DaimlerChrysler AG

Epplestrasse 225
70546 Stuttgart
Germany
Telephone: (711) 17 1
Fax:(711) 17 94022
Web site: http://www.daimlerchrysler.com

Public Company
Incorporated: 1998
Employees: 466,938
Sales: EUR 149.99 billion (US$151.04 billion) (1999)
Stock Exchanges: Frankfurt Berlin Bremen Düsseldorf
Hamburg Hanover Stuttgart Munich New York
Chicago Pacific Philadelphia Wien Montreal
Toronto Paris London Tokyo Basel Geneva Zurich
Ticker Symbol: DCX
NAIC: 336111 Automobile Manufacturing; 336112 Light Truck and Utility Vehicle Manufacturing; 336120 Heavy Duty Truck Manufacturing; 336211 Motor Vehicle Body Manufacturing; 336322 Other Motor Vehicle Electrical and Electronic Equipment Manufacturing; 336411 Aircraft Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing; 336414 Guided Missile and Space Vehicle Manufacturing; 336415 Guided Missile and Space Vehicle Propulsion Unit Parts Manufacturing; 336510 Railroad Rolling Stock Manufacturing; 421110 Automobile and Other Motor Vehicle Wholesalers; 522220 Sales Financing; 522291 Consumer Lending; 532112 Passenger Cars Leasing; 541512 Computer Systems Design Services; 514210 Data Processing Services

DaimlerChrysler AG—one of the five largest automakers in the world with a global market share of nine percent—is the product of the November 1998 merger of Daimler-Benz Aktiengesellschaft of Germany and Chrysler Corporation of the United States. Vehicles built by the resultant powerhouse include Mercedes-Benz luxury passenger cars; a microcompact car sold under the name “Smart”; Chrysler, Jeep, and Dodge cars, pickup trucks, and sport utility vehicles (the Plymouth brand was in the process of being phased out at the turn of the millennium); and commercial vehicles, including vans, trucks, and buses, under the brand names Mercedes-Benz, Freightliner, Sterling, Setra, and Thomas Built Buses. The company’s revenue stream is heavily weighted toward the United States and Europe. More than 52 percent is generated in the U.S. market, while Germany accounts for about 19 percent and the rest of Europe a little more than 14 percent. About eight percent derives from the rest of the Americas, with only just more than three percent originating in Asia. This last figure was likely to change with the early 2000 announcement that DaimlerChrysler was buying a 34 percent stake in Mitsubishi Motors Corporation, the fourth largest Japanese automaker.

In addition to its vehicle manufacturing operations, Daimler-Chrysler is active in a number of other areas—with many of these activities stemming from a 1980s Daimler-Benz diversification drive. DaimlerChrysler Services is a leading provider of information technology services in Germany and offers a variety of financial services—including vehicle sales and leasing financing, dealer financing, and insurance services—primarily in North America and Europe. DaimlerChrysler Aerospace is involved in commercial aircraft, helicopters, military aircraft, satellites, defense technology, and space technology. At the turn of the millennium, these aerospace operations were slated to be merged into a new firm called European Aeronautic Defence and Space Company (EADS), which would be 30 percent-owned by DaimlerChrysler. EADS would be the largest aerospace firm in Europe and hold an 80 percent stake in Airbus Industrie, the number two commercial aircraft maker in the world. Three other DaimlerChrysler units are also worth noting: ADtranz, a maker of railroad vehicles and equipment; MTU Motoren- und Turbinen-Union, which produces diesel engines and gas turbines for large boats and ships, aircraft, rail vehicles, and heavy trucks; and TEMIC TELEFUNKEN microelectronic, which specializes in automotive electronic systems.

The Predecessors of Daimler-Benz AG

The roots of Daimler-Benz go back to the mid-1880s and two engineers, Carl Benz and Gottlieb Daimler, who are cited by most authorities as the most important contributors to the development of the internal combustion engine. Despite the fact that they were both concerned with the same idea at virtually the same time, and they lived within 60 miles of each other, the two apparently never even met. They certainly never envisioned the 1926 merger of their two companies.

Although Benz drove his first car in 1885 and Daimler ran his in 1886, neither was actually the first to create gasoline-powered vehicles. They were, however, the first to persist long enough to make them viable as transportation. At this time the obstacles to motorized vehicles were enormous: gasoline was considered dangerously explosive, roads were poor, and few people could afford an automobile in any case. Nevertheless, Benz dedicated himself to revolutionizing the world’s transportation with the internal combustion engine.

Early in 1885 Benz—who had formed Benz & Companies in Mannheim in 1883—sat in a car and circled a track next to his small factory, while his workers and his wife stood nearby. The car had three wheels and a top speed of ten mph. This engineering triumph was only slightly marred by Benz’s first public demonstration, which took place shortly afterward, in which he forgot to steer the car and smashed into the brick wall around his own home. Despite this inauspicious debut, Benz’s cars quickly became known for their quality of materials and construction. By 1888 Benz had 50 employees building his three-wheeled car. Two years later, he began making a four-wheeled vehicle.

Daimler’s convictions about the internal combustion engine were as intense as Benz’s. Originally a gunsmith, Daimler later trained as an engineer, studying in Germany, England, Belgium, and France. After working for a number of German and British firms, he became technical director for the Gasmotorenfabrik Deutz. Disillusioned by the company’s limited vision, he and researcher Wilhelm Maybach resigned in 1882 to set up their own experimental engine workshop near Stuttgart. They tested their first engine on a wooden bicycle. Later, they put engines into a four-wheeled vehicle and a boat. Daimler sold the French rights to his engines to Panhard-Levassor (which later fought him for the use of his name). In 1896 he granted a patent license to the British Daimler company, which eventually became independent of the German Daimler-Motoren-Gesellschaft, which was incorporated in 1890.

The story of how Daimler found a new brand name for its cars has become legendary. In 1900 Austro-Hungarian Consul-General and businessman Emu Jellinek approached the company with a suggestion. He offered to underwrite the production of a new high-performance car. In return, he asked that the vehicle be named after his daughter—Mercedes. Daimler’s Mercedes continued to make automotive history. In 1906 the young engineer Ferdinand Porsche took the place of Daimler’s oldest son, Paul, as chief engineer at the company’s Austrian factory. (Paul Daimler returned to the main plant in Stuttgart.) In the five years Porsche was with Daimler, he produced 65 designs, which made him one of the most influential and prolific automotive designers ever. Approximately the same time, in 1909, the Mercedes star emblem was registered; it has embellished the radiators of all the company’s cars since 1921.

In 1924 the Daimler and Benz companies began coordinating designs and production, but maintained their own brand names. They merged completely in 1926 as Daimler-Benz Aktiengesellschaft and began producing cars under the name Mercedes-Benz. The merger undoubtedly saved the two companies from bankruptcy in the poverty and inflation of post-World War I Germany.

World War II and the Postwar Recovery

The company continued to grow throughout the 1930s. The most consistently successful participant in automobile racing history, Mercedes-Benz scored international victories that added to its reputation. The company’s racing success was also used as propaganda by the Third Reich in the years before World War II. The Mercedes-Benz became Adolph Hitler’s parade transportation. Whenever he was photographed in a vehicle, it was a Mercedes. In 1939 the state took over the German auto industry, and during the war Daimler-Benz developed and produced trucks, tanks, and aircraft engines for the Luftwaffe—using, in large part, the slave labor of prisoners. The company’s importance to the German war machine made Daimler-Benz a primary target for Allied bombing raids. Two weeks of air strikes in September 1944 destroyed 70 percent or more of the company’s plants. Although little was left of the company, workers returned to resume their old jobs after the war. To the surprise of many people, the factories recovered and the company again became one of the most successful auto manufacturers in the world.

Much of Daimler-Benz’s growth in the 1950s occurred under the direction of stockholder Friedrich Flick. A convicted war criminal, Flick lost 80 percent of his steel fortune at the end of World War II. Yet he still had enough money to purchase a little more than 37 percent interest in Daimler-Benz between 1954 and 1957. By 1959 his US$20 million investment was worth US$200 million, and he had become Germany’s second ranking industrialist. Flick’s holdings allowed him to push the company in 1958 to buy 80 percent of competitor Auto Union GmbH and its Audi make, to gain a smaller car for the Daimler product line. The acquisition made Daimler-Benz the fifth largest automobile manufacturer in the world and the largest outside the United States.

Company Perspectives:

Our strategy —delivering value for our shareholders: through brand leadership in each of our markets; through our pioneering technology and product innovation; through the style and engineering excellence of our vehicles; through the premium service we offer our customers; through our global presence, which helps us secure the best employees and partners around the world.

It is the restless, entrepreneurial energy of our people that keeps DaimlerChrysler always ahead of the competition. And with innovative products and services we will delight our customers again and again.

The acquisition probably lessened the competitive impact of the new U.S. compact cars introduced in the 1950s; moreover, Daimler-Benz faced a lesser threat than other European automakers because the Mercedes appealed to the market segment made up of wealthy, status-conscious customers, and its appeal grew steadily. By 1960 Daimler-Benz already had 83,000 employees in seven West German plants. Additional plants were located in Argentina, Brazil, and India, and the company had established assembly lines in Mexico, South Africa, Belgium, and Ireland. In 1966 Auto Union was sold to Volkswagen werk AG.

Surviving the Difficulties of the 1970s and Early 1980s

Daimler-Benz’s conservative outlook was evident in its strategy of gradual growth, concentration on areas of expertise, foresight, and willingness to sacrifice short-term sales and earnings for long-term benefits. This conservatism helped soften the effect of the recession and gasoline shortages that had severely affected other automakers in the 1970s. While many manufacturers were closing facilities and cutting workers’ hours, Daimler-Benz registered record sales gains. Chairman Joachim Zahn, a lawyer, said the company had foreseen “the difficult phase” the auto industry was about to confront. Between 1973 and 1975, Zahn had set aside some US$250 million as “preparation” for bad times. While other automakers spent time and money on model changes, Daimler-Benz had invested in engines powered by inexpensive diesel fuel. These vehicles comprised 45 percent of its output by the mid-1970s. The company was not without problems during these years, as high labor costs and the increasing value of the deutsche mark were making Mercedes-Benz automobiles more expensive than ever. Rather than reducing costs or cutting corners, however, the company began to speak of its cars as “investments.”

Although primarily known for its passenger cars, Daimler-Benz’s commercial truck line was its largest source of profits for many years. The company profited from the oil price increase of the late 1970s, when demand for its commercial vehicles rose dramatically in the Middle East. Most of the company’s trucks were made outside of Germany, unlike its cars. Later, the commercial line led the company into one risk that was stalled by unfortunate timing. In 1981 Daimler-Benz purchased the U.S.-based Freightliner Corporation, a manufacturer of heavy trucks, just as sales ground to a halt in the face of a U.S. recession.

Key Dates:

1882:

Gottlieb Daimler and Wilhelm Maybach set up an engine workshop near Stuttgart.

1883:

Carl Benz forms Benz & Companies in Mannheim.

1885:

Benz drives the first car of his own design.

1890:

Daimler-Motoren-Gesellschaft is incorporated.

1900:

The Mercedes brand is used for the first time.

1924:

Maxwell Motor Corporation, headed by Walter P. Chrysler, introduces the Chrysler Six model.

1925:

Maxwell changes its name to Chrysler Corporation.

1926:

Daimler and Benz are merged to form Daimler-Benz Aktiengesellschaft, which begins producing cars under the name Mercedes-Benz.

1928:

Chrysler acquires Dodge Corporation.

1939:

The German auto industry is taken over by the Third Reich.

1944:

Most of Daimler-Benz’s plants are destroyed in Allied bombing raids.

1958:

Daimler-Benz gains control of Auto Union GmbH and its Audi make.

1966:

Daimler-Benz sells Auto Union to Volkswagenwerk AG.

1978:

Lee Iacocca is named CEO of Chrysler.

1979:

Through passage of the Chrysler Loan Guarantee Bill, the U.S. government guarantees US$1.2 billion in loans to Chrysler.

1980:

Chrysler posts a loss of nearly US$1.8 billion, the largest ever for a U.S. company.

1981:

Daimler-Benz acquires Freightliner Corporation, a U.S.-based maker of heavy trucks.

1983:

Chrysler pays off its loan guarantees seven years early.

1984:

Chrysler introduces the first minivan.

1985:

Daimler-Benz gains full control of Motoren- und Turbinen-Union and purchases a 65.6 percent interest in Dornier.

1986:

Daimler-Benz acquires AEG.

1987:

Chrysler acquires American Motors Corporation.

1989:

Daimler-Benz InterServices (Debis) is created as an internal services arm.

1992:

Robert Eaton takes over as CEO of Chrysler.

1993:

Daimler-Benz reports its first loss since the end of World War II and becomes the first German firm listed on the New York Stock Exchange.

1995:

Jürgen Schrempp takes over as Daimler-Benz’s chairman and chief executive; Daimler-Benz and ABB Asea Brown Boveri form railcar-making joint venture, ADtranz; Daimler-Benz posts a loss for the year of nearly US$4 billion, the largest in German history.

1997:

Schrempp initiates a sweeping reorganization, creating a new structure with several divisions: passenger cars, commercial vehicles, aerospace, and services.

1998:

Daimler-Benz and Chrysler merge to form Daimler-Chrysler AG.

1999:

DaimlerChrysler agrees to merge the company’s aerospace arm, Deutsche Aerospace AG (DASA), into European Aeronautic Defence and Space Company (EADS); DaimlerChrysler gains full control of ADtranz.

2000:

DaimlerChrysler agrees to buy a 34 percent stake in Mitsubishi Motors Corporation.

Some risk-taking was inevitable, of course; usually it paid off. Daimler-Benz increased its car production from 350,000 to 540,000 units a year between 1975 and 1983. Most of the increase was due to the introduction in 1983 of its “190” model, a smaller version of its sedan. Despite some concern that the 190 would cannibalize sales of its larger cars, the 190 expanded Daimler-Benz’s customer base, and the updated image of the new model attracted younger customers, lowering the average age of a Mercedes owner from 45 to 40.

