Äðóãîå : Crisler Corporation. Senior thesis
Crisler Corporation. Senior thesis
Index
1.
History of
Chrysler Corporation
2.
History of
Daimler-Benz Corporation
3.
Short Summery of
Current Position of DaimlerChrysler
4.
Reasons for
Merger and New Opportunities
5.
Opportunities in
New Markets
6.
Decrease in Price
of Materials Bought from Suppliers
7.
Decrease in
R&D Expenses per Production Unit
8.
Confluence of
Technologies of Both Corporations
9.
Double Strength
of the New Corporation
10. Market Concerns
11. New Corporation
12. Achievements of the New Corporation
13. Survey of Recent Stock Performance
14. Comments on some of Financial Ratios
of the New Corporation
15. Government Concerned that…
16. Environmental Issues in the New
Corporation
17. Conclusion
History of Chrysler
Corporation
It would be
true to say that Chrysler Corporation was born long ago before the year 1925
(when it was officially established). It was started as a result of Walter P.
Chrysler’s efforts to create a car that would be affordable and competitive in
the market. The first car would incorporate four-wheel hydraulic brakes and a
high-compression six-cylinder engine.
In 1924, New York for the first time saw a car that
became the ancestor of all generations of Chrysler’s cars. It was the Chrysler
Six. The car was not allowed to be presented at the New York Automobile Show,
because it was not in production. But to put it in production Walter Chrysler
needed to raise external funds. Eventually he came up with a very inventive
idea—to park his car in front of the building in which the show took place.
Going to the show, exhibitors and investors had a chance to see the Chrysler
Six. Chrysler’s efforts led to success—a Chase Security Banker underwrote a
five million dollars issue of Maxwell Motor Corporation (the company of which
Walter Chrysler was a chairman) debenture bonds to finance future development.
In a year Walter Chrysler
purchased Maxwell Motor Corporation, renamed it to Chrysler Corporation and
became the only owner of it. The new company was growing very fast. By the end
of the year Chrysler Corporation had 3800 dealers in the United Stated alone. The
profit that year was about $17 million.
In 1934, the company
introduced Airflow to the market. This car was a result of engineer Carl
Breer’s and Orville Wright’s work. They had been working on a new generation
of cars with a teardrop front. Unfortunately this car did not match customers’
tastes. However the company recovered thanks to innovations like ball bearings
treated with Superfinish, a forerunner of the automatic transmission (fluid
Drive), and the color-coded “Safety-Signal” speedometer. The company continued
this success in 941, when it introduced the luxury-oriented Town & Country
wagon. This was the company’s first minivan with nine-passenger seating and
a rear hatch. Besides that, it was the first minivan with genuine wood exterior
panels. This model was in big demand.
On August 18, 1940, the
company was shaken by grief: Chrysler Corporation’s founder, Walter P.
Chrysler, passed away.
In 1955, Chrysler
Corporation debuted its “master piece”—Chrysler C-300. This car was the most
powerful full-size car in the world, and soon won twenty out of forty races
conducted in 1955.
Chrysler Corporation
played a big role in production for military service during World War II. The
company’s full capacity was directed toward production of tanks and 40mm
trailer-mounted anti aircraft guns. In total, Chrysler participated in
sixty-six military projects that were worth of more than 3.4 billion dollars
between 1940 and 1945.
With the beginning of the
era of space conquest, the Chrysler Corporation actively participated in the
construction of powerful engines used to launch astronauts into orbit. NASA
chose Chrysler to construct the Saturn 1 and Saturn 1B launch vehicles, which
were assembled at its plant in Louisiana.
In May of 1998, an event
took place that led to huge changes in the auto world. Two of the world’s most
profitable car manufacturers, Daimler-Benz and Chrysler Corporation, agreed to
combine their businesses in an equal merger.
