Where Is DaimlerChrysler Heading?
April 10, 2007
The DaimlerChrysler AG is faced with so many options but the closest by far, as perceived by experts, is the selling of the Chrysler Group. However, some of them predict that Daimler, minus Chrysler, may not be enough to compete worldwide.
If Daimler decides to sell Chrysler, the German automaker is expected to return to what it was two decades ago: small yet proud. Most of the investors of Daimler are jubilant about the prospect of turning back the hands of time when the company is said to be more profitable than today.
For years now, the executives of the German automaker have intimated that the grand expansion strategies of the previous chief executives have created a heavy toll on Mercedes-Benz, its most precious subsidiary.
It can be recalled that Juergen Schrempp, the former CEO of the German automaker, built a global automotive giant by surrounding Mercedes with mass-market brands like Chrysler, Dodge, Kia and Mitsubishi. Edzard Reuter, Schrempp’s predecessor, paired Mercedes with aerospace and electrical appliances businesses. The said ventures have lost a hefty sum of money that Daimler has closed or sold almost all those businesses.
However, its stock has rose 30 percent to an eight-year high since Dieter Zetsche sat on the steering. But the whole automotive world was shocked when Zetsche impliedly announced in February that a sale of Chrysler was probable. Yet amidst the euphoria, a clamor is questioning whether the separation of the 1998 merger between Daimler-Benz and Chrysler is the right decision for the German automaker.
"We are not in favor of a sale of Chrysler," Mark Warnsman, a New York-based analyst for Prudential Equity Group, wrote in a report this week. 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 said. "In our view, the original merger strategy remains sound, and it is the execution that has lagged."
In 2006, Mercedes sold 1.25 million vehicles about more than half of Chrysler's volume and much fewer than the 4 million-unit threshold, which is said to be the minimum needed to cope with the growing manufacturing cost.
Mercedes Benz is renowned for its heavy-truck business. By far, it is the largest with less than 600,000 units sold every year. However, it is far productive than Smart small car. Just as Daimler is slowing down, Porsche, another Stuttgart-based automaker, has become a lead player by purchasing a controlling stake in Volkswagen AG, Europe's largest carmaker.
"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," said European analyst Thomas Ryard who works at consulting firm Global Insight.
Most Daimler investors do not want to search for ways to make the tie-up with Chrysler work. Could EBC Active Brakes Direct stop the forthcoming? "People want just one option -- the sale of Chrysler," said Frankfurt-based analyst Juergen Pieper of Metzler Bank.
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