As a manufacturer of luxury automobiles, Daimler-Benz was less vulnerable than most automakers to shifts in demand during the early 1980s. Most Mercedes-Benz customers were wealthy enough to rise above concerns about finance rates, inflation, recession, gasoline prices, or tax breaks. In early 1985, for example, German lawmakers vacillated over tax breaks for buyers of cars with lower exhaust emissions, and many Germans delayed purchasing a car until they could see which way the balance would swing. While other auto manufacturers suffered through the falling sales that resulted, Daimler-Benz was unaffected. Not only were its diesel-powered cars producing fewer fumes, but most Mercedes drivers were unconcerned about tax perks.

Another traditional safeguard for Daimler-Benz was its longstanding policy of making only as many cars as it could expect to sell, especially during a recession. The result was usually a backlog of demand when a recession ended. In addition, since the company’s sales were good even when the market was poor, Daimler-Benz never had to cater to demands from dealers. Although the United States comprised Daimler-Benz’s largest export market, its 500 American dealers unsuccessfully requested more cars in 1985. Why wouldn’t Daimler-Benz increase shipments? One reason was that sharp upswings in supply tended to lower the value of used Mercedes, which meant that owners were less likely to sell and buy a new one. Resales were vital to the company’s success: 90 percent of West German owners bought another Mercedes when they changed cars. In foreign markets, the repurchase rate was often as high as 80 percent.

Due to limitations that the company placed on production and exports, a “grey market” in Mercedes-Benz cars operated in the United States. Dealers imported recent models from other countries without Daimler-Benz’s authority, often illegally, and modified them to meet U.S. safety and emission standards; they then sold the cars at a lower price than regular dealer franchises. Daimler-Benz often tried to protect its carefully controlled market against these “grey market” dealers, but with little success. During the mid-1980s Daimler-Benz was confronted with a dramatic increase in competition for the luxury car market, the fastest-growing segment of the automobile business. Along with this market competition was the increasing speed and sophistication of competitors’ automotive research. For example, pioneering Daimler-Benz engineers spent 18 years developing anti-skid brakes to enable drivers to keep control of their vehicles during sudden stops. A few months after the company introduced the breakthrough in the United States, Lincoln brought out a similar system as standard equipment.

Middle to Late 1980s Diversification at Daimler-Benz

Competition and the high price of research and development were two of the factors precipitating the sudden moves Daimler-Benz made between February 1985 and February 1986. Industry analysts were surprised when the company acquired, in quick succession, three large conglomerates. This was a departure from Daimler-Benz’s tradition of gradual growth. In February 1985 Daimler-Benz acquired Motoren- und Turbinen-Union, which made aircraft engines and diesel motors for tanks and ships. Daimler already had a 50 percent interest in the company, and when MAN (a Daimler-Benz partner and manufacturer of heavy trucks and buses) wanted to acquire some cash, the company bought MAN’s share for US$160 million (Motoren- und Turbinen-Union sales were US$768 million in 1984).

The second acquisition followed in May 1985. Daimler-Benz spent US$130 million for 65.6 percent of Dornier, a privately held manufacturer of spacecraft systems, commuter planes, and medical equipment with 1984 sales of US$530 million. In early 1986 Daimler-Benz made its third acquisition, paying US$820 million for control of AEG, a high-technology manufacturer of electronic equipment such as turbines, robotics, and data processing, as well as household appliances. Although the company’s annual sales in 1984 were an impressive US$3.7 billion, the company had just emerged from bankruptcy after losing US$904 million in nine years building nuclear power plants. Many industry watchers were dubious about the diversification of a company that was already doing so well. Profits had increased every year but one between 1970 and 1985, and increased more than 50 percent in 1985 alone. Some analysts also questioned the speed of Daimler-Benz’s purchases, as well as management’s ability to hold such a large and diverse enterprise together.

Yet Werner Breitschwerdt, chairman of Daimler-Benz’s management board, maintained full confidence in the moves. Breitschwerdt, an electrical engineer, joined the passenger car division of the company in 1953 and served as head of styling and product development. He became a member of the managing board in 1977 and chairman in 1983 after the death of his predecessor, Dr. Gerhard Prinz. Breitschwerdt was the first engineer to head the company in decades and the only research and development expert to hold that position. By bringing the technical and research expertise of the new subsidiaries to Daimler-Benz, Breitschwerdt hoped to significantly expand the company’s research base. The prospects were highly promising for the automotive division, whose engineers were already interested in developing “intelligent” cars. In this area, the radar technology of AEG and the materials expertise of Dornier would be extremely useful.

The Deutsche Bank (which owned 28 percent of Daimler-Benz) became increasingly troubled, however, by Breitschwerdt’s apparent lack of a clear program for integrating the company’s US$5.5 billion in recent acquisitions, and in July 1987 Breitschwerdt announced his resignation. Despite the major reservations of several board members, but with Deutsche Bank’s full approval, Edzard Reuter, the company’s chief strategic planner, was appointed to succeed Breitschwerdt. These upheavals seemed to have little impact on Daimler-Benz’s performance; it still emerged as the largest industrial concern in Germany. Notwithstanding its recent diversification, the company remained closely identified with its line of expensive automobiles.

In 1989 Daimler-Benz InterServices AG (Debis) was created to handle data processing, financial and insurance services, and real estate management for the Daimler group. Modeling Debis after similar internal service divisions at Eastman Kodak, General Motors, and IBM, Debis’s primary function was to trim much of the company’s corporate fat. The following year the dismantling of the Berlin Wall had both positive and negative repercussions for Daimler-Benz: although the recently acquired aeronautical and defense businesses were hurt, the resulting unification provided a welcome jump in demand for Daimler-Benz’s automotive division.

Serious Downturn in the Early 1990s

By the early 1990s the German economy took a turn for the worse, and the consequences of Daimler-Benz’s mid-1980s spending spree began to take their toll. For the first time in its history, Daimler-Benz was forced to eliminate jobs (14,000 of them, through early retirement and attrition) in its automotive division as Mercedes sales plunged and Daimler’s overall profit dropped 25 percent in 1992. Hoping to bolster sales by expansion, Mercedes-Benz bought a five percent stake in Korea’s Ssangyong Motor Company in December to build four-wheel-drive vehicles, vans, and, later, passenger cars using Mercedes engines and technology.

First quarter figures for 1993 reflected Germany’s widening recession, with Daimler-Benz’s net income plummeting by 96 percent to US$12.4 million on sales of US$13.1 billion, while Mercedes’ sales (65 percent of the group’s) fell 24 percent for the period. Yet with long-term goals in mind, Daimler-Benz announced hidden reserves of US$2.45 billion in an effort to become the first German firm listed on the New York Stock Exchange. The disclosure by Daimler-Benz, which had been prevented from admittance in the past by discrepancies between German and U.S. accounting procedures, was the first of several compliances offered to satisfy U.S. regulators. By midyear, using stringent U.S. accounting procedures, Daimler-Benz reported sales of US$69.6 billion and its first loss since the end of World War II. Yet the company’s financial maneuvering earlier in the year had paid off: in October 1993, Daimler-Benz triumphantly listed its stock on the Big Board of the NYSE.

Mercedes-Benz, meanwhile, was busy with both internal and external expansion. A new lower-priced C-Class Mercedes (known as the “Baby-Benz”) was introduced in 1993 to appeal to younger buyers in the United States and Europe, while plans were announced to build a US$300 million manufacturing facility in Tuscaloosa, Alabama, in return for massive tax breaks, investments from Jefferson County and the city of Birmingham, and a host of other incentives many labeled extravagant. Other big moves in 1993 included Debis’s construction of new headquarters in Berlin, rewarded by US$5.1 billion in sales, nearly double those of 1990. Also in 1993, the company’s aerospace arm, Deutsche Aerospace AG (DASA), acquired a controlling 51 percent stake in Fokker, a Dutch airplane manufacturer. Daimler-Benz finished 1993 with overall revenue of US$70 billion, with sales constrained by higher interest rates, an increase in value-added taxes, and a sluggish European market. The year’s losses amounted to US$1.3 billion, including an US$88.3 million deficit from DASA, which continued to hemorrhage for the next several years.

In 1994 Mercedes-Benz initiated a sweeping reorganization that included manufacturing more car parts outside Germany, appealing to younger buyers through radically different U.S. advertising, and developing more of the smaller, C-Class Mercedes or Baby-Benz models, as well as sport utility vehicles and minivans built at the new Alabama plant. Near the end of the year Mercedes announced plans for a micro-Mercedes, a four-seat, four-door version of its luxurious A-Class car to be marketed to Americans as a “city” car for under US$20,000, while an even tinier compact called the “Swatchmobile” would be built in France and sold through a partnership with Swiss businessman Nicolas Hayek (the driving force behind Swatch wristwatches). Also on the drawing board was a new model in Mercedes’ E-Class full-size cars.

While Mercedes streamlined operations, Daimler-Benz’s workforce reductions from 1992 to 1994 now totaled 20 percent of its 350,000 worldwide employees (bringing with it a US$2.5 billion restructuring charge). Believing it had weathered the worst of its recessionary storms, Daimler-Benz climbed back to profitability in 1994 with earnings of US$750 million, due in part to a sharp increase in both buying and selling outside Germany. Yet 1995 brought a series of highs and lows beginning with a changing of the guard: Edzard Reuter was forced out as CEO and was succeeded by former protege Jürgen E. Schrempp, former chairman of DASA.

Schrempp-Engineered Daimler-Benz Turnaround in the Mid-1990s

Among Schrempp’s first moves was to stem the flow of red ink at Daimler-Benz Industrie. Arranging a 50/50 merger with the Swedish-Swiss ABB Asea Brown Boveri Ltd. in exchange for US$900 million in cash from Daimler-Benz, the new venture, ABB Daimler-Benz Transportation (ADtranz), would become the world’s largest international rail systems provider, generating sales in the neighborhood of US$4.5 billion annually. With the climb of the mark in 1995, Daimler-Benz was saddled with higher labor costs and serious setbacks as the dollar remained weak. Anointed as the Daimler-Benz group’s savior, Mercedes-Benz, which earned US$1.3 billion in 1994, was held up as a model to its ailing parent. Always Daimler-Benz’s cash cow, Mercedes had just agreed to a US$1.2 billion joint venture with Nanfang South China Motor Corp. to build minivans and engines in China, as well as a second US$50 million venture with Yangzhou Motor Coach Manufacturing Co. to build touring buses and commercial undercarriages. Nevertheless, the still-troubled DASA and Daimler-Benz Industrie posted huge losses in 1995, in part because of writeoffs, leading the company deeply into the red: a nearly US$4 billion loss, the largest in German industrial history.

Fokker was a major burden for Daimler-Benz, causing Schrempp to cut off funding in January 1996, leading to the aircraft maker’s bankruptcy. That same month, Schrempp tackled another headache when he distributed the remnants of the troubled AEG electronics subsidiary into other divisions. The revital-ization of the Mercedes-Benz unit continued in 1996 with the introduction of the SLK, a convertible roadster sold for about US$40,000 and aimed at younger buyers. That same year, three others models were launched: C-Class and E-Class station wagons and a V-Class mini van. In early 1997 the A-Class made its debut with the launch of the A140, a 141-inch-long compact sporting a small 82-horsepower engine located underneath the floor, and selling for as little as US$17,000—expensive for a compact but cheap for a Mercedes. The A-Class got off to a rough start when an early version showed a tendency to flip over during sharp turns at full speed. The car was quickly pulled from the market and reengineered with an electronic stabilizing system.

Spearheading the risky effort to transform Mercedes-Benz into a full-range carmaker aiming to sell 1.2 million cars a year was the unit’s chief executive, Helmut Werner. The key to his strategy was to find market niches in which buyers were willing to pay more for a Mercedes-Benz because of its reputation for luxury and quality. His plan appeared to be working as Mercedes’ worldwide passenger car sales increased from about 500,000 in 1993 to nearly 650,000 in 1996. In January 1997, however, Werner resigned in a power struggle with Schrempp. Werner’s departure was in anticipation of a sweeping reorganization, which Schrempp launched in April 1997. As part of a dismantling of the holding company structure adopted by Daimler-Benz during its 1980s diversification, Mercedes-Benz AG, which had operated since the 1980s as a subsidiary with its own board of directors, was merged into its parent. Daimler-Benz was then organized into several divisions: passenger cars, commercial vehicles, aerospace (DASA), and services (Debis). The new structure also included three units directly managed by Daimler-Benz: rail systems (the ADtranz joint venture), Motoren- und Turbinen-Union (the diesel engine and gas turbine maker), and TEMIC TELEFUNKEN microelectronic (a specialist in automotive electronic systems). The reorganization significantly flattened the management structure, eliminated hundreds of management positions, and yielded annual cost savings of US$125 million.

Other developments in 1997 included the debut of the first Mercedes sport utility vehicle, the M-Class, which was built at the plant in Alabama. In February 1997 Daimler-Benz acquired the U.S. heavy truck business of the Ford Motor Company, which later in the year began operating under the Sterling brand name.

By early 1998 Schrempp’s restructuring efforts had reduced the company’s workforce by 63,000 and had seen the divestment of a dozen unprofitable businesses. During 1998, while the merger with Chrysler was in the negotiating and then the pending stages, Daimler-Benz was busy on a number of other fronts. In the commercial vehicle area, the company acquired Thomas Built Buses, a leading North American maker of school buses, and formed a partnership with Nissan Motor Co., Ltd. to make light commercial tracks. Daimler-Benz also sold its semiconductor business to Vishay Intertechnology, Inc. of the United States. Daimler-Benz saw its partnership with the maker of Swatch watches disintegrate in 1998, but moved ahead with development of the microcompact car on its own. Later that year the car made its debut in Europe under the brand name “smart.” In November 1998 Daimler-Benz merged with Chrysler, which like Daimler went through tough times in the 1970s and 1980s and emerged in the mid-1990s as one of the most successful car companies in the world.

Early History of Chrysler

The story of the Chrysler Corporation begins in 1920, when the company’s founder, Walter Percy Chrysler, resigned his position as president of Buick and vice-president of General Motors (GM) over policy differences with GM’s founder, William C. Durant. Chrysler was soon asked by a group of New York bankers to restore the Maxwell Motor Corporation to solvency; in the process, he designed a new Maxwell model, the Chrysler Six. First exhibited in 1924, the car was an immediate success, and before year’s end the company sold 32,000 cars at a profit of more than US$4 million. In 1925 Chrysler renamed the company Chrysler Corporation.