History of
Daimler-Benz
On October 1, 1883, Karl Benz
started his own company, which was called Benz & Cie, Rheinishe Gas Motor
Enfabrik. Benz’s cars increased in popularity after he started to build
multiple cylinder engines with 16 horsepower, which increased the speed. The
sale of automobiles was increasing every year. In the single year of 1901,
Benz & Cie sold 2,702 vehicles. By that time, Benz was selling his
vehicles in France, England, Russia, United States, and Singapore. Two years
later at the age of 60, Karl decided to retire from the car business and the
company was taken over by his sons, Eugen and Richand. On April 4, 1929, at
the age of 84, Karl Benz passed away at his house at Ladenburg. At the present
time, Karl Benz is considered to be a pioneer in car building in Germany and worldwide.
In Germany, Benz is a history figure and often there are signs at Mercedes
dealerships, which say, “Father Benz."
During World War II both
companies, Benz & Cie and Daimler-Mototern-Gesellschaft, were ordered to
change their production lines for military purposes. Both companies stopped
making cars and began the production of Benz & Cie aircraft engines. DMG
was building the aircraft. 1916 was a dramatic increase the number of
employees in Benz and DMG factories. The number of workers of the Benz
factories increased from 7700 to 12,000 and DMG’s workers increased from 3750
to 16,000. When the war was over, thins became very difficult for the German
car builders. Many car-building companies had stopped production and had to
close down their factories. Both Benz and DMG were greatly affected by the war
and by 1924, the presidents of both companies signed a merger agreement,
“Agreement of Mutual Interest,” which made them into one company.
During this time, the Mercedes
model became very famous and recognizable around the world. Due to the
increased popularity of the model Mercedes, the new company was named
Mercedes-Benz. The name Daimler-Benz was used also. For the next decade, the
Mercedes-Benz dominated the German automobile market. Mercedes sales were much
higher than the other German car companies, such as BMW and Opel.
In the early 1930’s history
repeated itself with the rise of Adolph Hitler. The management of
Mercedes-Benz began gradually to lose control of the company. The new
government brought the vehicle under strict regulation. The whole German car
industry was taken over by the National Socialists. Hitler announced that the
production of German cars would be “drastically reduced” (Kimer, p. 276,
1986). In the mid 30’s the Mercedes-Benz factories were beginning to be used
for military purposes. This idea was given by Jakob Werlen, the former manager
of Mercedes–Benz, who later became Hitler’s personal advisor of
transportation. An interesting fact is that Hitler had many kinds of cars, but
whenever he was photographed in a vehicle, it was a Mercedes. One of Hitler’s
favorite models was his parade car, type 770, the “Grosser Mercedes” (Kimer,
p. 282, 1986).
Wilhelm Kissel was a general director of the
company in the mid and late 30’s. He tried to keep his company free from
government involvement, but this proved to be too difficult. By wartime, the
Mercedes-Benz factories were basically making military products. By the time
Hitler started the war with the U.S.S.R., Mercedes-Benz was making all kinds of
army equipment. The German army needed the best machines and Mercedes-Benz
factories were producing planes, trucks, tanks, and various kinds of engines.
The most famous Mercedes war product was a military plane called Msserschmitt.
This plane made the Luftwaffe the best airforce in the world. The Msserschmitt
was considered the best plane at that time; it had a Mercedes DB 600 engine,
which made this plane much faster than any other planes in the world (Kimer,
p. 283, 1986).
In 1945, after the end of the war, all of the
Daimler-Benz factories, much like the rest of Germany, were ruined. An
American reporter wrote about what he had observed in Germany right after the
war - “Cities were dead, factories idle bridges down, rails gone. Rubble was
everywhere” (Kimer, p. 283, 1986). World War II completely destroyed
Daimler-Benz, at one time the world’s largest automobile company.
It took more than three years to rebuild the
factories. However, many divisions of the company were lost because they ended
up in East Germany. At first the company was rebuilding U.S. army vehicles.
By 1949, over 6,000 cars had been built and the main focus of Mercedes-Benz was
again the production of luxury cars (Kimer, p. 290, 1986).
Within the next two years, the
company was completely rebuilt and the number of employees since the beginning
of the war was doubled. Now the number of workers was almost 40,000. By the
year 1952, Mercedes-Benz had built 100,000 cars and 250 in the United States.
