I think it has proven successful for Daimler in its German operations. And so they're a step ahead of other companies in the cultural exchange.
JIM LEHRER: Mr. Csere, how do you see the cultural challenges that these two companies are going to have to become one?
CSABA CSERE: Well, they currently build very different types of products, of course. Mercedes is building a very high end, exclusive automobile. Chrysler is in the mass market mode. They also manufacture the vehicles differently. Mercedes has a lot more money to play with in their limited volume cars. Reconciling those--
JIM LEHRER: Excuse me. What do you mean, they have more money--
CSABA CSERE: Well, when you are selling an $80,000 car, you can spend a little bit more money on manufacturing it than when you're selling a $20,000 car. And it's also different, whether you're selling 20,000 of them a year or 200,000 of them a year.
JIM LEHRER: Okay.
Different ways of doing business.
CSABA CSERE: So those are very different ways of doing business that have to be reconciled. And there's also some just clear, very simple issues, such as language. The people who ultimately will run this company probably need to be bilingual. Most of the German managers are bilingual already. When we go over there, I speak some German, but we always end up speaking English because the German managers and engineers speak English very well. I don't think that's true of the Chrysler personnel.
JIM LEHRER: Yes. Mr. Cole, how do you see the cultural problems ahead?
DAVID COLE: Well, I think if this were 10 years ago and we looked at the old Chrysler management and the old Mercedes management, I would say this is an impossible situation. But I think when you look at people like Bob Eaton and his philosophy, the new Mercedes and Daimler-Benz management philosophy, I think they have a shared vision. It's one of a world or a global automotive industry. And I think that what really drove this is the fact that they did have a shared vision of the future, and that includes, I think, recognition of still important cultural problems that will be a challenge. But I think that vision will get them beyond those problems, and the fact that if they don't do it, if they don't do the kind of job that they're capable of doing, that's going to give their competitors the advantage.
JIM LEHRER: Well, what about Mr. Csere's basic point that Daimler made one kind of car a certain way and Chrysler makes another kind of car a certain way, and now they're going to try to do it together?
DAVID COLE: Well, I think that they're certainly going to try to preserve the separation between the products. And, clearly, Chrysler is going to try to draw the halo from Mercedes and the people that buy Chryslers to think of them as really a relative of Mercedes. On the other hand, Mercedes is going to work very hard to maintain the separation in products. One of the things I think that Mercedes was really looking at at Chrysler is a very lean, efficient, dynamic management structure, generally much leaner than typically is found in Europe. And that is one of the advantages that Chrysler brings that not just Mercedes wants to copy and emulate, that certainly the other American manufacturers and other European manufacturers want to copy as well.
JIM LEHRER: Harley Shaiken, what's your view of that, the lean management model of Chrysler versus Daimler and others--other companies?
"I think we have to be a little cautious and look at a bit of history here. After all, the Titanic was large...."
HARLEY SHAIKEN: I guess I'd be a little more skeptical than the other guests in this score. I think this is potentially a very promising merger. But I think we have to be a little cautious and look at a bit of history here. After all, the Titanic was large, and it was technologically advanced. It's no longer with us. I'm not predicting that for this entity. But there was a coming together of a major U.S. company, Ford, and a major Germany company, Volkswagen, in the 1980's, in their Brazilian and Argentinian operations called Auto Latina. There was a lot of champagne popped at the beginning of that, and ultimately that merger came unstuck.
JIM LEHRER: Why? What went wrong?
HARLEY SHAIKEN: The cultures were very different. It was a much more limited undertaking. It's not necessarily a model for what's likely to happen here. I would emphasize this merger has a lot of promise, but the difference between the promise and the reality is yet to be seen. And if there's one major difference here, it is this--not simply cultural approach in terms of a German and American culture--but a very different approach to building cars. And the way in which that works out, the way the labor issues work out, I think, will be essential to seeing whether or not we'll be popping champagne 10 years down the road.
JIM LEHRER: Mr. Friedrich, what's your view of how Daimler and Chrysler must get together and keep making the same different kinds of cars in a way that's compatible?