The enthusiasm with which the Chrysler Six was met encouraged Walter Chrysler to design four additional models for the coming year: the 50, 60, 70, and Imperial 80. These model numbers referred to the maximum velocity that the cars could reach on a level stretch of road. Until that time, Ford’s Model T had enjoyed the reputation of the fastest car, achieving a modest 35 mph. Alarmed by Chrysler’s technological breakthrough, the Ford Motor Company closed its doors for nine months and emerged with a replacement for the Model T. By 1927, however, the Chrysler Corporation had firmly established itself with a sale of 192,000 cars, becoming the fifth largest company in the industry.

Walter Chrysler realized that to exploit his firm’s manufacturing capacities to their fullest, he would have to build his own plants. Since he could not afford the estimated US$75 million to achieve this, he approached the New York banking firm of Dillon Read and Company. Dillon Read had bought the Dodge Corporation of Detroit from the widows of the Dodge brothers and was happy to reach an agreement with the now highly regarded Walter Chrysler. In July 1928, Dodge became a division of the Chrysler Corporation; overnight, the size of the company increased fivefold. Soon thereafter, the company introduced the low-priced Plymouth and the DeSoto.

Walter Chrysler, carefully avoiding the dangers associated with rapid growth, discontinued his policy of manufacturing as many parts as possible for his cars. Although he paid more for components than other car makers, he was able to maintain greater flexibility in models and designs. This proved to be extremely important in an age of rapid technological advance. Indeed, Walter Chrysler’s farsightedness helped the company to survive the Great Depression far better than most in the industry, and his strategy of spending money on research, “no matter how gloomy the outlook,” may have been responsible for his firm’s sound financial standing until well into the 1940s.

Along with the rest of Detroit’s motor industry, Chrysler converted to war production during World War II. The manufacture of its Chrysler, Dodge, and Plymouth cars was put on hold while the corporation specialized in defense hardware such as small arms ammunition and submarine nets. But chief among its war products were B-29 bomber engines and anti-aircraft guns and tanks. Chrysler’s wartime service earned it a special Army-Navy award for reliability and prompt delivery.

Postwar Doldrums

The corporation’s problems started in the immediate postwar period. The ambition and spirit that drove the company to constant innovation and experimentation in the early days had been lost. The auto market had exhausted fundamental engineering breakthroughs, and American tastes had changed. It seemed that the public was more excited by the sleeker, less traditional, and sometimes less reliable models being produced by Chrysler’s rivals. In short, the car industry was becoming a “marketer’s game,” and Chrysler’s management was not playing.

In 1950, L.L. Colbert, a lawyer hired by Walter Chrysler in 1929, became the corporation’s president. By this time, some major overhauling was necessary, and Colbert hired the management consulting firm of McKinsey and Company. Three reforms were instituted: Chrysler developed international markets for its cars, its management was centralized, and the role of the engineering department was redefined.

Colbert’s reforms did little to revive the company’s flagging fortunes, and two years later there was another change of management. Lynn Townsend, the new corporate head, proved to be more effective. He consolidated the Chrysler and Plymouth car divisions, closed some unproductive plants, and generally tightened operations; he also reduced the workforce and installed an IBM computer system to replace 700 members of the clerical staff. Most important, he enhanced sales by improving the quality of the Chrysler automobile, introducing the best warranty the industry had yet seen and instituting a more aggressive marketing policy. In less than five years, Townsend had revitalized the corporation.

Success led to expansion: a space division was formed, and Chrysler became the prime contractor for the Saturn booster rocket. By the end of the 1960s, Townsend’s international strategy yielded plants in 18 foreign countries. But before the decade was over, the domestic market was undergoing major changes. Inflation was taking its toll on U.S. auto manufacturers, imports of foreign vehicles had substantially increased, and the price of crude oil had risen drastically. Chrysler’s troubles were compounded by internal factors: it was more concerned with competing against Ford and General Motors than in adapting itself to the rapidly changing market; it did not produce enough of its popular compact cars to meet consumer demand; and it had an overstock of larger vehicles.

The corporation reported a US$4 million loss in 1969 and was operating at only 68 percent of its capacity; the previous year, it had earned profits of US$122 million. Car prices were substantially reduced, but this did little to solve the underlying problems. John J. Riccardo, an accountant, succeeded to the presidency and immediately set about reducing expenses. Salaries, workforce, and budget were all cut, and the company experimented with the marketing of foreign-made cars.

Approaching Bankruptcy in the 1970s

Unfortunately, Chrysler seemed incapable of reading the public mood: it narrowed and shortened Dodge and Chrysler models to bring prices down, but sales also tumbled; it continued to make Imperials long after Cadillacs and Lincolns had demonstrated their superiority in the luxury market; and it greeted the 1973-74 Arab oil embargo with a large inventory of gas-guzzlers. Losses in 1974 totaled a massive US$52 million, and the next year’s deficit was five times that amount.

The company experienced a brief respite in 1976 and 1977. Its trucks were in demand and foreign subsidiaries turned in good results, but domestic car sales remained a problem. Riccardo further consolidated North American operations and increased manufacturing capacity for compact cars. By the time Chrysler became a significant contender in that market, however, American car buyers were showing a distinct preference for the reliable and relatively inexpensive Japanese compacts. The days of U.S. manufacturing hegemony appeared to be over.

A loss of US$205 million in 1978 led many industry watchers to wonder if Chrysler’s rollercoaster finances could rebound from this latest big dip. The syndicate of banks (with Manufacturers Hanover Trust in the vanguard), which for years had been pouring money into Chrysler, panicked. Incredibly, many of the smaller banks had agreed to virtually unlimited lines of credit on the assumption that the company would never need to use them.

But complex and highly charged negotiations eventually saved Chrysler from bankruptcy. The federal government agreed to guarantee loans up to US$1.5 billion, provided Chrysler raised US$2 billion on its own. Politicians could not justify such a massive bailout, however, without changes in Chrysler’s management. Riccardo, who had diligently fought against heavy odds, had to go.

It was left to the charismatic Lee Iacocca, who took over in 1978, to preside over Chrysler’s comeback. An ex-Ford man with a flair for marketing and public relations, Iacocca took Chrysler’s problems to the people, explaining that the company’s failure would mean the loss of hundreds of thousands of jobs and could seriously damage the economy of the state of Michigan. Despite popular mythology and the near-adulation of Iacocca in some quarters, many observers suggested that Riccardo was in large part responsible for forging the agreement that gave Chrysler a new lease on life. In any event, the Chrysler Loan Guarantee Bill passed the U.S. Congress on December 27, 1979 and guaranteed US$1.2 billion in loans to Chrysler.

Difficult Recovery in the 1980s and Early 1990s

During the early 1980s, Iacocca’s skills as a superb television salesman were of crucial importance as Chrysler lost nearly US$1.8 billion in 1980—the largest loss ever for a U.S. company—and another US$475 million in 1981, before returning to the black in 1982. In August 1983 Chrysler was able to pay off the government loan guarantees seven years early, with the government making a US$350 million profit on its investment. Chrysler’s road to recovery was a difficult one, demanding the closure of several plants and the reduction of the company’s workforce. In late 1987, Chrysler announced the temporary layoff of employees at two assembly plants, then in 1988 closed an assembly plant in Wisconsin. Two additional plants were closed the following year, coinciding with a companywide restructuring that cost Chrysler US$577 million and left it with US$359 million in net earnings for the year, significantly lower than the US$1.05 billion recorded the year before. Once restructured, Chrysler scrapped its plans to diversify and divested the Gulfstream Aerospace unit it had purchased five years earlier, selling it to a New York investment firm for US$825 million in early 1990. Two other units in the company’s Chrysler Technologies subsidiary—Electrospace Systems and Airborne Systems—were slated for divestiture as well, which underscored Iacocca’s intent to create a leaner, more sharply focused company. Meanwhile, there were two key developments in the 1980s that helped form the foundation for the 1990s resurgence: the introduction of the minivan in 1984 and the acquisition three years later of American Motors Corporation and its Jeep brand for US$1.2 billion.

Reorganized as such, Chrysler entered the 1990s braced for a full recovery, but the economy did not cooperate. The decline in automotive sales during the fourth quarter of 1989—the company’s first fourth quarter decline since 1982—portended a more crippling slump to come, as an economic recession gripped businesses of all types, both domestically and abroad. Net income in 1990 slipped to US$68 million, then plunged to a US$795 million loss the following year, US$411 million of which was attributable to losses incurred by the company’s automotive operations. The precipitous drop in earnings for 1991 was the latest in a nearly decade-long series of declines that saw Chrysler’s earnings fall each year from the US$2.3 billion generated in 1984 to 1991’s disappointing loss. Mired in an economic downturn, Chrysler appeared destined for more of the same, rather than headed toward recovery as Iacocca had hoped, but part of the reason for 1991 ‘s losses also led to the company’s first step toward genuine recovery.

Partly to blame for the US$795 million loss in 1991 were the high preproduction and introduction costs associated with Chrysler’s new Jeep Grand Cherokee and increased production costs at the company’s St. Louis minivan plant. These two types of vehicles—minivans and sport utility vehicles—represented the key to Chrysler’s recovery. The popularity of these vehicles, coupled with significant price advantages over Japanese models, fueled Chrysler’s resurgence. In 1992, when Chrysler’s rival U.S. manufacturer Ford registered a US$7.38 billion loss, Chrysler turned its US$795 million loss the year before into a US$723 million gain. It was a signal achievement, accomplished in Iacocca’s last year as CEO. Taking over during 1992 was Robert Eaton, who was hired away from General Motors, where he was head of European operations.

Aside from the stifling economic conditions, there were challenges unique to Chrysler that needed addressing before the company’s management could be optimistic. In the first quarter of 1993, Chrysler recorded a US$4.4 billion charge for retiree health benefits, which led to a US$2.5 billion loss for the year, a staggering financial blow but one irrespective of the company’s ability to successfully sell automotive vehicles. That ability was demonstrated in the first quarter of 1994, when Chrysler posted US$938 million in profits, the most recorded in the company’s history and the greatest amount since the US$801 million recorded in the second quarter of 1984. Chrysler went on to enjoy its most successful year ever, with 1994 earnings of US$3.7 billion on revenues of US$52.2 billion.

The good news at Chrysler continued into the late 1990s, after the company managed to fend off a US$22 billion buyout proposed by billionaire investor Kirk Kerkorian in 1995. The long prosperity and low gasoline prices of the middle to late 1990s created a huge demand for large vehicles, and Chrysler was producing hot models in each of the hottest segments: the Dodge Ram pickup truck; the Town & Country minivan; and several sport utility vehicles—the Jeep Grand Cherokee, the Jeep Wrangler, and the Dodge Durango. Questions about the quality of Chrysler products continued to pop up, but the company’s share of the U.S. auto market reached as high as 16.7 percent in 1996, the highest level since 1968 and a huge gain from the 1991 level of 12.2 percent. Sales reached US$61.4 billion in 1996, more than double the level of 1991. Also in 1996, Chrysler dedicated its new headquarters in Auburn Hills, Michigan.

Late 1990s and Beyond: The Creation and Early Years of DaimlerChrysler

Daimler-Benz Chief Executive Jürgen Schrempp had concluded as early as 1996 that his company’s automotive operations needed a partner to compete in the increasingly globalized marketplace. Chrysler’s Eaton was drawing the same conclusion in 1997 based on two factors emerging around the same time: the Asian economic crisis, which was cutting into demand, and worldwide excess auto manufacturing capacity, which was looming and would inevitably lead to industry consolidation. With annual global overcapacity as high as 18.2 million vehicles predicted for the early 21st century, it became clearer that Daimler-Benz and Chrysler could survive only as strong regional players if they continued to go it alone.

After several months of negotiations, Daimler-Benz and Chrysler reached a merger agreement in May 1998 to create DaimlerChrysler AG in a US$37 billion deal. The deal was consummated in November 1998, forming an auto behemoth with total revenues of US$130 billion, factories in 34 countries on four continents, and combined annual unit sales of 4.4 million cars and tracks, placing the company in fifth place worldwide. The two companies fit well together geographically, Daimler strong in Europe and Chrysler in North America, and in terms of product lines, with Daimler’s luxurious and high-quality passenger cars and Chrysler’s line of low-production-cost trucks, minivans, and sport utility vehicles. Although this was ostensibly a merger of equals and the company set up “coheadquarters” in Stuttgart and Auburn Hills, as well as cochairmen in the form of Eaton and Schrempp, it soon became clear that the Germans were taking over the Americans. DaimlerChrysler was set up as a German firm for tax and accounting purposes, and the early 2000 departures of Thomas Stallkamp, the initial head of DaimlerChrysler’s U.S. operations, and Eaton (who was originally slated to remain until as late as November 2001) left Schrempp in clear command of the company.

During 1999 DaimlerChrysler concentrated on squeezing out US$1.4 billion in annual cost savings from the integration of procurement and other functional departments. The company organized its automotive businesses into three divisions: Mercedes-Benz Passenger Cars/smart, the Chrysler Group, and Commercial Vehicles; in November 1999 DaimlerChrysler announced that it would begin phasing out the aging Plymouth brand. The Debis services division was merged with Chrysler’s services arm to form DaimlerChrysler Services, while DASA was renamed DaimlerChrysler Aerospace. Late in 1999 the company reached an agreement to merge DaimlerChrysler Aerospace with two other European aerospace firms, the French Aérospatiale Matra and the Spanish CASA, to form the European Aeronautic Defence and Space Company (EADS). DaimlerChrysler would hold a 30 percent stake in EADS, which would be the largest aerospace firm in Europe and the third largest in the world. Through each of the EADS partners’ holdings in Airbus Industrie, EADS would hold an 80 percent stake in Airbus, which trailed only the Boeing Company in the manufacture of commercial aircraft. EADS would also be the world’s leading helicopter manufacturer through its 100 percent ownership of Eurocopter. DaimlerChrysler also retained its other industrial businesses from the Daimler side: the TEMIC automotive electronics operation, the MTU diesel engines unit, and the ADtranz rail systems venture. During 1999 DaimlerChrysler gained full control of ADtranz by acquiring the 50 percent held by ABB for US$472 million. There was also one significant disposal during 1999. The company sold 90 percent of debitel, a mobile telephone subsidiary that had formed part of the services sector, to the public and to Swisscom, recording a gain of US$1.1 billion from an initial investment, nine years previous, of only US$9 million.