In 1955, the new models 220, 300, and 300S were introduced in a Frankfort Auto
Show and the model 300S was named the car of the year. From that time,
Mercedes started to export more cars around the world. However, most of the
cars were sold in Germany (Consumer Guide, p. 32, 1986).
By 1960, the Mercedes was the
number one selling car in Germany, but at the same time, the BMW became a very
close competitor. Mercedes lost a large share of the market to BMW. This was
a time when the company started to look for new markets. The United States was
a promising market for the Mercedes. In the early 60’s the company increased
its sales to 50,000 cars sold in the U.S. (Consumer Guide, p. 46, 1986)
However, in the mid 60’s, the
sales went down. The new 190D four-cylinder diesel model did not sell well in
the U.S. and Europe. It took the company three years until it became one of
the leaders of the market. In 1970, Mercedes introduced three new models,
which they called the “New Generation.” The new models were 280S, 280SE, and
280SL. By that time, the Mercedes became the number one imported car in
England, France, Belgium, Holland, Switzerland, and Austria (Consumer Guide, p.
48, 1986).
Another reason why the Mercedes
became one of the most popular cars in the world was its participation in auto
racing. In the late 60’s, Mercedes cars participated in nine races and won
seven of them. After tremendous racing results, people around the world wanted
to purchase the C-111 model which would set up three new world records;
however, Mercedes would not make this available to the public for sale. The
company was receiving a thousand letters a day with offers buy the C-111 model
and in 1976 the similar model C111-11 was introduced at the Geneva Automobile
Show. The new model had tremendous power. It had 350 horsepower, and it could
get from zero to sixty mph in six seconds. Its top speed was 190 mph. Also,
the C111-11 Diesel set a new record in durability by running at a speed of 156
mph for 10,000 miles straight (Consumer Guide, p.55, 1986).
In 1982, the 190 series was one
of the best selling models in the world. The 190 model was a small sized car
which opened for Mercedes an entirely new market. In Germany, this model
became a best selling car in 1985. This was a very important establishment for
Daimler-Benz because the 190 model became the number one selling small car in
Germany, leaving the long-time leader, BMW, in second place (Consumer Guide, p.
64, 1986).
In the early 1990’s, the
Mercedes market share in the United States was greatly decreased. The reason
for this was that the Japanese car companies started to produce luxury cars.
For example, Toyota was manufacturing Lexus, Honda was manufacturing Acura, and
Nissan was manufacturing Infiniti. These cars today are becoming increasingly
popular among Americans. However, German management found a way to overcome
the competition by building a Mercedes factory in Alabama in 1994. Now, a
large share of Mercedes cars sold in the U.S. are produced by American labor.
Producing Mercedes in the U.S. has solved many problems for the company. Many
people in the U.S. have an opinion about buying American-made cars with the
purpose of supporting the American economy. The second problem was that tax on
imports was greatly reduced. The cost of a German laborer was 50% higher than
an American laborer in Alabama. By building cars in the United States, all
these problems were solved (Fortune, p. 150, 1997).
Similarly, Mercedes used the
same strategy in South America. It built a new plant in Brazil. This plant
decreased the prices of the cars and made the purchase of a Mercedes more
affordable for the South American region (Motor Trend, p. 123, 1997).
In the past five years the
demand for 4x4 vehicles has been increasing. Two years ago, Mercedes came up
with a new M-class jeep model. The price of the is jeep is around $34,000,
which is competitive with the American-made Chevy Blazer, Ford Explorer, and
Grand Jeep Cherokee. By making a jeep, Mercedes is keeping up with its
competitors for this share of the market. The new jeep is a success because it
was named the 4x4 truck of the year for 1998.
Short summary of current position of
DaimlerChrysler
Company ownership: European, U.S. and other
international investors own DaimlerChrysler; there are approximately one
billion shares outstanding. 65% is made up of European investors.
Global Stock: DCX ordinary shares are traded on the
New York and Frankfurt stock exchanges as well as nineteen other major stock
exchanges worldwide.
Group Headquarters: Stuttgart, Deutschland, and Auburn
Hills, Michigan, USA.