KLAUS FRIEDRICH: I think that you don't merge if you do things the very same way the other guy does it, because then there is no complementarity. You benefit from the difference. I think the fact that they are different will make the merger successful. Mercedes will stick to the high end. And Chrysler will stick to the medium and low end. And in that sense they will complement each other. And this makes the particular charm of this merger. They are not going to replace--displace each other, but they complement each other.
JIM LEHRER: And Mercedes will not try to get into the low range market, and Chrysler will not try to get into the high range market.
KLAUS FRIEDRICH: I would say certainly the second. In Europe, Mercedes already is trying, but I think there it can benefit greatly from Chrysler technology, front end drive and other kinds of managerial technology.
JIM LEHRER: Mr. Csere, Mr. Eaton, the chairman of Chrysler, said, and we had it on the tape just now, that this is just the beginning; there are going to be more mergers like this in the automobile industry. Do you agree with him?
CSABA CSERE: Well, the pursuit of bigness in the economies of scale and engineering efficiency that it offers are very clear. And a lot of people think that among the 20 or so major car companies today they're going to be down to 12 in the future. But it's hard to come up with other mergers that are as natural as this one in which from an international standpoint the companies complement each other as well and which from the product standpoint are so good. I mean, these two companies, they have virtually no product overlap whatsoever.
JIM LEHRER: So nobody has to give up anything, you mean?
CSABA CSERE: Exactly. We don't have to sit there and say we have three cars in this segment, we've got to kill one of them, and that's--and that also is why there are no plant closings involved here, because there aren't those product decisions that have to be made. And it's hard to find other ones that are quite as clean and natural as this.
JIM LEHRER: Mr. Cole, what's your view of that, that this is the first of many to come?
DAVID COLE: Well, I think it could be. I think either from an offensive or a defensive standpoint the industry realizes now that the big game has started; that is, the mega companies have begun to come together and that if you delay, if you await the partner that you've coveted might be already gone. That will be one of the most intriguing aspects of this whole story, is what happens tomorrow and over the next couple of years with the rest of the industry, is this a lead into a major restructuring of the global auto industry? My guess is that it probably is. I think within the next few months we're going to hear about some additional things of--
JIM LEHRER: Like what?
A major restructuring of the auto industry?
DAVID COLE: I'm not going to name names or be specific in this respect, but I think that there are talks going on between literally every manufacturer in the world and other manufacturers with the situation in Asia, some of the weakness in some of the companies over there, as well as some of the continued weakness of companies in Europe, as well as the strength of--for example, the Big Three and the financial strength that they have right now presents a unique opportunity with weak and strong and strong and strong to combine themselves into what might be a more streamlined industry than we have had. Frankly, we have too much competition today. We aren't getting the advantage of the economies of scales that we could. And I think that consumers ultimately really will benefit more by a somewhat leaner, smaller industry in terms of number of players than we have right now.
JIM LEHRER: Do you see it the same way, Harley Shaiken?
HARLEY SHAIKEN: A little bit differently here. In a sense there's a bit of deja vu of the mergers and acquisitions of the 80's and that long-forgotten term "synergy." Synergy became a synonym if you didn't know what else to say about two big companies getting together. This merger does have promise, but many of the ones that follow in its wake could be far more negative. It may not make sense in financial terms, but it could have more negative implications for later. In this case you have two strong unions in two highly unionized markets. But one of the fascinating dimensions here will Mercedes take Chrysler's leaner approach, in many ways reflecting the tougher times of the 80's that Chrysler went through in this country, and seek to import it to Germany? So I think just because a big merger has taken place ought not to blind us to the fact that we should scrutinize these kinds of developments fairly closely. Just because two big companies get together doesn't mean it's better.
JIM LEHRER: Mr. Friedrich, do you see more coming?
KLAUS FRIEDRICH: I'm not an enough of an expert. I think--you know, I'm from the banking industry, and there we had some of the same. We had big mergers, Citi and Travelers, and everybody thinks now this kicks off a major merger movement--I can't exclude that--in the automobile industry--but as--as has been said--this is the ideal one. And it's usually the first one that gets the best deal.
JIM LEHRER: Okay, gentlemen, all four, thank you very much. countries must approve the transaction.