AUTO MANIA; DAIMLER-BENZ TO BUY CHRYSLER.

Byline: Edmund L. Andrews and Laura M. Holson The New York Times

Daimler-Benz AG, the German industrial Goliath that makes Mercedes-Benz automobiles, will acquire Chrysler Corp. in an estimated $36 billion transaction expected to be announced as early as this morning.

The deal would mark the biggest industrial takeover in history and the biggest acquisition of any U.S. company by a foreign buyer. It would reshape the U.S. automobile industry by uniting America's third-largest car manufacturer with Germany's renowned producer of luxury cars and heavy-duty trucks.

The merged company also combines one of America's greatest industrial comeback stories with a stodgy but tough German industrial giant, and carries significant risks. Other big automotive mergers have not worked well, and the partners in this marriage differ starkly in culture and product.

Nonetheless, the combination would still create a formidable competitor on both sides of the Atlantic. Its combined sales, which span the range from $11,000 Plymouth Neons to $40,000 Jeep Grand Cherokees to $135,000 Mercedes 12-cylinder CL600 coupes, totaled $131 billion last year.

Terms of the deal, a stock swap that values Chrysler at about $36 billion, are expected to be announced in London, considered a neutral ground between Chrysler's suburban Detroit headquarters and Daimler-Benz's home in Stuttgart.

Both Chrysler's board of directors and Daimler-Benz's management board met separately Wednesday and approved the terms, said a person close to the talks. It is expected that Daimler-Benz's supervisory board, the second in its two-board structure, will discuss the deal over the next few days.

In the driver's seat 

While the two companies are likely to pitch the combination to investors as a merger of equals, Daimler-Benz is clearly sitting in the driver's seat. The new company, to be named DaimlerChrysler, will be incorporated in Germany, and Daimler-Benz's shareholders will own a majority of the shares. It will be jointly run for three years by Daimler-Benz chief executive Juergen Schrempp and Chrysler boss Robert Eaton, and it is believed Schrempp could take control of the company after their joint term is up.

The end of Chrysler as an independent automaker would mark a stunning turn of events for a company that lurched from one crisis to another in the 1970s, culminating in near collapse, a government rescue and re-emergence as an agile, low-cost producer and design leader that invented the modern minivan.

For Daimler-Benz, for decades known as a ponderous, slow-moving and intensely conservative corporation, the Chrysler marriage promises immediate access to the North American mass market for automobiles without diluting the carefully cultivated upscale image of its Mercedes-Benz brand.

Learning from Chrysler

It also gives the German company production capacity outside Germany, where worker wages and benefits are among the most expensive in the world. It further offers Daimler-Benz an opportunity to learn from Chrysler's envied process of making decisions quickly and bringing new vehicles to market promptly - attributes that have become evermore important as competition in the industry has escalated.

News of negotiations over a possible merger, first reported Wednesday by The Wall Street Journal, electrified the world's financial markets. Chrysler shares surged 15 percent, to $48.8125, while Daimler-Benz shares surged 7 percent.

Anticipation of potentially more mergers also pushed up the shares of Europe's other big car companies, including Volkswagen, Fiat, Renault and Peugot.

Industry analysts and automobile executives were stunned by the news, and not simply because of its size. Except for the fact that both companies make cars, they could not be more different. Chrysler, based in Auburn Hills, Mich., is fundamentally middle-class and Middle Western. About 70 percent of its sales come from Jeeps, vans and pick-up trucks, and it has a negligible presence in Europe.

Daimler-Benz, by contrast, is elite and European. Most Mercedes passenger cars range from $30,000 to more than $100,000, and most of its sales are in Europe. Though sales of Mercedes in the United States soared by 65 percent last year, Mercedes commands less than 1 percent of the U.S. market.

Though rumors about Chrysler merging with another company have been circulating for a long time, because the company lacks the resources on its own to compete on a global scale, few people expected a merger with Daimler.

Unlike in many other industrial mergers, analysts said, Chrysler and Daimler-Benz are not likely to benefit from quick cost-reductions by eliminating extra factories and laying off thousands of workers. That is because Daimler and Chrysler have such fundamentally different businesses that they barely compete with each other.

But at least theoretically, analysts said Wednesday, the merger could make good strategic sense over the longer term. By joining Chrysler, Mercedes obtains a huge position almost overnight in the United States - the world's biggest market. Chrysler controls an enormous network of dealerships in the United States as well as a native's feel for how to design and sell vehicles in that market.

CAPTION(S):

2 Photos, 2 charts

PHOTO (1 -- color) Chrysler Chairman Robert Eaton, who will share power with his German counterpart, greets stockholders in this May 1997 photo.

Barry Sweet/Associated Press

(2 -- 3 -- color) no caption (Mercedes car and Chrysler car)

Chart: (1) The players

(2) California dreamin'