Outlook: Daimler walks away with the big prize

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The Independent Online
THE most obvious winner from yesterday's astonishing trans-Atlantic merger of Daimler Benz and Chrysler is not Stuttgart or Detroit, but London, the neutral, international ground on which the two chose formally to announce their marriage to the world. London was apparently chosen because it was "easy to get to" and sent the right message to the world. This deal is nothing to do with the single currency, the factor that seems to be driving most consolidation in European industry, Juergen Schrempp, chairman of Daimler, insisted.

Rather it is intended as a truly global alliance in an industry, automobiles, which is one of the few to boast truly global brands. London seemed like the most appropriate place for such a deal. London is where the international investment community is based and in any case, it just wouldn't have been diplomatic to hold the presentation on either German or US soil, would it? That might have seemed too much like a takeover and national sensitivities would have been upset consequently.

Unfortunately, once the marketing hype is discarded, that is precisely what we find - this is a German takeover by Daimler of its weaker American counterpart in almost every respect. Daimler gets the lion's share of the stock, a disproportionate number of executive positions, and once Robert Eaton bows out in three years time, Mr Schrempp will be left in sole control of the top job.

Even in name, the new combine will be a German company, an Aktiengesellschaft, or AG, rather than an Inc, and it will operate under the German model of co-determination, complete with a supervisory board with union representation. Quite what American stock markets will make of this altogether alien concept, is anyone's guess.

The bigger question, though, is whether the daunting cultural differences that managerially separate these two companies can be bridged, so that the new company operates on a unified basis.

Certainly they are complementary enough in terms of geographic spread and product. Daimler is strong in Europe, Chrysler in North America. Daimler's strength is in top-of-the-range cars, Chrysler's in vans, jeeps and people carriers. As a result, the deal should encounter few regulatory obstacles. Indeed, this partly explains why Juergen Schrempp went to the US for a deal.

Any takeover of size in Europe would have sparked immediate competition problems and, despite currency union, would probably have stirred national passions a good deal more vigorously than the link up with Chrysler will.

While Volkswagon and BMW have been slogging it out over the amusing but faintly irrelevant British sideshow of Rolls Royce Motors, Daimler has kept its eye on the big prize - America's third largest vehicle manufacturer - and stolen it from under their noses. We shouldn't altogether discount the possibility that someone will break in to spoil the party, but it seems doubtful anyone else has done the degree of necessary homework undertaken by these two.

All the same, there won't be another chance like it; Ford and General Motors are too big to be swallowed, and in any case, it is hard to see any other combination of size which is as neat a fit as this one. Ford and Fiat, for instance, eventually foundered because of the degree of overlap between their models. On one level, then, it is a clever game that Mr Schrempp has played. By wooing Chrysler over a three year period and finally winning its hand, while his two German counterparts hared after the trophy asset of Rolls Royce, he has probably ensured that Daimler will always be hunter rather than hunted as the inexorable process of consolidation among the world's vehicle manufacturers continues to accelerate.

However, none of these strategic considerations should be allowed to disguise the very considerable management challenge posed by this merger. The two companies may be a good fit, it may even be possible to achieve the economies of scale boasted of yesterday without closing factories, but making it work is going to be tough.

The important point here is that the two companies are the product of entirely difference economic models and traditions. Even among national competitors, blending rival cultures together in a way that doesn't produce years of debilitating infighting, is hard, often to the point of impossibility. Think of the difficulties when structured German communitarian capitalism meets anarchistic American style free market practices.

One possible beneficiary of the fallout is British Aerospace. Once this deal goes through, the balance and focus within Daimler will move decisively away from aerospace and Airbus to automobiles. That may give BAe the chance it has been looking for to move centre stage in that other great and so far illusive consolidation, that of European defence industries.

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