MERCEDES ON U.S. FAST TRACK.

Byline: Jim Mateja Chicago Tribune 

It took just the briefest of introductions to U.S. manufacturing to get Daimler-Benz AG interested in hooking up with an American partner like Chrysler Corp.

Daimler's plant in Tuscaloosa, Ala., opened in 1997 to produce the new M-Series sport-utility vehicles, provided a clear lesson in economics - and America's role as low-cost goods producer.

Made at a nonunion plant in the United States, the Mercedes-Benz vehicle goes for $35,000 apiece, but if it were made in Germany, the M-Series sport-utility vehicle would cost $45,000, said Art Spinella, vice president of CNW Marketing Research in Bandon, Ore.

And if Daimler-Benz had been able to build its $35,000 M-Series in an existing plant here that had excess capacity - and Chrysler has such underutilized plants - Spinella calculates the vehicle would have been a $25,000 vehicle.

``Mercedes was able to squeeze the labor cost from 40 percent to 30 percent by building here, and could squeeze it more in an existing plant,'' Spinella said. ``It's not that Mercedes wants Chrysler's vehicles; Mercedes wants Chrysler's production capacity to build vehicles of its own.''

The dollars - and the prospect of much higher sales in the United States - are behind the agreement by Daimler, of Stuttgart, Germany, and Chrysler, of Auburn Hills, Mich., to merge. Neither would give any details.

The companies said only that a merger would be achieved through a stock swap valued at an estimated $36 billion.

Chrysler, which averted bankruptcy two decades ago only through a government bailout, is the nation's No. 3 car and light-truck maker. The most efficient of the Big Three U.S. car companies, it is best-known these days for its Jeeps and its minivans, which have transformed the look of suburban America.

Daimler-Benz is well-known, too, for its Mercedes-Benz luxury cars. But it ranks as Germany's biggest industrial company, with more than 300,000 employees, thanks also to operations in everything from aircraft engines and financial services to telecommunications and software.

A good match

Observers say Chrysler and Daimler make a good match for the same reason the merger comes as such a surprise - their combined strengths offset their weaknesses.

Chrysler excels at vehicle design and ideas for products to satisfy consumer demand, from sport-utility vehicles to minivans to roadsters. And its major weakness is Daimler's strength - a reputation for uncompromising quality as well as the means to invest in continuing research and development to ensure that new products are ready to market.

With Chrysler and Daimler refusing to discuss details, most speculation now is about what won't happen.

You won't see Mercedes-Benz stores selling Dodge Neons alongside Mercedes C280 sedans, and you won't see Chrysler stores selling Mercedes 600SL roadsters alongside Chrysler Concordes. You won't see the Mercedes logo in the grille of a Plymouth Prowler, and you won't see the Chrysler Pentastar in the grille of a Mercedes ML430 sport-utility vehicle.

``This isn't about retailing,'' said Spinella. ``You aren't going to see Mercedes cars in Chrysler stores or Chrysler cars in Mercedes stores. Chrysler has the wrong clientele and its buyers are the wrong demographics for Mercedes.

``Besides, Chrysler has too many dealers now and is trying to trim the number down, and Mercedes has all the dealers it wants,'' he added.

What you might see

But you could see a Mercedes E420 sedan built alongside a Chrysler LHS sedan at Chrysler's assembly plant in Ontario, Canada, or a subcompact Mercedes A-Class sedan built next to a Dodge or Plymouth Neon in Belvidere, Ill., or a Mercedes C230 sedan rolling off the same line in Sterling Heights, Mich., as a Chrysler Cirrus or Dodge Stratus.

And someday you could see a pair of vehicles sharing a common platform, one carrying a Chrysler nameplate sold in the United States, another wearing the Mercedes badge and sold in Europe.

But whatever you see, you might not see anything real soon.

``Whatever materializes, you are talking years, not months,'' said David Healy, analyst with Burnham Securities, who warns that reaching a final agreement hinges on one vital factor: how to pull off a merger of two different management cultures, which could be a big obstacle.

David Cole, head of the office for the study of automotive transportation at the University of Michigan in Ann Arbor, agrees.

``Until we get some details, it's very unclear what this merger means and how it will unfold, other than it probably will be years before we see any actual integration of technologies,'' he said. ``I think the two companies will operate independently for a long time.''

For Daimler, a merger would mean access to Chrysler's unused production capacity. For Chrysler, a merger would end the painful plant closings when demand dipped.

More important to Chrysler, a merger would bring long-desired access to Europe. And for Daimler, it would mean expanded sales and production operations in North America, which is the world's biggest and most profitable market for cars.

Together, ChryslerDaimler would be the world's fifth-largest automaker, behind General Motors Corp., Ford Motor Co., Toyota Motor Corp. of Japan and Volkswagen AG of Germany.

Daimler had annual sales of $68.97 billion - about 75 percent of that from Mercedes-Benz sales - and about 1,000 dealerships around the world. It is about 22 percent owned by Deutsche Bank AG, Germany's biggest bank.

Chrysler, with 121,000 workers, is the low-cost carmaker of the United States.