In early 2000, DaimlerChrysler set an ambitious goal for itself: become the number one automaker in the world within one to three years. The auto industry had already seen a number of takeovers and alliances that followed in the wake of the merger of Daimler-Benz and Chrysler, so DaimlerChrysler needed to move quickly to reach this goal. The company’s most pressing needs were to bolster its presence in Asia, where less than four percent of the company’s overall revenue was generated, and to gain a larger share of the small car market in Europe. Filling both of these bills was DaimlerChrysler’s planned purchase of a 34 percent stake in Mitsubishi Motors Corporation for US$2 billion, a deal announced in late March. A key part of the agreement was the transformation of Mitsubi-shi’s European manufacturing operation, Netherlands Car B.V., into a 50-50 joint venture responsible for developing small cars for the European market. DaimlerChrysler gained three seats on the Japanese company’s ten-person board and veto power over board decisions, but did not gain full control of the company. DaimlerChrysler was likely to pursue other alliances in its attempt to unseat GM as the world leader in automobiles, with speculation centering on Hyundai Motor Company of South Korea. In another key early 2000 development, DaimlerChrysler agreed to join with GM and Ford to create an Internet-based global business-to-business supplier exchange. This would potentially create the world’s largest virtual marketplace, although the Federal Trade Commission quickly opened a preliminary antitrust inquiry into the plan.

Principal Subsidiaries

MERCEDES BENZ PASSENGER CARS & SMART: Micro Compact Car smart GmbH; Mercedes-Benz U.S. International, Inc.; Mercedes-Benz India Ltd. (86%); DaimlerChrysler South Africa (Pty.) Ltd. CHRYSLER GROUP: DaimlerChrysler Corporation (U.S.A.); DaimlerChrysler Canada, Inc.; Eurostar Automobilwerk GmbH & Co. KG; DaimlerChrysler Transport, Inc. (U.S.A.); DaimlerChrysler de Mexico S.A. de C.V. COMMERCIAL VEHICLES: EvoBus GmbH; Mercedes-Benz Lenkungen GmbH; Mercedes-Benz España S.A. (Spain); NAW Nutzfahrzeuge AG; Freightliner Corporation (U.S.A.); Mercedes-Benz Mexico S.A. de C.V.; Mercedes-Benz do Brasil S.A. (Brazil); Mercedes-Benz Argentina; Mercedes-Benz Group Indonesia (95%); Mercedes-Benz Turk A.S. (Turkey; 66.9%). VEHICLE SALES ORGANIZATION: Mercedes-Benz USA, Inc.; DaimlerChrysler France S.A.S.; DaimlerChrysler Belgium S.A./N.V.; DaimlerChrysler Nederland B.V. (Netherlands); Mercedes-Benz (United Kingdom) Ltd.; DaimlerChrysler Danmark AS (Denmark); DaimlerChrysler Sverige AG (Sweden); Mercedes-Benz Italia S.p.A. (Italy); Mercedes-Benz (Switzerland) AG; Mercedes-Benz Hellas S.A. (Greece); DaimlerChrysler Japan Co. Ltd.; DaimlerChrysler (Australia/Pacific) Pty. Ltd. SERVICES: DaimlerChrysler Services (debis) AG; debis Systemhaus GmbH; Mercedes-Benz Finanz GmbH; Mercedes-Benz Leasing GmbH; Mercedes-Benz Credit Corporation (U.S.A.); Chrysler Financial Company L.L.C. (U.S.A.); Chrysler Capital Company L.L.C. (U.S.A.); Chrysler Insurance Company (U.S.A.). AEROSPACE: DaimlerChrysler Aerospace AG; DaimlerChrysler Aerospace Airbus GmbH; Dornier GmbH (57.6%); Dornier Satellitensysteme GmbH; Eurocopter S.A. (France; 75%); Eurocopter Deutschland GmbH; MTU Motoren- und Turbinen-Union München GmbH; LFK Lenkflugkörpersysteme GmbH (70%); Nortel Dasa Network Systems GmbH & Co. KG (50%). OTHER BUSINESSES: DaimlerChrysler Rail Systems GmbH; TEMIC TELEFUNKEN microelectronic GmbH; MTU Motoren- und Turbinen-Union Friedrichshafen GmbH (88.4%). REGIONAL HOLDING AND FINANCE COMPANIES: DaimlerChrysler North America Holding Corporation (U.S.A.); DaimlerChrysler Nederland Holding B.V. (Netherlands); DaimlerChrysler Schweiz Holding AG (Switzerland); DaimlerChrysler UK Holding plc; DaimlerChrysler France Holding S.A.; DaimlerChrysler Coordination Center SA./N.V. (Belgium); DaimlerChrysler España Holding S.A. (Spain).

Principal Divisions

Mercedes-Benz Passenger Cars/smart; Chrysler Group; Commercial Vehicles; DaimlerChrysler Services; DaimlerChrysler Aerospace.

Principal Competitors

Bayerische Motoren Werke AG; The Boeing Company; Fiat S.p.A.; Ford Motor Company; General Motors Corporation; Honda Motor Co., Ltd.; Hyundai Motor Company; Isuzu Motors Limited; Mazda Motor Corporation; Navistar International Corporation; Nissan Motor Co., Ltd.; PACCAR Inc.; PSA Peugeot Citroen S.A.; Renault S.A.; Saab Automobile AB; Siemens AG; Suzuki Motor Corporation; Toyota Motor Corporation; Volkswagen AG; AB Volvo.

Further Reading

Abodaher, David, Iacocca, New York: Macmillan, 1982.

Aeppel, Timothy, “Daimler-Benz Discloses Hidden Reserves of $2.45 Billion, Seeks Big Board Listing,” Wall Street Journal, March 25, 1993, p. A10.

“Backbiting at Daimler,” Business Week, August 7, 1995, p. 45.

Ball, Jeffrey, “DaimlerChrysler Fights to Retain Minivan Dominance,” Wall Street Journal, January 11, 2000, p. B4.

——, “Eaton Retires As Co-Leader of Daimler,” Wall Street Journal, January 27, 2000, pp. A3, A8.

Ball, Jeffrey, and Scott Miller, “DaimlerChrysler Aims to Be No. 1 Auto Maker,” Wall Street Journal, January 14, 2000, pp. A2, A6.

Bellon, Bernard P., Mercedes in Peace and War: German Automobile Workers, 1903-1945, New York: Columbia University Press, 1990.

Breer, Carl, The Birth of Chrysler Corporation and Its Engineering Legacy, Warrendale, Penn.: Society of Automotive Engineers, 1995.

Browning, E.S., and Helene Cooper, “States’ Bidding War Over Mercedes Plant Made for Costly Chase,” Wall Street Journal, November 24, 1993, pp. Al, A6.

Choi, Audrey, “Daimler-Benz Plans Job Cuts of 13,500 in ‘95,” Wall Street Journal, April 13, 1995, pp. A3, A4.

——, “For Mercedes, Going Global Means Being Less German,” Wall Street Journal, April 27, 1995, p. B4.

——, “Mercedes-Benz Sets Restructuring Plans in Wake of Vehicle Units’ Difficulties,” Wall Street Journal, January 27, 1994, p. A10.

——, “Mercedes to Cut German Force by 14,000 Jobs,” Wall Street Journal, August 25, 1993, p. A6.

Cole, Jeff, “Boeing Faces European Competition in Effort to Build Small Plane for Asia,” Wall Street Journal, May 8, 1995, p. B2.

Flint, Jerry, “Chrysler Has the Hot Cars: More Important, It Has a Smart, Disciplined Management Team,” Forbes, January 13, 1997, pp. 82 +.

Gardner, Greg, “Chrysler: The Cat with Nine Lives,” Ward’s Auto World, May 1996, p. 67.

——, “The Cloud Over Chrysler,” Ward’s Auto World, June 1996, pp. 25-28.

“Gentlemen, Start Your Engines,” Fortune, June 8, 1998, pp. 138 +.

Gordon, Maynard M., The Iacocca Management Technique, New York: Dodd Mead, 1985.

Gregor, Neil, Daimler-Benz in the Third Reich, New Haven, Conn.: Yale University Press, 1998.

Gumbel, Peter, “Daimler to Pay $900 Million to ABB As They Merge Railroad Operations,” Wall Street Journal, March 17, 1995, p. A6.

Gumbel, Peter, and Audrey Choi, “Germany Making Comeback, with Daimler in the Lead,” Wall Street Journal, April 7, 1995, p. A10.

Iacocca, Lee, with William Novak, Iacocca: An Autobiography, New York: Bantam, 1984.

Kerwin, Kathleen, “The Big Three Are Learning to Hold a Lead,” Business Week, April 26, 1993, p. 29.

Kimes, Beverly Rae, The Star and the Laurel: The Centennial History of Daimler, Mercedes, and Benz, 1886-1986, Montvale, N.J.: Mercedes Benz of North America, 1986.

Kindel, Stephen, “Sweet Chariots: How Chrysler, Said to Be at Death’s Door Just Two Years Ago, Became Detroit’s Profit Leader,” Financial World, January 18, 1994, pp. 46-49, 52, 54.

Kisiel, Ralph, “D/C Turns 1: Bigger … But Better?,” Automotive News, November 15, 1999, p. 1.

Klebnikov, Paul, “Mercedes-Benz’s Bold Niche Strategy,” Forbes, September 8, 1997, p. 68.

Kujawa, Duane, International Labor Relations Management in the Automotive Industry: A Comparative Study of Chrysler, Ford, and General Motors, New York: Praeger, 1971.

Langworth, Richard M., and Jan P. Norbye, The Complete History of Chrysler Corporation, 1924-1985, New York: Beekman House, 1985.

Marshall, Matt, and Joseph Kahn, “Mercedes Wins China Minivan Project,” Wall Street Journal, July 13, 1995, p. A2.

Miller, Karen Lowry, and Joann Muller, “The Auto Baron,” Business Week, November 16, 1998, pp. 82+.

Miller, Scott, and Norihiko Shirouzu, “Daimler to Take Controlling Stake in Mitsubishi for $1.95 Billion,” Wall Street Journal, March 27, 2000, p. A21.

——, “Mitsubishi Deal Isn’t a Cure-All for Daimler,” Wall Street Journal, March 28, 2000, pp. A21, A24.

Moritz, Michael, and Barrett Seaman, Going for Broke: The Chrysler Story, Garden City, N.Y.: Doubleday, 1981.

Nelson, Mark M., “Daimler-Benz AG Makes Way In-House,” Wall Street Journal, September 24, 1993, p. Bll.

Palmer, Jay, “Shake-Up Artist: Daimler-Benz Chairman Juergen Schrempp Has Knocked the Dust Off Mercedes, Restoring Hope for European Manufacturing,” Barron’s, March 23, 1998, pp. 35-36, 38-40.

Pomice, Eva, “Can Detroit Hold On?,” U.S. News and World Report, April 15, 1991, p. 51.

Reed, Stanley, “Backbiting at Daimler,” Business Week, August 7, 1995, p. 45.

Reich, Robert B., and John D. Donahue, New Deals: The Chrysler Revival and the American System, New York: Times Books, 1985.

Schmid, John, “Daimler-Benz Reports First-Ever Loss, Reflecting New Accounting, Lower Sales,” Wall Street Journal, September 20, 1993, p. A10.

Schweer, Dieter, Daimler-Benz: Innenansichten eines Giganten, Düsseldorf: Econ, 1995.

Simison, Robert L., “Love Your Big, Luxurious Mercedes? German Car Maker Is Thinking Small,” Wall Street Journal, December 12, 1994, p. B8.

Simison, Robert L., Fara Warner, and Gregory L. White, “Big Three Car Makers Plan Net Exchange,” Wall Street Journal, February 28, 2000, pp. A3, A16.

Simison, Robert L., Gregory L. White, and Deborah Ball, “GM’s Linkup with Fiat Opens Final Act of Consolidation Drama for Industry,” Wall Street Journal, March 14, 2000, pp. A3, A8.

Soo-Mi, Kim, “Ssangyong Places Hopes on Accord with Mercedes AG,” Wall Street Journal, December 18, 1992, p. A5.

Steinmetz, Gene, “BellSouth and Thyssen Join to Compete in German Telecommunications Market,” Wall Street Journal, May 9, 1995, p. A14.

Taylor, Alex, III, “Blue Skies for Airbus,” Fortune, August 2, 1999, pp. 102-4, 106, 108.

——, “Can Iacocca Fix Chrysler—Again?,” Fortune, April 8, 1991, p. 50.

——, “Chrysler: Sandbagged by Its Biggest Shareholder,” Fortune, May 15, 1995, p. 44.

——, “Chrysler’s Great Expectations,” Fortune, December 9, 1996, pp. 101-02, 104.

——, “The Germans Take Charge,” Fortune, January 11, 1999, pp. 92-94, 96.

——, “Iacocca’s Last Stand at Chrysler,” Fortune, April 20, 1992, p. 63.

——, “Is the World Big Enough for Jürgen Schrempp,” Fortune, Marcho, 2000, pp. 140+.

——, “‘Neutron Jürgen’ Ignites a Revolution at Daimler-Benz,” Fortune, November 10, 1997, pp. 144-46+.

——, “The New Golden Age of Autos,” Fortune, April 4, 1994, p. 50.

——, “Will Success Spoil Chrysler?,” Fortune, January 10, 1994, pp. 88-92.

Templeman, John, “The New Mercedes,” Business Week, August 26, 1996, pp. 34+.

——, “The Shocks for Daimler’s New Driver,” Business Week, August 21, 1995, pp. 38-39.

——, “Upheaval at Daimler,” Business Week, February 5, 1996, pp. 14+.

