Within hours of its proposed Chrysler purchase, Daimler was prowling for additional acquisitions, especially in Asia. That is forcing General Motors, Ford, Volkswagen and smaller companies such as Fiat and Volvo to consider doing likewise or lose ground.
"This deal raises the stakes for the smaller and even some of the larger auto companies," said Michael Robinet, an analyst with CSM Forecasting in Farmington Hills, Michigan.
"They know they have a new global competitor that is flush with cash and has the ability to expand."
Car manufacturers - and, in turn, their suppliers - are consolidating because of a glut of factories,rising development costs, stagnant prices in Europe and America and recessions in Asia and other emerging markets.
Last year there were 750 mergers or acquisitions among companies in the industry, 25 per cent more than in 1996, said Michael Burwell, a Price Waterhouse partner.
That should grow by 15 per cent this year and by another 10 per cent in 1999.
Robert Eaton, the chief executive of Chrysler, says he knows of "half a dozen" additional sets of merger talks among car manufacturers.
He predicts that in five-to-10 years the number of major car companies worldwide will be cut in half, to nine or 10.
The consolidation is driven in part by record stock prices, which make share swaps such as the Daimler acquisition of Chrysler affordable. "Clearly, if we were in the middle of a recession, this never would have happened," said Jay Houghton, marketing manager for AT Kearney, a consultancy.
Even with the shakeout, supply will exceed demand in the world car industry, depressing profits and prices, for decades to come. One reason is that in emerging counties such as Mexico, as well as in developed ones such as France, car factories are symbols of national pride as well as economic entities. Political pressure to build and keep plants open is strong.
The world has enough factories to make 65 million vehicles annually. Of these, only about three-quarters are being used, said Suzanne Murtha, research analyst with DRI/McGraw-Hill in Massachusetts.
By 2002 the world's factories will be capable of building 76 million vehicles but three-quarters of these factories will still be empty, she said.
Five big car manufacturers (GM, Ford, VW, Toyota Motor Corp and the proposed Daimler Chrysler) are the most likely to survive the consolidation in their current form and buy other companies along the way. They are all financially healthy, with strong global manufacturing and sales operations and attractive products.
Analysts are uncertain whether Honda of Japan and BMW of Germany can continue as independent entities. They each have strong products and deep engineering expertise. But Honda, number seven among world car manufacturers, and BMW, number 13, may be too small to stand alone. "I think a very, very good marriage would be GM and BMW or GM and Honda," said Philip Fricke, an analyst for Prudential Securities.
Honda says it is not interested. "We've always wanted to be our own company," said Ron Shriver, vice president of its American manufacturing subsidiary. "We don't have any strategies to change that now."
In Europe the most likely takeover candidates are those whose sales are concentrated in their home markets.
These include Fiat, Volvo, PSA Peugeot Citroen and Renault. Shares of all four companies have risen since Daimler and Chrysler's announcement last week.
VW, Europe's largest car maker, is poised to buy Rolls-Royce Motor Cars with a $700m offer to Vickers that topped rival BMW. VW's small presence in Asia and America is a weakness it will correct through acquisitions.
In Japan, takeover speculation focuses on companies with heavy debt or declining market share. These include Nissan, the Subaru unit of Fuji Heavy Industries and Mitsubishi. Daimler confirmed this week that it is considering a stake in Nissan Diesel Motor, Japan's fourth-largest maker of lorries.
Korean car manufacturers Hyundai, Daewoo and Kia are all considered vulnerable. They may pair up with each other because of historical resistance to overseas ownership.
A similar consolidation is occurring among car part suppliers, who are being pressured by manufacturers to combine to cut costs. They are increasingly required to deliver total systems, such as all the bumpers, lights and trimmings for the front end of cars, instead of a collection of individual parts.
That takes size. Of the 750 companies now supplying car manufacturers globally, about 150 will be left in three-to-four years, Mr Burwell said.
Even big, well-established companies including Cooper Industries, AlliedSignal and TRW have said they may drop at least part of their business, partly because of prohibitive expansion costs.
The consolidation represents a major opportunity for likely survivors, including Dana Corp, Robert Bosch Ag, and Denso Corp, Mr Burwell said.