Chairmen: Robert J. Eaton and Jurgen
E. Schrempp
Management Board: Consists of fourteen members,
including the two chairmen and the heads of the operation and functional
divisions.
Supervisory Board: Consists of ten shareholders’
representatives and ten employees’ representatives. The Supervisory Board
appoints the Board of Management and approves major company decisions.
Market Capitalization: Currently about EUR 80 billion
(March 1999)
Investments: 1999-2001: EUR 46 billion to be
invested in the future of DaimlerChrysler
Automotive Sales: 4.5 million units in 1998 (Passenger
Cars and Commercial Vehicles)
Employees: 466,900 at the end of 1999
Manufacturing Facilities: in 34 countries.
Global Brands: Mercedes-Benz, Chrysler, Plymouth,
Jeep, Dodge, Smart, Freightliner, Sterling, Setra, Airbus, Eurocopter, Ariane, Debis
and others.
Product sold: More than 200 countries
Official Language: English
Financial Reporting: US-GAAP accounting with earnings
reported quarterly.
Reasons
for merging and new opportunities.
In
1998, at the Detroit Auto Show, the idea of cooperation of Daimler-Benz and
Chrysler Corporation was born. Schrempp, Chairman of Daimler-Benz and Eaton,
chairman of Chrysler Corporation, began negotiations about possible combination
of two large automobile manufacturers. “We are leading a new trend we believe
will change the future, the face of the industry,” Eaton said five months later
when the deal was announced.
The two
chairmen acknowledged that the merger would not be easy. Their own study of
transnational mergers suggested that 70 percent failed to achieve the kind of
success that had been anticipated.
As a
result of the long series of negotiations, a new company named Daimler-Chrysler
was established. The company would manufacture not only cars, but commercial
trucks, trains and rockets as well.
The
goal of the merger was to create a company that would be able to stand better
against other world leading car producers like General Motors, Ford, Nissan,
Volkswagen, Toyota and so forth.
With
the creation of a new company, both of the old components were going to
benefit from the following:
·
Decreased R&D expenses per production unit
·
Confluence of technologies of both firms
·
Double strength in total
·
Opportunities in new markets
·
Decrease in price of materials bought from suppliers
Opportunities
in new markets
Both Chrysler Corporation
and Daimler-Benz operate in quite saturated markets (in terms of their current
products). In order for them to grow, they will have to carry on those
overseas markets, which means development of products in accordance with
preferences of the new markets.
Developing new products
for a different market segment or establishing an additional brand might have
implications for the positioning of the existing product range. Penetration
into completely new market segments for both companies would involve both high
costs (new offices, stores, and advertisement programs) and substantial risks
for the companies.
Another method for
successful penetration and establishment in new markets is co-operation with
another manufacturer who already has a successful brand and products in place
in the segments where it is represented. In this way, the existing product
portfolio could be broadened without any risk to each company’s brand identity
and its associations of exclusiveness.
Daimler-Benz is
well-known and recognized in Europe and USA for its high-quality cars and has
firm customers; however, the opportunities are limited. The newly
industrializing countries in Latin America and Asia, on the other hand, offer
good prospects for growth—starting from a low level—to the premium products
segment. To penetrate these fast-growing markets on any scale, however, it
would be necessary to launch new, low-priced products, possibly combined with
the creation of a new brand name. The new direction will certainly require new
funds and the company might not be able to handle this hard task alone.
Another possible problem of penetrating the new markets in Latin America and
Asia is, was the establishment of new offices, stores, research of new customer’s’
tastes, and advertisement. To cope with this obstacle to its success,
DaimlerChrysler seeks companies in those areas for possible merger, like
Daywoo, Mitsubisi and so forth.
Chrysler has not
penetrated the European market very deeply. It certainly will be a good
opportunity for Chrysler Corporation to start cooperation with Daimler-Benz in
order to penetrate the European market without additional costs for opening its
offices and stores.
At the same time,
Chrysler has very a good market in North America and can facilitate
Daimler-Benz’s deep penetration into that market with a new program of minivan
production.
Decrease in Price of Materials Bought from Suppliers
One major benefit of the
merger is that both companies can save lots of money on external purchases.