Thomas, Charles M “Big 3 Picture Brightens After ‘89 Plunge,” Automotive News, February 19, 1990, p. 1.

Treece, James B., and David Woodruff, “Crunch Time Again for Chrysler,” Business Week, March 25, 1991, p. 92.

Vlasic, Bill, “Can Chrysler Keep It Up?,” Business Week, November 25, 1996, pp. 108+.

Vlasic, Bill, and Kathleen Kerwin, “Fighting Bob: Chrysler’s Eaton Takes Off the Gloves with Kerkorian & Co.,” Business Week, pp. 88+.

Vlasic, Bill, et al., “The First Global Car Colossus,” Business Week, May 18, 1998, pp. 40+.

Warner, Fara, “Mercedes Goes Hollywood and High-Tech,” Wall Street Journal, January 24, 1995, p. B6.

Washington, Frank S., “Merger? What Merger?,” Ward’s Auto World, November 1999, pp. 66-67.

Whitney, Glenn, and Timothy Roth, “Daimler’s U.S. Listing May Be Sign of Change in German Equities Market,” Wall Street Journal, March 29, 1993, p. B6.

Zellner, Wendy, “Chrysler’s Next Generation: An Heir Apparent and New, Upscale Cars,” Business Week, December 19, 1998, p. 52.

—Taryn Benbow Pfalzgraf and Jeffrey L. Covell

—updated by David E. Salamie

DaimlerChrysler AG

Epplestrasse 225
70546 Stuttgart
Germany
Telephone: ( +49) 711 17 0
Toll Free: (800) 736-5030
Fax: ( +49) 711 17 94022
Web site: http://www.daimlerchrysler.com

Public Company
Incorporated: 1998
Employees: 362,063
Sales: EUR 136.4 billion ($171.8 billion) (2003)
Stock Exchanges: New York Euronext Paris Frankfurt Tokyo Zurich
Ticker Symbol: DCX
NAIC: 336111 Automobile Manufacturing; 336411 Aircraft Manufacturing; 421110 Automobile and Other Motor Vehicle Wholesalers; 522220 Sales Financing; 532112 Passenger Cars Leasing

DaimlerChrysler AG—the third-largest car maker in the world—is the product of the November 1998 merger of Daimler-Benz AG of Germany and Chrysler Corporation of the United States. Vehicles built by the resultant powerhouse include Mercedes-Benz luxury passenger cars; a microcompact car sold under the name Smart; Chrysler, Jeep, and Dodge cars, pickup trucks, minivans, and sport utility vehicles; and commercial vehicles, including vans, trucks, and buses, under the brand names Mercedes-Benz, Freightliner, Sterling, Setra, and Western Star Trucks. The company's revenue stream is heavily weighted toward the United States and Europe—the Mercedes Car Group and the Chrysler Group divisions account for the majority of company sales. The company has been plagued with problems in recent years related partly to its investment in Mitsubishi Motors. Its troubled Chrysler division experienced a $637 million loss in 2003 due to restructuring costs and slowing U.S. sales. In addition to its vehicle manufacturing operations, DaimlerChrysler is a leading provider of information technology services in Germany and offers a variety of financial services—including vehicle sales and leasing financing, dealer financing, and insurance services—primarily in North America and Europe. The European Aeronautic Defence and Space Company (EADS), which is 33 percent-owned by DaimlerChrysler, operates as the world's second-largest aerospace and defense company.

The History of Daimler-Benz AG

The roots of Daimler-Benz go back to the mid-1880s and two engineers, Carl Benz and Gottlieb Daimler, who are cited by most authorities as the most important contributors to the development of the internal combustion engine. Despite the fact that they were both concerned with the same idea at virtually the same time, and they lived within 60 miles of each other, the two apparently never even met. They certainly never envisioned the 1926 merger of their two companies.

Although Benz drove his first car in 1885 and Daimler ran his in 1886, neither was actually the first to create gasoline-powered vehicles. They were, however, the first to persist long enough to make them viable as transportation. At this time the obstacles to motorized vehicles were enormous: gasoline was considered dangerously explosive, roads were poor, and few people could afford an automobile in any case. Nevertheless, Benz dedicated himself to revolutionizing the world's transportation with the internal combustion engine.

Early in 1885 Benz—who had formed Benz & Companies in Mannheim in 1883—sat in a car and circled a track next to his small factory, while his workers and his wife stood nearby. The car had three wheels and a top speed of ten mph. This engineering triumph was only slightly marred by Benz's first public demonstration, which took place shortly afterward, in which he forgot to steer the car and smashed into the brick wall around his own home. Despite this inauspicious debut, Benz's cars quickly became known for their quality of materials and construction. By 1888 Benz had 50 employees building his three-wheeled car. Two years later, he began making a four-wheeled vehicle.

Daimler's convictions about the internal combustion engine were as intense as Benz's. Originally a gunsmith, Daimler later trained as an engineer, studying in Germany, England, Belgium, and France. After working for a number of German and British firms, he became technical director for the Gasmotorenfabrik Deutz. Disillusioned by the company's limited vision, he and researcher Wilhelm Maybach resigned in 1882 to set up their own experimental engine workshop near Stuttgart. They tested their first engine on a wooden bicycle. Later, they put engines into a four-wheeled vehicle and a boat. Daimler sold the French rights to his engines to Panhard-Levassor (which later fought him for the use of his name). In 1896 he granted a patent license to the British Daimler company, which eventually became independent of the German Daimler-Motoren-Gesellschaft, which was incorporated in 1890.

The story of how Daimler found a new brand name for its cars has become legendary. In 1900 Austro-Hungarian Consul-General and businessman Emil Jellinek approached the company with a suggestion. He offered to underwrite the production of a new high-performance car. In return, he asked that the vehicle be named after his daughter—Mercedes. Daimler's Mercedes continued to make automotive history. In 1906 the young engineer Ferdinand Porsche took the place of Daimler's oldest son, Paul, as chief engineer at the company's Austrian factory. (Paul Daimler returned to the main plant in Stuttgart.) In the five years Porsche was with Daimler, he produced 65 designs, which made him one of the most influential and prolific automotive designers ever. Approximately the same time, in 1909, the Mercedes star emblem was registered; it has embellished the radiators of all the company's cars since 1921.

In 1924 the Daimler and Benz companies began coordinating designs and production, but maintained their own brand names. They merged completely in 1926 as Daimler-Benz Aktiengesellschaft and began producing cars under the name Mercedes-Benz. The merger undoubtedly saved the two companies from bankruptcy in the poverty and inflation of post-World War I Germany.

The company continued to grow throughout the 1930s. The most consistently successful participant in automobile racing history, Mercedes-Benz scored international victories that added to its reputation. The company's racing success was also used as propaganda by the Third Reich in the years before World War II. The Mercedes-Benz became Adolph Hitler's parade transportation. Whenever he was photographed in a vehicle, it was a Mercedes. In 1939 the state took over the German auto industry, and during the war Daimler-Benz developed and produced trucks, tanks, and aircraft engines for the Luftwaffe—using, in large part, the slave labor of prisoners. The company's importance to the German war machine made Daimler-Benz a primary target for Allied bombing raids. Two weeks of air strikes in September 1944 destroyed 70 percent or more of the company's plants. Although little was left of the company, workers returned to resume their old jobs after the war. To the surprise of many people, the factories recovered and the company again became one of the most successful auto manufacturers in the world.

Much of Daimler-Benz's growth in the 1950s occurred under the direction of stockholder Friedrich Flick. A convicted war criminal, Flick lost 80 percent of his steel fortune at the end of World War II. Yet he still had enough money to purchase a little more than 37 percent interest in Daimler-Benz between 1954 and 1957. By 1959 his $20 million investment was worth $200 million, and he had become Germany's second ranking industrialist. Flick's holdings allowed him to push the company in 1958 to buy 80 percent of competitor Auto Union GmbH and its Audi line, to gain a smaller car for the Daimler product line. The acquisition made Daimler-Benz the fifth largest automobile manufacturer in the world and the largest outside the United States.

The acquisition probably lessened the competitive impact of the new U.S. compact cars introduced in the 1950s; moreover, Daimler-Benz faced a lesser threat than other European automakers because the Mercedes appealed to the market segment made up of wealthy, status-conscious customers, and its appeal grew steadily. By 1960 Daimler-Benz already had 83,000 employees in seven West German plants. Additional plants were located in Argentina, Brazil, and India, and the company had established assembly lines in Mexico, South Africa, Belgium, and Ireland. In 1966 Auto Union was sold to Volkswagenwerk AG.

Daimler-Benz's conservative outlook was evident in its strategy of gradual growth, concentration on areas of expertise, foresight, and willingness to sacrifice short-term sales and earnings for long-term benefits. This conservatism helped soften the effect of the recession and gasoline shortages that had severely affected other automakers in the 1970s. While many manufacturers were closing facilities and cutting workers' hours, Daimler-Benz registered record sales gains. Chairman Joachim Zahn, a lawyer, said the company had foreseen the challenging era the auto industry was about to confront. Between 1973 and 1975, Zahn had set aside some $250 million as preparation for bad times. While other automakers spent time and money on model changes, Daimler-Benz had invested in engines powered by inexpensive diesel fuel. These vehicles comprised 45 percent of its output by the mid-1970s. The company was not without problems during these years, as high labor costs and the increasing value of the deutsche mark were making Mercedes-Benz automobiles more expensive than ever. Rather than reducing costs or cutting corners, however, the company began to speak of its cars as investments.

Company Perspectives:

We aim to convince our customers with our exciting automobiles, attractive and economical commercial vehicles, and tailored financial services. With our innovative technology, we intend to make the traffic of tomorrow even safer, as well as more economical and environmentally friendly. And by implanting this strategy, we intend to create lasting value for our shareholders. To these ends we focus our global resources and the knowledge, experience, and energy of our employees.

Although primarily known for its passenger cars, Daimler-Benz's commercial truck line was its largest source of profits for many years. The company profited from the oil price increase of the late 1970s, when demand for its commercial vehicles rose dramatically in the Middle East. Most of the company's trucks were made outside of Germany, unlike its cars. Later, the commercial line led the company into one risk that was stalled by unfortunate timing. In 1981 Daimler-Benz purchased the U.S.-based Freightliner Corporation, a manufacturer of heavy trucks, just as sales ground to a halt in the face of a U.S. recession.

Some risk-taking was inevitable, of course; usually it paid off. Daimler-Benz increased its car production from 350,000 to 540,000 units a year between 1975 and 1983. Most of the increase was due to the introduction in 1983 of its 190 model, a smaller version of its sedan. Despite some concern that the 190 would cannibalize sales of its larger cars, the 190 expanded Daimler-Benz's customer base, and the updated image of the new model attracted younger customers, lowering the average age of a Mercedes owner from 45 to 40.

As a manufacturer of luxury automobiles, Daimler-Benz was less vulnerable than most automakers to shifts in demand during the early 1980s. Most Mercedes-Benz customers were wealthy enough to rise above concerns about finance rates, inflation, recession, gasoline prices, or tax breaks. Another traditional safeguard for Daimler-Benz was its longstanding policy of making only as many cars as it could expect to sell, especially during a recession. The result was usually a backlog of demand when a recession ended. In addition, since the company's sales were good even when the market was poor, Daimler-Benz never had to cater to demands from dealers.

However, during the mid-1980s Daimler-Benz was confronted with a dramatic increase in competition for the luxury car market, the fastest-growing segment of the automobile business. Along with this market competition was the increasing speed and sophistication of competitors' automotive research. For example, pioneering Daimler-Benz engineers spent 18 years developing anti-skid brakes to enable drivers to keep control of their vehicles during sudden stops. A few months after the company introduced the breakthrough in the United States, Lincoln brought out a similar system as standard equipment.

Competition and the high price of research and development were two of the factors precipitating the sudden moves Daimler-Benz made between February 1985 and February 1986. Industry analysts were surprised when the company acquired, in quick succession, three large conglomerates: Motoren-und Turbinen-Union, which made aircraft engines and diesel motors for tanks and ships;

Dornier, a privately held manufacturer of spacecraft systems, commuter planes, and medical equipment; and AEG, a high-technology manufacturer of electronic equipment such as turbines, robotics, and data processing, as well as household appliances. Many industry watchers were dubious about the diversification of a company that was already doing so well. Profits had increased every year but one between 1970 and 1985, and increased more than 50 percent in 1985 alone. Some analysts also questioned the speed of Daimler-Benz's purchases, as well as management's ability to hold such a large and diverse enterprise together.

Yet Chairman Werner Breitschwerdt maintained full confidence in the moves. By bringing the technical and research expertise of the new subsidiaries to Daimler-Benz, Breitschwerdt hoped to significantly expand the company's research base. The prospects were highly promising for the automotive division, whose engineers were already interested in developing "intelligent cars." In this area, the radar technology of AEG and the materials expertise of Dornier would be extremely useful.

The Deutsche Bank (which owned 28 percent of Daimler-Benz) became increasingly troubled, however, by Breitschwerdt's apparent lack of a clear program for integrating the company's $5.5 billion in recent acquisitions, and in July 1987 Breitschwerdt announced his resignation. Despite the major reservations of several board members, but with Deutsche Bank's full approval, Edzard Reuter, the company's chief strategic planner, was appointed to succeed Breitschwerdt. These upheavals seemed to have little impact on Daimler-Benz's performance; it still emerged as the largest industrial concern in Germany.

In 1989 Daimler-Benz InterServices AG (Debis) was created to handle data processing, financial and insurance services, and real estate management for the Daimler group. The following year, the dismantling of the Berlin Wall had both positive and negative repercussions for Daimler-Benz; although the recently acquired aeronautical and defense businesses were hurt, the resulting unification provided a welcome jump in demand for Daimler-Benz's automotive division.

Key Dates:

1883:

Carl Benz forms Benz & Companies in Mannheim.

1890:

Daimler-Motoren-Gesellschaft is incorporated.

1924:

Walter P. Chrysler introduces the Chrysler Six model.

1926:

Daimler and Benz are merged to form Daimler-Benz AG, which begins producing cars under the name Mercedes-Benz.

1928:

Chrysler acquires Dodge Corporation.

