1999 Frankfurt Show: DC Goes Global

September 20, 1999
To be or not to be — for the Chrysler side of global auto giant DaimlerChrysler AG, the real question is whether or not to be a serious player outside the home North American market.

It’s been decades since the former Chrysler Corp. made any serious attempt to compete abroad. But now, with DaimlerChrysler readying a three-year, $48 billion product spending spree, the future of the Chrysler brand may depend on a tiny sedan dubbed Java. In turn, the little prototype could reveal whether the much-heralded trans-Atlantic merger will ultimately succeed.

Top Chrysler officials were debating the question of whether to expand abroad long before Daimler-Benz AG proposed a merger. Indeed, going global was an underlying issue that prompted the U.S. automaker to accept the marriage proposal.

Eaton’s global urge

Since signing on at Chrysler in 1992, Chairman Robert J. Eaton had become increasingly concerned about the likelihood of a global industry shakeout. And to Eaton, that meant competing not only in the United States, the world’s largest market, but also in Western Europe, Japan, and newly emerging markets in Eastern Europe, Asia and Latin America.

But Chrysler’s strengths at home hinted at its weaknesses abroad. What Eaton, now DaimlerChrysler’s co-chairman, described as the carmaker’s "crown jewels," its minivans, Jeeps and other trucks, simply weren’t the right products for markets with $5-a-gallon gas prices and endemic urban congestion.

That’s where Java comes in. Like other recent Chrysler vehicles, it’s a styling standout. It’s been hailed by much of the European press as one of the most striking designs to debut at this year’s Frankfurt Motor Show. But at barely 12 feet from bumper to bumper, Java could nearly fit inside the cargo bed of a Dodge Ram pickup. It’s a yard shorter than the Dodge Neon, currently the smallest car in DaimlerChrysler’s U.S. lineup. Java is about 6 inches taller, however, with a creative seating design that offers passengers more useful space than Neon.

For the moment, Java is a show car, but "we have a habit of putting our concepts into production," Eaton hinted during Java’s well-attended debut. Such vehicles as the Dodge Viper and the new Chrysler PT Cruiser started out as concept cars and made the transition to production.

Java may well be just one of a series of new Chrysler-badged vehicles earmarked for global markets. DaimlerChrysler continues studying the idea of a plastic-bodied, super-low-cost vehicle based on the China Concept Car unveiled several years ago.

The synergies emerge

Other existing Chrysler-brand products could benefit from the synergies of the Daimler-Chrysler merger, according to Juergen Hubbert, the executive in charge of the merged company’s passenger-car development.

An updated European edition of the Neon may soon get a variation of a Mercedes-Benz diesel engine. The stylish, midsize Chrysler 300M sedan may be in line for a Mercedes V-8. It could enhance the car’s appeal both at home and abroad.

"To have a common portfolio of engines, gearboxes, technology and components, that absolutely … must happen," Hubbert said. But, echoing the corporate position first taken when the proposed merger was announced in May 1998, Hubbert and other DaimlerChrysler executives insisted that’s as far as it goes.

"We never will do a platform and put different brands on it and tell the world these are different products," Hubbert said. "That will never happen."

That helps explain the $48 billion price tag for DaimlerChrysler’s new product offensive, which will bring 36 vehicles to market by late 2002, 64 by the end of 2004. Half the money will go for R&D, the rest to upgrade and possibly to build new plants. With annual volume on the Mercedes side now approaching 1 million units, it seems likely new assembly lines will be necessary, according to industry observers.

Risky new territory

DaimlerChrysler will venture into some risky new territory. Among other things, the company has announced plans to launch "series" production of a superclean, fuel-cell-powered car. And its all-new Maybach brand of ultraluxury sedans will be positioned above the current top-line $150,000 S600 sedan. At the other end of the spectrum, DaimlerChrysler announced in Frankfurt that it will add two more models — and possibly a third, a roadster — to its troubled SMART car lineup.

Measuring less than 10 feet from nose to tail, the original Smart coupe's introduction was delayed six months due to safety problems. Though sales have slowly picked up since it finally reached market, volume continues to run well short of the projected 120,000 a year. Making matters worse, SMART’s top executive, Lars Brorsen, announced his resignation a day before the Frankfurt show’s press days began. That prompted Hubbert, in a break from his prepared text, to insist that DaimlerChrysler remains "absolutely committed" to the brand.

SMART’s management troubles only underscored the turmoil within DaimlerChrysler ranks that surfaced when a number of mid- and senior-level executives — mostly Americans — began bailing out after the merger was completed last November. For his part, Eaton downplayed such problems as understandable when two big organizations come together.

"We’ve come a long, long way," he insisted, "further along than I would have expected."

Consolidation in Germany?

There are still plenty of issues yet to resolve, and there’s clearly a lot of internal debate underway. Hubbert, in an interview, insisted that, ultimately, DaimlerChrysler’s headquarters "has to be" consolidated to Stuttgart rather than split between Germany and Auburn Hills, Michigan. Both Eaton and his co-chairman, Juergen Schrempp, countered that the current arrangement will continue indefinitely.

Investors have reacted cautiously. DaimlerChrysler’s stock multiple of around 11 is better than Chrysler Corp.’s was, but well behind that of the old Daimler-Benz.

Meanwhile, competitors, such as Volkswagen AG, are reacting to DaimlerChrysler’s expansionist plans with new forays of their own. VW used Frankfurt to unveil the Concept-D prototype, which some in Germany have dubbed the "S-Class Killer," referring to Mercedes’ top models.

While the merger process may be running ahead of schedule, it’s clear DaimlerChrysler has plenty of challenges ahead of it. But with cars like Java and Maybach in the planning process, the German-American automaker intends to stake out its future by remaining on the offensive.

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