First, saving will take place in purchasing raw materials from suppliers.
Before the merger, both companies had to buy from supplier separately. Everyone
knows this law of the market: “the more you buy, the less you have to pay.”
Now the companies purchase everything together and the quantity of one batch is
doubled, this bad led to significant decrease in price on per-unit basis. For
example, DaimlerChrysler already saved $1.4 billions in 1998. In turn,
decreases in price for raw materials will provide lower prices for the cars in
total and increase compatibility of the new company.
Decrease in R&D expenses per production unit
Another positive aspect
of the merger is that both of the companies can combine their efforts in
researching and developing new products. Before the merger each of the
companies had to conduct research for itself and these costs were spread on per
unit basis among all products. Now these costs are spread on a significantly
larger quantity of products, which allows decreasing costs of the research and
development per every production unit. In addition, intellectual powers of
both companies will now work for one huge company—DaimlerChrysler. This factor
will bring new, combined ideas into the new company.
Facts:
“On April 17, 2000,
DaimlerChrysler announced a new Virtual Reality Center in Sindelfingen,
Germany. The Company estimates the new facility will reduce costs of making
Mercedes-Benz prototype models by up to twenty percent a shorten product
development times while improving quality.”
Confluence of Technologies of Both Corporations
Both of the companies
have their own advantages, in terms of technological development. Now, when
all these advantages represent one solid company, the new company has more
chances for surviving in the car manufacturing industry. The following are
evidences of recent innovations in DaimlerChrysler.
“DaimlerChrysler
researchers in Ulm, Germany, have developed an infrared-laser night vision
system that significantly increases a driver’s visibility at night. The system
allows drivers to recognize darkly clothed pedestrians and cyclists even at
great distances. It also illuminates the road ahead over a distance of around
500 feet without blinding the drivers of oncoming vehicles.
The system functions as
follows: two laser headlights on the vehicle’s front end illuminate the road by
means of infrared light that is invisible to the human eye. A video camera
records the reflected image, which then appears in black and white on a screen
located directly in the drivers’ field of vision, or else as a so-called
head-up display on the windshield.”(Auburn Hills, April 5, 2000)
Double Strength of New Corporation
One of the factors that
investors are looking for before making their investment decision is a
company’s overall stability. Usually the large corporations are considered to
be stronger than small ones.
The new size of
DaimlerChrysler might lead to more stability, which in turn could mean lower
rates of return required by investors. It might be one of the new savings
aspects of the company.
Market
concerns
The
automotive industry has seen increased global consolidation over the past two
years, The New York Times reported. According to industry analysts, the
consolidation is fueled by three major trends: brands growing in importance,
manufacturers forging into difficult markets, and rising costs of technology.
While many industry experts see the consolidation as inevitable and
strategically beneficial, some analysts warn excessive consolidation could lead
to diminishing choices and higher prices for consumers.
The
Daimler-Chrysler merger is one of the few examples when the merger benefits the
competitiveness of the market. Chrysler Corporation manufactures lower-range
trucks, minivans, and sport utilities, when Daimler-Benz majors in high-priced
vehicles. No significant overlap in production will take place. Since both of
the companies specialize in different areas, neither of them will have to give
up on some of their production. “There was no real overlap in products –they
filled in each other’s blank spaces” said David Cole, the head of the
University of Michigan’s Office for the Study of Automotive Transportation. In
turn, this meant that there will be no decrease in competition in the market
place, which is one of the main concerns of the Federal Trade Commission when a
merger takes place. (In a horizontal merger, the acquisition of a competitor
could increase market concentration and increase the likelihood of collusion.
The elimination of head-to-head competition between two leading firms may
result in unilateral anticompetitive effects).
Another concern of The Federal Trade Commission and European Commission is the
possibility of monopolization of the market. The automobile market is very
large and diversified. For example, July 1999 car sales in the USA for the
three largest companies are as shown on the graph:
Even
after the merger, Daimler-Chrysler is not capable of keeping such a huge market
under control. As one can see on the above chart, Daimler-Chrysler (243420
vehicles) is on the third place in production after General Motors (422029
vehicles) and Ford Motor Co. (355765 vehicles).