1944:

Most of Daimler-Benz's plants are destroyed in Allied bombing raids.

1979:

Through passage of the Chrysler Loan Guarantee Bill, the U.S. government guarantees $1.2 billion in loans to Chrysler.

1984:

Chrysler introduces the first minivan.

1987:

Chrysler acquires American Motors Corporation.

1993:

Daimler-Benz becomes the first German firm listed on the New York Stock Exchange.

1995:

Jürgen Schrempp takes over as Daimler-Benz's chairman and CEO; company posts losses of nearly $4 billion, the largest in German history.

1998:

Daimler-Benz and Chrysler merge to form Daimler-Chrysler AG.

2001:

Dieter Zetsche launches a major restructuring effort at the Chrysler division.

By the early 1990s the German economy took a turn for the worse, and the consequences of Daimler-Benz's mid-1980s spending spree began to take their toll. For the first time in its history, Daimler-Benz was forced to eliminate jobs (14,000 of them, through early retirement and attrition) in its automotive division as Mercedes sales plunged and Daimler's overall profit dropped 25 percent in 1992.

First quarter figures for 1993 reflected Germany's widening recession, with Daimler-Benz's net income plummeting by 96 percent to $12.4 million on sales of $13.1 billion, while Mercedes' sales (65 percent of the group's) fell 24 percent for the period. Yet with long-term goals in mind, Daimler-Benz announced hidden reserves of $2.45 billion in an effort to become the first German firm listed on the New York Stock Exchange. The disclosure by Daimler-Benz, which had been prevented from admittance in the past by discrepancies between German and U.S. accounting procedures, was the first of several compliances offered to satisfy U.S. regulators. By midyear, using stringent U.S. accounting procedures, Daimler-Benz reported sales of $69.6 billion and its first loss since the end of World War II. Yet the company's financial maneuvering earlier in the year had paid off: in October 1993, Daimler-Benz triumphantly listed its stock on the Big Board of the New York Stock Exchange.

Mercedes-Benz, meanwhile, was busy with both internal and external expansion. A new lower-priced C-Class Mercedes (known as the Baby-Benz) was introduced in 1993 to appeal to younger buyers in the United States and Europe. Other big moves in 1993 included Debis's construction of new headquarters in Berlin, rewarded by $5.1 billion in sales, nearly double those of 1990. Also in 1993, the company's aerospace arm, Deutsche Aerospace AG (DASA), acquired a controlling 51 percent stake in Fokker, a Dutch airplane manufacturer. Daimler-Benz finished 1993 with overall revenue of $70 billion and losses of $1.3 billion, including an $88.3 million deficit from DASA, which continued to hemorrhage for the next several years.

In 1994 Mercedes-Benz initiated a sweeping reorganization that included manufacturing more car parts outside Germany, appealing to younger buyers through radically different U.S. advertising, and developing more of the smaller, C-Class Mercedes or Baby-Benz models, as well as sport utility vehicles and minivans.

While Mercedes streamlined operations, Daimler-Benz's workforce reductions from 1992 to 1994 now totaled 20 percent of its 350,000 worldwide employees (bringing with it a $2.5 billion restructuring charge). Believing it had weathered the worst of its recessionary storms, Daimler-Benz climbed back to profitability in 1994 with earnings of $750 million, due in part to a sharp increase in both buying and selling outside Germany. Yet 1995 brought a series of highs and lows beginning with a changing of the guard: Edzard Reuter was forced out as CEO and was succeeded by former protege Jürgen E. Schrempp, former chairman of DASA.

Among Schrempp's first moves was to stem the flow of red ink. Arranging a 50/50 merger with the Swedish-Swiss ABB Asea Brown Boveri Ltd. in exchange for $900 million in cash from Daimler-Benz, the new venture, ABB Daimler-Benz Transportation (ADtranz), would become the world's largest international rail systems provider, generating sales in the neighborhood of $4.5 billion annually. With the climb of the deutsche mark in 1995, Daimler-Benz was saddled with higher labor costs and serious setbacks as the dollar remained weak. Anointed as the Daimler-Benz group's savior, Mercedes-Benz, which earned $1.3 billion in 1994, was held up as a model to its ailing parent. Always Daimler-Benz's cash cow, Mercedes had just agreed to a $1.2 billion joint venture with Nanfang South China Motor Corporation to build minivans and engines in China, as well as a second $50 million venture with Yangzhou Motor Coach Manufacturing Company to build touring buses and commercial undercarriages. Nevertheless, the still-troubled DASA and Daimler-Benz Industrie posted huge losses in 1995, in part because of writeoffs, leading the company deeply into the red: a nearly $4 billion loss, the largest in German industrial history.

Fokker proved a major burden for Daimler-Benz, causing Schrempp to cut off funding in January 1996, leading to the aircraft maker's bankruptcy. That same month, Schrempp tackled another headache when he distributed the remnants of the troubled AEG electronics subsidiary into other divisions. The revitalization of the Mercedes-Benz unit continued in 1996 with the introduction of the SLK, a convertible roadster sold for about $40,000 and aimed at younger buyers. That same year, three others models were launched: C-Class and E-Class station wagons and a V-Class minivan. In early 1997 the A-Class made its debut with the launch of the A140, a 141-inch-long compact sporting a small 82-horsepower engine located underneath the floor, and selling for as little as $17,000—expensive for a compact but cheap for a Mercedes.

Spearheading the risky effort to transform Mercedes-Benz into a full-range carmaker aiming to sell 1.2 million cars a year was the unit's chief executive, Helmut Werner. The key to his strategy was to find market niches in which buyers were willing to pay more for a Mercedes-Benz because of its reputation for luxury and quality. His plan appeared to be working as Mercedes' worldwide passenger car sales increased from about 500,000 in 1993 to nearly 650,000 in 1996. In January 1997, however, Werner resigned in a power struggle with Schrempp. Werner's departure was in anticipation of a sweeping reorganization, which Schrempp launched in April 1997. As part of a dismantling of the holding company structure adopted by Daimler-Benz during its 1980s diversification, Mercedes-Benz AG, which had operated since the 1980s as a subsidiary with its own board of directors, was merged into its parent. Daimler-Benz was then organized into several divisions: passenger cars, commercial vehicles, aerospace (DASA), and services (Debis). The new structure also included three units directly managed by Daimler-Benz: rail systems (the ADtranz joint venture), Motoren-und Turbinen-Union (the diesel engine and gas turbine maker), and TEMIC TELEFUNKEN microelectronic (a specialist in automotive electronic systems). The reorganization significantly flattened the management structure, eliminating hundreds of management positions.

By early 1998 Schrempp's restructuring efforts had reduced the company's work force by 63,000 and had seen the divestment of a dozen unprofitable businesses. Then, in November 1998, Daimler-Benz merged with Chrysler Corporation, which, like Daimler, had endured tough times in the 1970s and 1980s and emerged in the mid-1990s as one of the top car companies in the world.

History of Chrysler

The story of the Chrysler Corporation began in 1920, when the company's founder, Walter Percy Chrysler, resigned his position as president of Buick and vice-president of General Motors (GM) over policy differences with GM's founder, William C. Durant. Chrysler was soon asked by a group of New York bankers to restore the Maxwell Motor Corporation to solvency; in the process, he designed a new Maxwell model, the Chrysler Six. First exhibited in 1924, the car was an immediate success, and before year's end the company sold 32,000 cars at a profit of more than $4 million. In 1925 Chrysler renamed the company Chrysler Corporation.

The enthusiasm with which the Chrysler Six was met encouraged Walter Chrysler to design four additional models for the coming year: the 50, 60, 70, and Imperial 80. These model numbers referred to the maximum velocity that the cars could reach on a level stretch of road. Until that time, Ford's Model T had enjoyed the reputation of the fastest car, achieving a modest 35 mph. Alarmed by Chrysler's technological breakthrough, Ford closed its doors for nine months and emerged with a replacement for the Model T. By 1927, however, the Chrysler Corporation had firmly established itself with a sale of 192,000 cars, becoming the fifth largest company in the industry.

Walter Chrysler realized that to exploit his firm's manufacturing capacities to their fullest, he would have to build his own plants. Since he could not afford the estimated $75 million to achieve this, he approached the New York banking firm of Dillon Read and Company. Dillon Read had bought the Dodge Corporation of Detroit from the widows of the Dodge brothers and was happy to reach an agreement with the now highly regarded Walter Chrysler. In July 1928, Dodge became a division of the Chrysler Corporation; overnight, the size of the company increased fivefold. Soon thereafter, the company introduced the low-priced Plymouth and the DeSoto.

Walter Chrysler, carefully avoiding the dangers associated with rapid growth, discontinued his policy of manufacturing as many parts as possible for his cars. Although he paid more for components than other car makers, he was able to maintain greater flexibility in models and designs. This proved to be extremely important in an age of rapid technological advance. Indeed, Walter Chrysler's farsightedness helped the company to survive the Great Depression far better than most in the industry, and his strategy of spending money on research, no matter how bleak the prospects, may have been responsible for his firm's sound financial standing until well into the 1940s.

Along with the rest of Detroit's motor industry, Chrysler converted to war production during World War II. The manufacture of its Chrysler, Dodge, and Plymouth cars was put on hold while the corporation specialized in defense hardware such as small arms ammunition and submarine nets. But chief among its war products were B-29 bomber engines and anti-aircraft guns and tanks.

The corporation's problems started in the immediate post-war period. The ambition and spirit that drove the company to constant innovation and experimentation in the early days had been lost. The auto market had exhausted fundamental engineering breakthroughs, and American tastes had changed. It seemed that the public was more excited by the sleeker, less traditional, and sometimes less reliable models being produced by Chrysler's rivals. In short, the car industry was becoming a marketer's game, and Chrysler's management was not playing.

In 1950, L.L. Colbert, a lawyer hired by Walter Chrysler in 1929, became the corporation's president. By this time, some major overhauling was necessary, and Colbert hired the management consulting firm of McKinsey and Company. Three reforms were instituted: Chrysler developed international markets for its cars, its management was centralized, and the role of the engineering department was redefined.

Colbert's reforms did little to revive the company's flagging fortunes, and two years later there was another change of management. Lynn Townsend, the new corporate head, proved to be more effective. He consolidated the Chrysler and Plymouth car divisions, closed some unproductive plants, and generally tightened operations; he also reduced the workforce and installed an IBM computer system to replace 700 members of the clerical staff. Most important, he enhanced sales by improving the quality of the Chrysler automobile, introducing the best warranty the industry had yet seen and instituting a more aggressive marketing policy. In less than five years, Townsend had revitalized the corporation.

Success led to expansion: an aerospace division was formed, and Chrysler became the prime contractor for the Saturn booster rocket. By the end of the 1960s, Townsend's international strategy yielded plants in 18 foreign countries. Before the decade was over, however, the domestic market was undergoing major changes. Inflation was taking its toll on U.S. auto manufacturers, imports of foreign vehicles had substantially increased, and the price of crude oil had risen drastically. Chrysler's troubles were compounded by internal factors: the company was more concerned with competing against Ford and GM than in adapting itself to the rapidly changing market; it did not produce enough of its popular compact cars to meet consumer demand; and it had an overstock of larger vehicles.

The corporation reported a $4 million loss in 1969 and was operating at only 68 percent of its capacity; the previous year, it had earned profits of $122 million. Car prices were substantially reduced, but this did little to solve the underlying problems. John J. Riccardo, an accountant, succeeded to the presidency and immediately set about reducing expenses. Salaries, work force, and budget were all cut, and the company experimented with the marketing of foreign-made cars.

Unfortunately, Chrysler seemed incapable of reading the public mood: it narrowed and shortened Dodge and Chrysler models to bring prices down, but sales also tumbled; it continued to make Imperials long after Cadillacs and Lincolns had demonstrated their superiority in the luxury market; and it greeted the 1973–74 Arab oil embargo with a large inventory of gas-guzzlers. Losses in 1974 totaled a massive $52 million, and the next year's deficit was five times that amount.

The company experienced a brief respite in 1976 and 1977. Its trucks were in demand and foreign subsidiaries turned in good results, but domestic car sales remained a problem. Riccardo further consolidated North American operations and increased manufacturing capacity for compact cars. By the time Chrysler became a significant contender in that market, however, American car buyers were showing a distinct preference for the reliable and relatively inexpensive Japanese compacts. The days of U.S. manufacturing hegemony appeared to be over.

A loss of $205 million in 1978 led many industry watchers to wonder if Chrysler's rollercoaster finances could rebound from this latest big dip. The syndicate of banks (with Manufacturers Hanover Trust in the vanguard), which for years had been pouring money into Chrysler, panicked. Incredibly, many of the smaller banks had agreed to virtually unlimited lines of credit on the assumption that the company would never need to use them.

However, complex and highly charged negotiations eventually saved Chrysler from bankruptcy. The federal government agreed to guarantee loans up to $1.5 billion, provided Chrysler raised $2 billion on its own. Politicians could not justify such a massive bailout, however, without changes in Chrysler's management. Riccardo, who had diligently fought against heavy odds, had to go.

It was left to the charismatic Lee Iacocca, who took over in 1978, to preside over Chrysler's comeback. An ex-Ford man with a flair for marketing and public relations, Iacocca took Chrysler's problems to the people, explaining that the company's failure would mean the loss of hundreds of thousands of jobs and could seriously damage the economy of the state of Michigan. Despite popular mythology and the near-adulation of Iacocca in some quarters, many observers suggested that Riccardo was in large part responsible for forging the agreement that gave Chrysler a new lease on life. In any event, the Chrysler Loan Guarantee Bill passed the U.S. Congress on December 27, 1979 and guaranteed $1.2 billion in loans to Chrysler.

