Is Chrysler Really That Insignificant to Daimler?

by : Lisa Ziegler

After DaimlerChrysler AG sells its loss-making arm Chrysler AG it will return to what it was twenty years ago---a small, proud, provincial luxury automaker with a huge bulk of truck business. This is exactly what most investors want, to turn back the clock to a period when the company was smaller and above all profitable.

The union of Daimler and Chrysler was a marriage that was opposed at by German executives right from the very start. And for years these German executives have grumbled over the expansion strategies of the company's past two chief executives stating that the merger have taken toll on Mercedes-Benz not only in terms of vehicle sale but also with regards to its division. Mercedes Benz is considered as the most valuable subsidiary of DaimlerChrysler.

It can be remembered that former CEO Juergen Schrempp has built a global automotive giant by surrounding Mercedes with mass-market brands such as Chrysler, Mitsubishi, Kia, and Dodge. His predecessor, Edzard Reuter has some gimmicks of his own. He paired Mercedes with aerospace and electrical appliances businesses that simply drained the company with huge sums of money.

DaimlerChrysler maker of quality has sold or closed all of its money-losing businesses which is a good thing since it somewhat helped the company to strengthen its stock. And today, the company is again facing the same ordeal with its Chrysler arm. Last February 14, 2007 DaimlerChrysler CEO Dieter Zetsche has announced that all options are on the table for its Chrysler Group and that includes the possibility of sale.

The news of the Chrysler sale has aroused various emotions. Though most of the company's investors would like to sell Chrysler there are still few that questioned the advantage of dismantling of the 1998 merger.

According to Mark Warnsman, a New York-based analyst for Prudential Equity Group wrote in a report his views on Chrysler sale. He wrote, "We are not in favor of a sale. Without Chrysler, the rest of the company may not be large enough to compete with huge and efficient global automakers such as Toyota Motor Corp. Even at the luxury end of the business, scale matters." He also added, "In our view, the original merger strategy remains sound, and it is the execution that has lagged."

Last year Mercedes-Benz was able to sell 1.25 million vehicles, which is barely more than half of Chrysler's volume and lower than the 4million unit threshold that many industry experts consider as the minimum number to cover the rising costs of environmental and other technologies. Mercedes' heavy-truck business is the world's largest but again less than 600,000 are being sold annually. Likewise, Mercedes has not been very successful with its Smart small car than rival BMW with its fast-growing Mini brand.

While DaimlerChrysler is trying to scale down the other carmakers in Stuttgart like Porsche has become a major player by obtaining a controlling stake in Volkswagen AG which is Europe's largest automaker. European analyst Thomas Ryard at consulting firm Global Insight said, "Porsche has installed itself in the driving seat of an automotive empire that includes sports and volume brands, light and heavy commercial vehicles with direct links with leading European truck makers."

It is very clear that DaimlerChrysler investors no longer want to find ways to make the union work and that exactly the observation of Frankfurt-based analyst Juergen Pieper of Metzer Bank who said, "People want just one option -- the sale of Chrysler."

Although most German investors and auto experts believe that Mercedes will be better off without Chrysler, according to the German Institute for Economic Research in Berlin, forecasting Chief Alfred Steinherr, "Whenever Daimler tried to extend to other areas and products that don't have anything in common with the ones they usually produce, it's a flop." He was also asking whether Daimler is simply too German to be a truly global company and wonders how the company would have evolved if it has taken up Schrempp's idea to relocate its headquarters to New York.