During the early 1980s, Iacocca's skills as a superb television salesman were of crucial importance as Chrysler lost nearly $1.8 billion in 1980—the largest loss ever for a U.S. company—and another $475 million in 1981, before returning to the black in 1982. In August 1983 Chrysler was able to pay off the government loan guarantees seven years early, with the government making a $350 million profit on its investment. Chrysler's road to recovery was a difficult one, demanding the closure of several plants and the reduction of the company's workforce. Once restructured, Chrysler scrapped its plans to diversify and divested the Gulfstream Aerospace unit it had purchased five years earlier, selling it to a New York investment firm for $825 million in early 1990. Two other units in the company's Chrysler Technologies subsidiary—Electrospace Systems and Airborne Systems—were slated for divestiture as well, which underscored Iacocca's intent to create a leaner, more sharply focused company. Meanwhile, there were two key developments in the 1980s that helped form the foundation for the 1990s resurgence: the introduction of the minivan in 1984 and the acquisition three years later of American Motors Corporation and its Jeep brand for $1.2 billion.

Reorganized as such, Chrysler entered the 1990s braced for a full recovery, but the economy did not cooperate. The decline in automotive sales during the fourth quarter of 1989—the company's first fourth quarter decline since 1982—portended a more crippling slump to come, as an economic recession gripped businesses of all types, both domestically and abroad. Net income in 1990 slipped to $68 million, then plunged to a $795 million loss the following year, $411 million of which was attributable to losses incurred by the company's automotive operations. Mired in an economic downturn, Chrysler appeared destined for more of the same, rather than headed toward recovery as Iacocca had hoped, but part of the reason for 1991's losses also led to the company's first step toward genuine recovery.

Partly to blame for the $795 million loss in 1991 were the high preproduction and introduction costs associated with Chrysler's new Jeep Grand Cherokee and increased production costs at the company's St. Louis minivan plant. These two types of vehicles—minivans and sport utility vehicles—represented the key to Chrysler's recovery. The popularity of these vehicles, coupled with significant price advantages over Japanese models, fueled Chrysler's resurgence. In 1992, Chrysler turned its $795 million loss the year before into a $723 million gain. It was a signal achievement, accomplished in Iacocca's last year as CEO. Taking over during 1992 was Robert Eaton, who was hired away from GM, where he was head of European operations. Chrysler then went on to enjoy its most successful year ever, with 1994 earnings of $3.7 billion on revenues of $52.2 billion.

The good news at Chrysler continued into the late 1990s, after the company managed to fend off a $22 billion buyout proposed by billionaire investor Kirk Kerkorian in 1995. The long prosperity and low gasoline prices of the middle to late 1990s created a huge demand for large vehicles, and Chrysler was producing hot models in each of the hottest segments: the Dodge Ram pickup truck; the Town & Country minivan; and several sport utility vehicles—the Jeep Grand Cherokee, the Jeep Wrangler, and the Dodge Durango. Questions about the quality of Chrysler products continued to pop up, but the company's share of the U.S. auto market reached as high as 16.7 percent in 1996, the highest level since 1968. In 1996, the year Chrysler moved into new headquarters in Auburn Hills, Michigan, sales reached $61.4 billion.

The Creation and Early Years of DaimlerChrysler

Daimler-Benz Chief Executive Jürgen Schrempp had concluded as early as 1996 that his company's automotive operations needed a partner to compete in the increasingly globalized marketplace. Chrysler's Eaton was drawing the same conclusion in 1997 based on two factors emerging around the same time: the Asian economic crisis, which was cutting into demand, and worldwide excess auto manufacturing capacity, which was looming and would inevitably lead to industry consolidation. With annual global overcapacity as high as 18.2 million vehicles predicted for the early 21st century, it became clearer that Daimler-Benz and Chrysler could survive as merely regional players if they continued to go it alone.

After several months of negotiations, Daimler-Benz and Chrysler reached a merger agreement in May 1998 to create DaimlerChrysler AG in a $37 billion deal. The deal was consummated in November 1998, forming an auto behemoth with total revenues of $130 billion, factories in 34 countries on four continents, and combined annual unit sales of 4.4 million cars and trucks. The two companies fit well together geographically, Daimler strong in Europe and Chrysler in North America, and in terms of product lines, with Daimler's luxurious and high-quality passenger cars and Chrysler's line of low-production-cost trucks, minivans, and sport utility vehicles. Although this was ostensibly a merger of equals—the company set up co-headquarters in Stuttgart and Auburn Hills, naming Eaton and Schrempp co-chairmen—it soon became clear that the Germans were taking over the Americans. DaimlerChrysler was set up as a German firm for tax and accounting purposes, and the early 2000 departures of Thomas Stallkamp, the initial head of DaimlerChrysler's U.S. operations, and Eaton (who was originally slated to remain until as late as November 2001) left Schrempp in clear command of the company.

During 1999 DaimlerChrysler concentrated on squeezing out $1.4 billion in annual cost savings from the integration of procurement and other functional departments. The company organized its automotive businesses into three divisions: Mercedes-Benz Passenger Cars/smart, the Chrysler Group, and Commercial Vehicles. In November 1999 DaimlerChrysler announced that it would begin phasing out the aging Plymouth brand. The Debis services division was merged with Chrysler's services arm to form DaimlerChrysler Services, while DASA was renamed DaimlerChrysler Aerospace. Late in 1999 the company reached an agreement to merge DaimlerChrysler Aerospace with two other European aerospace firms, the French Aerospatiale Matra and the Spanish CASA, to form the European Aeronautic Defence and Space Company (EADS). DaimlerChrysler would hold a 30 percent stake in EADS, which would be the largest aerospace firm in Europe and the third largest in the world.

In early 2000, DaimlerChrysler set the lofty goal of becoming the number one automaker in the world within three years. The company's most pressing needs were to bolster its presence in Asia, where less than 4 percent of the company's overall revenue was generated, and to gain a larger share of the small car market in Europe. Filling both of these bills was Daimler-Chrysler's purchase of a 34 percent stake in Mitsubishi Motors Corporation for $2 billion, a deal announced in late March. The company later increased its interest in Mitsubishi when it purchased a 3.3 percent stake from Volvo. In another key early 2000 development, DaimlerChrysler agreed to join with GM and Ford to create an Internet-based global business-to-business supplier exchange named Covisint.

DaimlerChrysler's lofty goal would remain unrealized however, as the company faced a host of challenges. The Chrysler Group division was plagued by high costs and weak sales which ultimately cost James P. Holden his CEO position. Buoyed by its strong sales in the mid-1990s, Chrysler had spent heavily on product development in the late 1990s and bolstered its work force while costs were skyrocketing. By the second half of 2000 Chrysler lost $1.8 billion while spending over $5 billion. Dieter Zetsche was tapped to reorganize the faltering U.S. division. He launched a major restructuring effort in February 2001 that included cutting $2 billion in costs, making additional cuts in supplier costs, slashing 20 percent of its workforce, and making changes to Chrysler's product line that included the elimination of the Jeep Cherokee (the Grand Cherokee remained in the product line) and the launch of the Jeep Liberty.

At the same time, global economies began to weaken in the aftermath of the September 11, 2001, terrorist attacks. To entice customers, car makers began offering buyer incentives that began to wreak havoc on profits. Industry analysts began to speculate that the 1998 merger may have been a mistake—Schrempp's proclamation that the deal would create the most profitable car maker in world had indeed fallen short. In fact, the company's market capitalization was $38 billion in September 2003. Before the union Daimler's market cap had been $47 billion.

Meanwhile, the company's Mercedes division plugged along launching the E-Class sedan, the SLK roadster, and the Maybach luxury vehicle. In 2003, Chrysler launched the Crossfire, a roadster developed with Mercedes components, and the Pacifica, a SUV/minivan. It also began to heavily market its powerful Hemi engine, which could be purchased for the Dodge Ram pickup and its passenger cars. In early 2004, Chrysler's 300C sedan and the Dodge Magnum sports wagon made their debut.

Competition remained fierce in the auto industry prompting DaimlerChrysler to make several changes in its strategy. In December 2003, the company sold its MTU Aero Engines business. That year the firm acquired a 43 percent stake in Mitsubishi Fuso Truck and Bus Corporation hoping to cash in on Asia's growing truck market. Perhaps its most drastic move, however, came in April 2004 when DaimlerChrysler's supervisory board voted against providing funds to bailout Mitsubishi Motors, which by now was struggling under losses and a huge debt load. Mitsubishi played a crucial role in Schrempp's Asian expansion strategy and it developed the platforms for Chrysler's compact and midsize cars. The failure to provide funds put a strain on the business relationship between the two and threatened to result in huge problems for Chrysler, which had cut back on engineering capacity as it relied on Mitsubishi to develop its small and mid-sized cars.

At the same time, DaimlerChrysler moved ahead in the Chinese market—without Mitsubishi and without another partner, Hyundai. To bolster is presence in the region, Daimler-Chrysler restructured its joint venture with Beijing Automotive Industry Holding Co. Ltd. and set plans in motion to tie up with Chinese Fujian Motor Industry Group and the Taiwanese China Motor Corporation to launch several cars in the Chinese market by 2005. Rumors circulated that DaimlerChrysler's relationship with Hyundai was faltering as a result, and in 2004 the company signaled that it would sell its interest in the South Korean automaker.

By 2004, Schrempp's DaimlerChrysler was a far cry from what the 1998 merger promised to deliver. The company's financial record was lackluster, bogged down by Chrysler's $637 million loss in 2003. DaimlerChrysler remained the world's number three car maker, leaving the 2000 goal—to become the number one auto company in the world—unfulfilled. Whether the merger would provide the hoped-for results remained to be seen.

Principal Subsidiaries

DaimlerChrysler Motors Company LLC (United States); Mercedes-Benz U.S. International Inc. (United States); smart GmbH; DaimlerChrysler South Africa Pty. Ltd.; DaimlerChrysler Canada Inc.; DaimlerChrysler de Mexico S.A. de C.V.; EvoBus GmbH; Mercedes-Benz Espana S.A. (Spain); Detroit Diesel Corporation (United States); Freightliner LLC (United States); Mercedes-Benz Mexico S.A. de C.V.; DaimlerChrysler do Brasil Ltda. (Brazil); DaimlerChrysler Argentina S.A.; P.T. DaimlerChrysler Indonesia (95%); MTU Friedrichshafen GmbH (88.4%); Mitsubishi Fuso Truck and Bus Corporation (Japan; 43%); Mercedes-Benz USA LLC; DaimlerChrysler France S.A.S.; DaimlerChrysler Belgium Luxembourg S.A.; DaimlerChrysler Nederland B.V. (Netherlands); DaimlerChrysler UK Ltd.; DaimlerChrysler Italia S.p.A. (Italy); Daimler-Chrysler Schweiz AG (Switzerland); DaimlerChrysler Japan Co. Ltd.; DaimlerChrysler Australia/Pacific Pty. Ltd.; Daimler-Chrysler Bank AG; DaimlerChrysler Services Leasing GmbH; DaimlerChrysler Services North America LLC (United States); debis Financial Services Inc. (United States); European Aeronautic Defence and Space Company (EADS) N.V. (Netherlands; 33%); Mitsubishi Motors Corporation (Japan; 37%); Hyundai Motor Co. (Korea; 10.5%).

Principal Divisions

Mercedes Car Group; Chrysler Group; Commercial Vehicles; Services; Other Activities.

Principal Competitors

Ford Motor Company; General Motors Corporation; Toyota Motor Corporation; Volkswagen AG.

Further Reading

Abodaher, David, Iacocca, New York: Macmillan, 1982.

"Backbiting at Daimler," Business Week, August 7, 1995, p. 45.

Ball, Jeffrey, and Scott Miller, "DaimlerChrysler Aims to Be No. 1 Auto Maker," Wall Street Journal, January 14, 2000, pp. A2, A6.

Breer, Carl, The Birth of Chrysler Corporation and Its Engineering Legacy, Warrendale, Penn.: Society of Automotive Engineers, 1995.

"Can Motown Get Out of This Funk?," Business Week, June 23, 2003.

"Daimler's Designated Driver," Business Week, November 27, 2000.

Gardner, Greg, "Chrysler: The Cat with Nine Lives," Ward's Auto World, May 1996, p. 67.

——, "The Cloud Over Chrysler," Ward's Auto World, June 1996, pp. 25–28.

"Gentlemen, Start Your Engines," Fortune, June 8, 1998, pp. 138+.

Gordon, Maynard M., The Iacocca Management Technique, New York: Dodd Mead, 1985.

Gregor, Neil, Daimler-Benz in the Third Reich, New Haven, Conn.: Yale University Press, 1998.

Iacocca, Lee, with William Novak, Iacocca: An Autobiography, New York: Bantam, 1984.

Kimes, Beverly Rae, The Star and the Laurel: The Centennial History of Daimler, Mercedes, and Benz, 1886–1986, Montvale, N.J.: Mercedes Benz of North America, 1986.

Langworth, Richard M., and Jan P. Norbye, The Complete History of Chrysler Corporation, 1924–1985, New York: Beekman House, 1985.

Moritz, Michael, and Barrett Seaman, Going for Broke: The Chrysler Story, Garden City, N.Y.: Doubleday, 1981.

Palmer, Jay, "Shake-Up Artist: Daimler-Benz Chairman Jurgen Schrempp Has Knocked the Dust Off Mercedes," Barron's, March 23, 1998.

Reed, Stanley, "Backbiting at Daimler," Business Week, August 7, 1995, p. 45.

Reich, Robert B., and John D. Donahue, New Deals: The Chrysler Revival and the American System, New York: Times Books, 1985.

"A Shaky Automotive Ménage à Trois; Now, Daimler Is Backing Away from Mitsubishi," Business Week, May 10, 2004.

"Stalled: Was the Daimler-Chrysler Merger a Mistake?," Business Week, September 29, 2003.

Taylor, Alex III, "Can the Germans Rescue Chrysler?," Fortune, April 30, 2001.

——, "For Schrempp, It Was a Cruel April," Fortune, May 17, 2004.

——, "The Germans Take Charge," Fortune, January 11, 1999, pp. 92–94, 96.

——, "Iacocca's Last Stand at Chrysler," Fortune, April 20, 1992, p. 63.

Templeman, John, "The New Mercedes," Business Week, August 26, 1996, pp. 34+.

——, "Upheaval at Daimler," Business Week, February 5, 1996, pp. 14+.

Vlasic, Bill, et al., "The First Global Car Colossus," Business Week, May 18, 1998, pp. 40+.

Washington, Frank S., "Merger? What Merger?," Ward's Auto World, November 1999, pp. 66–67.

Zellner, Wendy, "Chrysler's Next Generation: An Heir Apparent and New, Upscale Cars," Business Week, December 19, 1998, p. 52.

—updates: Taryn Benbow Pfalzgraf,

David E. Salamie,

Jeffrey L. Covell, and

Christina M. Stansell

DaimlerChrysler AG

1000 Chrysler Drive
Auburn Hills, Ml 48326-2766
(248) 576-5741

70546 Stuttgart
Germany
49 711 17 0
www.dalmlerchrysler.com

Chrysler has been part of American culture since automobiles were first introduced. For decades, it was the smallest of the "Big Three" U.S. automakers, trailing behind General Motors Corporation and Ford Motor Company (see entries). By the end of the 1970s, the company was in real trouble and made headlines when it had to ask for loans from the federal government to help get back on track. It took a CEO named Lee Iacocca to pull Chrysler out of the red and make it a more efficient and profitable company.

In 1998, Chrysler again shocked the business world when it merged with giant German auto manufacturer Daimler-Benz, producer of the Mercedes line of luxury cars. The new company became DaimlerChrysler AG, with headquarters in Stuttgart, Germany, and Auburn Hills, Michigan. As the new company entered the twenty-first century a reorganization of its U.S. operations was underway: employees were laid off, plants closed, and production decreased. Although the moves were drastic, they seemed to finally stabilize the company's financial position. In 2001, DaimlerChrysler reported sales of $136 billion and a net income of $590 million.

Beginning at Buick

The Chrysler Corporation was officially established in 1925 but its roots go back a decade earlier. In 1912, the founder of Chrysler, Walter Percy Chrysler (1875-1940), left a management job with the Great Western Railway in Chicago, Illinois, to become a production manager of General Motors's Buick division in Flint, Michigan. During his time at Buick, Chrysler made a name for himself as a top-notch manager, introducing efficient work methods and increasing production from twenty vehicles to over five hundred cars per day. He also worked alongside K. T. Keller, who would later play a major role at the Chrysler Corporation.

In 1916, Chrysler became president and general manager of the Buick division. With Chrysler at the helm, Buick soon became General Motor's biggest moneymaker. In 1919, Chrysler was promoted to vice president in charge of production at GM. His meteoric climb up the corporate ladder came to a halt, however, in 1920 when Chrysler resigned from the company because of differences with GM founder and chairman William C. Durant (1861-1947).

DaimlerChrysler at a Glance

• Employees: 421,000
• CEO: Juergen Schrempp
• Chrysler Group President and CEO: Dieter Zetsche
• Subsidiaries: Covisint; DaimlerChrysler Canada; Detroit Diesel Corporation; Freightliner LLC; New Venture Gear, inc.
• Major Competitors: British Motor Works; Ford Motor Company; General Motors Corporation; Toyota Motor Corporation.
• Notable Products: American LaFrance fire trucks; Freightliner commercial trucks; Chrysler PT Cruiser, Sebring, Voyager, Concorde; Dodge Caravan, Grand Caravan, Ram pickup truck, Neon, Dakota, Durango; Jeep Grand Cherokee and Wrangler; Mercedes-Benz luxury cars

A few months after leaving GM, the manager who could work miracles was recruited to be executive vice president of Willys-Overland, an auto company that was near bankruptcy. Chrysler earned an annual salary of $1 million, which was unheard of at the time. In 1921, Chrysler came to the aid of another car company in distress, Maxwell-Chalmers. As chairman of Maxwell, Chrysler worked with several of the company's engineers to build what would become the first Chrysler automobile. In 1925, the Maxwell Company became the Chrysler Corporation. By the end of 1925, there were thirty-eight hundred Chrysler dealers in the United States. The company went international a year later when Chrysler Canada was established. That same year, Chrysler Corporation jumped from being the twenty-seventh largest auto manufacturer in the country to the fifth largest. In 1927, it leaped to fourth place.

Timeline

1925:

Chrysler Corporation is formed from the Maxwell Motor Company.

1928:

Plymouth and DeSoto models are launched.

1935:

K. T. Keller becomes president after founder Walter P. Chrysler resigns.

1940:

Walter Chrysler dies.

1942:

All Chrysler plants convert to military production.

1952:

Chrysler wins the U.S. Army contract for the Jupiter missile program.

1955:

Chrysler offers transistorized radios in its cars.

1958:

Cruise control is introduced.

1961:

Chrysler retires its DeSoto line of cars.

1964:

Plymouth Barracuda, Chrysler's answer to the Ford Mustang, debuts.

1970:

Chrysler partners with Mitsubishi to import Japanese cars.

1978:

Lee lacocca is picked to head Chrysler.

1980:

Chrysler receives $1.5 billion in federal loan guarantees.

1983:

Chrysler finishes paying off its federal loan guarantees.

1987:

American Motors Corporation is acquired by Chrysler.

1993:

Lee lacocca retires from Chrysler.

1998:

Chrysler merges with Daimler-Benz to become DaimlerChrysler AG.

2000:

Dieter Zetsche becomes head of Chrysler Group; PT Cruiser is introduced.

2001:

DaimlerChrysler announces it will close six plants and cut twenty-six thousand jobs.

Dodging the Depression

In 1928, Chrysler launched its Plymouth and DeSoto models, cars that were aimed at attracting customers who wanted lower priced transportation. In addition, the company made a significant acquisition when it purchased Dodge Brothers, Inc., a company five times the size of Chrysler. Dodge, which had been in business since 1914, made the first large series cars with all-steel bodies. It also featured a popular line of commercial trucks. The purchase allowed Chrysler to become the third largest auto manufacturer in the country, behind General Motors and Ford.

By the 1930s, the United States was in the grips of the Great Depression, with millions of people losing jobs and companies going under. Chrysler, however, managed to survive. It was the only American automobile manufacturer to increase it sales figures during the harsh economic times. In 1935, Chrysler resigned as president of Chrysler Corporation but remained as chairman of its board of directors. K. T. Keller, who came to Chrysler in 1926 from General Motors, was named president.

In 1942, Chrysler, like GM and Ford, stopped all civilian production and turned its plants over to producing military goods for the U.S. effort during World War II (1939-45). Among other vehicles, the company produced five hundred thousand Dodge trucks for military use. Once the war ended, Chrysler went back to designing and producing automobiles. The first all-new Chrysler models for consumers were unveiled in 1949.

The 1950s brought a number of innovations to Chrysler automobiles, including the first fully transistorized radios in passenger cars, air conditioning, and the first cruise control. With the 1960s came new models and the retirement of others. In 1960, Chrysler introduced the Valiant, its first compact car. The following year, 1961, brought the death of the DeSoto. And in 1964, the company unveiled its first "muscle" car, the Plymouth Barracuda, just two weeks before Ford introduced its nearest rival, the Mustang.

In 1905, while he was still working for the railroad, Walter Chrysler became interested in the newfangled invention that was taking the United States by storm: the automobile. He paid $5,000, most of which he had to borrow, for a white Locomobile Phaeton with a red interior. Chrysler took the car completely apart and reassembled it twice to get to know its engineering and technology.

Iacocca to the Rescue

Chrysler began the 1970s by entering into what seemed to be a profitable partnership with Mitsubishi Motors Corporation of Japan. The company imported sub-compact cars and trucks and sold them in the United States under the Dodge and Plymouth names. By the end of the decade, however, the company was on the verge of bankruptcy. The American public was not buying as many cars, and Chrysler was suffering from substantial financial losses and deteriorating credit ratings. The auto company had spent tens of millions of dollars to make its vehicles comply with stricter vehicle emission standards imposed by the federal government. This meant it had to redesign vehicles so they would not give off excessive amounts of pollutants that were harming the environment. In addition, many Chrysler vehicles were recalled for safety reasons, which meant that the company had to stop production on certain models that were not considered safe. Chrysler also had to pay to fix cars that had already been purchased.

On November 2, 1978, Chrysler announced its worse quarterly loss ever: $159 million. That same day, the company's board of directors named Lee Iacocca president and chief operating officer (COO), with the understanding that he would become chief executive officer (CEO) by 1980. Iacocca was a longtime auto executive who had been fired from Ford Motor just two months before. His job was to rejuvenate the company and increase profitability. Iacocca did all that was asked of him and more. He ultimately helped create one of the biggest turnarounds of a major corporation in the history of the United States.

As soon as Iacocca took over at Chrysler, he began recruiting some of Ford's top executives, who later became known as Iacocca's "Gang of Ford." While Iacocca was busy recruiting, other Chrysler executives were in Washington, D.C., unsuccessfully pleading for federal aid. The company said it needed $2 billion to fully meet the federal rules that had been imposed. The situation became desperate in 1979 and Chrysler began selling off its overseas subsidiaries. In May 1979, it closed an assembly line in Detroit, laying off five thousand workers.

In late 1979, Iacocca got involved in the political fight. In 1980, he persuaded Congress to pass, and President Jimmy Carter (1924-) to sign, a $1.5 billion loan guarantee package. This meant that if Chrysler could not pay back the loan in ten years, the federal government would have to pay it off. The company, however, not only paid off the federal loan, it did so seven years ahead of schedule. By then the United States had come out of a recession, an economic downturn, and American consumers were on a car buying spree. According to Doron P. Levin in his 1995 book, Behind the Wheel at Chrysler, "Car buying was strong, and overnight Iacocca was riding tall again." Iacocca remained with Chrysler until 1993 when he left the company and was replaced as CEO by chief operating officer Robert J. Eaton.

Making a Comeback

During the reign of Iacocca, Chrysler made a surprising comeback from the edge of extinction. It sold its defense division to General Dynamics, a large Virginia-based corporation that built ships, airplanes, military armament, and computer information systems. The sale allowed Chrysler to concentrate more on consumer vehicles. As a result, it introduced several new models that contributed to the company's turnaround. In 1981, Chrysler launched the popular K-series of cars. The company also introduced an entirely new type of vehicle in 1984 when it rolled out the Dodge Caravan and Plymouth Voyager. The new "minivans" proved to be extremely popular with families, and helped spark the minivan craze of the late 1980s and 1990s.

In 1985, Chrysler and Mitsubishi Motors Corporation established a joint company, Diamond-Star Motors, to produce small cars, which American buyers were clamoring for because they were economical to drive. (Chrysler withdrew from the venture in 1991.) Two years later, Chrysler, now the number-three U.S. automaker, paid $800 million to acquire the number-four U.S. automaker, American Motors Corporation (AMC). The purchase included AMC's Jeep division. The company closed the decade with a massive reorganization program that included $1 billion in cost-cutting measures.

Chrysler and the Cold War

By the early 1950s, the Cold War between the United States and the Soviet Union was well underway. Each country sought to protect its way of life, and was suspicious of the other. Because of their suspicions they stockpiled, or accumulated, nuclear weapons and were looking for ways to improve them. In 1952, Chrysler began building the Chrysler PGM-19, or Jupiter intermediate range ballistic missile, which could hit a target 1,500 miles (2,400 kilometers) away from where it was launched. The first test launch was in 1957 and missiles were sent to bases in Italy and Turkey in 1961, where they would be close enough to strike the Soviet Union. In 1960, production of Jupiter missiles stopped as more advanced missiles were developed to take their place, but the ones already built remained in service until 1964. In 1958, components from a Chrysler-built Jupiter launched America's first satellite, Explorer I.

In 1994, Chrysler posted its highest ever net earnings of $3.7 billion on total sales of $52.2 billion. And by 1998, the company was a dynamic and profitable entity that had cornered the minivan market and almost single-handedly launched the sport utility vehicle (SUV) craze, with its Jeep Grand Cherokee. It also had a line of well designed midsize cars and a high profit-per-vehicle ratio.

Chrysler's success drew the attention of Germany's Daimler-Benz executives, who had conquered the respected, but limited, luxury-sedan market. In contrast to the German company, Chrysler had almost no international presence, while Daimler-Benz envied Chrysler's well-grounded designs and mass-production capabilities.

DaimlerChrysler Is Born

In early 1998, Daimler-Benz chair Juergen Schrempp visited Chrysler CEO Robert Eaton at his Auburn Hills, Michigan, office. During a brief meeting, which lasted only seventeen minutes, the two executives agreed to look into a potential merger. In early May, after many more top secret meetings, the merger was announced. It was finalized by the end of the year, and Eaton, along with Schrempp, shared the role of chief executive officer of the newly formed DaimlerChrysler AG. In 2000, Eaton left the company and was replaced by German executive Dieter Zetsche, who became president and CEO of the Chrysler Group. Eaton had been with Chrysler for seven years and guided it through its most profitable era.

The DaimlerChrysler merger created a new international powerhouse, with revenues of $130 billion and 421,000 employees on several continents. By 2001, however, it became clear that the German half of DaimlerChrysler was the dominate partner, and some analysts said that Schrempp and Zetsche ruled with iron fists. In a 2001 article, The Economist called the German auto executives "overlords" and reported that many employees resented the direction the company had taken since the merger. That same year, DaimlerChrysler announced a three-year cost-cutting program that included closing six plants, reducing production at seven other plants, and cutting twenty-six thousand jobs. As it went into 2002, the company conducted another management shake-up, this time in the Chrysler Group's marketing departments.

Gearing Up for the Future

Since its inception, Chrysler has been the most precarious of the top three American automakers. The company twice teetered on the verge of bankruptcy: once in the late 1970s and again in the early 1990s. Lee Iacocca fixed Chrysler's financial woes of the late 1970s and early 1980s. Robert Eaton then came aboard as Chrysler was retooling for a new era, and by the late 1990s had solved many of the engineering and marketing problems that contributed to the company's near demise.

The DaimlerChrysler deal of 1998 appeared to have ended Chrysler's long history of financial problems. The German company adopted a more conservative management policy and cut costs where necessary, which included laying off employees and closing plants. The future of DaimlerChrysler, however, depended a lot on several factors beyond the company's control: the price of gasoline; the global, and particularly the U.S., economy; and calls from the federal government for stricter safety features, emission control, and better fuel efficiency. In the early twenty-first century, DaimlerChrysler focused on the factors it could control, such as production costs, the number of vehicles it produced, and responding to the ever-changing car buying habits of consumers.