In the
case of Chrysler Corporation and Daimler-Benz, the hazard of competition
decrease does not exist, because the companies produce different types of
cars. There would be a decrease of competition if after the merger, one of the
companies would have to give up some of its production plans and eventually
consumers would be hurt. Instead, it will just intensify competition in the car
manufacturing world. On July 24 and July 31 of 1998, the European Commission
and the Federal Trade Commission, respectively, approved the merger of Chrysler
and Daimler-Benz Corporation, and appearance of Daimler-Chrysler. This merger
is classified as a “horizontal merger.”
In
order to become the largest car-producing corporation in the world,
Daimler-Chrysler has to acquire or merger with some other companies, and this
is in fact, what Daimler-Chrysler is looking at right now. On March 10, 1999,
Daimler-Chrysler broke off talks about buying a stake in Nissan Motor of Japan,
but it has not given up. On March 22, 1999, Schrempp held negotiations with
Japan’s Mitsubishi Motors about a possible merger. As it can be seen, the new
corporation very actively looks for partners in Asia, but the question that
might rise soon will be whether the next merger will be approved by the Federal
Trade Commission.
Another
fact that might alert the US government is that on February 25, 2000, General
Motors Corporation, Ford Motor Corp. and DaimlerChrysler jointly announced
that they are planning to combine their efforts to form a business-to-business
integrated supplier exchange through a single global portal. Some view this
fact as a slow movement towards market monopolization.
Facts:
German-American automaker DaimlerChryslter agreed
on March 27, 2000, to buy a controlling 34% stake in Japan’ Mitsubishi Motors
Corp. for 2.1 billion, extending its international reach.
The agreement gives DaimlerChrysler access to the Asian
market and small-car expertise of Mitsubishi, Japan’s fourth-largest
automaker. Carmakers are increasingly seeking cross-border alliances as
overcapacity prompts them to cut costs through the sharing of parts and vehicle
platforms with manufacturers in a range of markets.
DaimlerChrysler’s deal excludes Mitsubishi’s trucks division,
which has an alliance with Sweden’s AB Volvo. Together DaimlerChrysler and Mitsubishi
will have a combined market share of about 10.8% in Japan and 9.4% in other
parts of the Asia-Pacific region. Daimler’s purchase gives it the right to
veto board-level decisions at Mitsubishi.”[i]
New Corporation
Daimler-Chrysler provides
a variety of transportation products and financial and other services. It
operates seven business segments: passenger cars and trucks (Chrysler,
Plymouth, Jeep, Dodge; 43% of 1998 sales), passenger cars (Mercedes-Benz,
Smart; 23%), commercial vehicles (Mercedes-Benz, Freightliner, Sterling, Setra;
17%), aerospace (7%), services (6%), Chrysler financial services (2%), and
other (2%).
Daimler-Chrysler
Corporation is primarily active in Europe, North and South America and Japan
and is continuing to expand in markets such as Eastern Europe and East and
Southeast Asia (intensive negotiations with Asian companies are obvious
evidences of that).
Another aspect of
penetrating new markets is that developing new products, opening new stores and
offices, hiring managers, and training stuff requires a lot of funds. There
are two ways of raising these funds: internal and external. Internal funds
come from Retained Earnings. External funds come from loans, bonds, issuance
of common stock and other sources. The merger would increase the amount of
money in Retained Earnings that could be used in an expansion program. Through
the pooling of resources, DaimlerChrysler will be excellently placed to develop
and introduce new products even more quickly into the markets, thus gaining an
edge over competitors.
Achievements of the New Corporation
“DaimlerChrysler
AG today reported a record operating profit of EUR 11.0/$11.1 billion in 1999,
the company’s first full year of operations. This is an increase of 28%
compared to the 1998 figure of EUR 8.6/$8.7 billion. Adjusted for one-time
effects, principally the sale of debitel shares and restructuring expenses at
Adtranz, operating profit grew by 20% to EUR 10.3/$10.4 billion. Operating
profit thus outpaced revenues which rose by 14% to a record EUR 150.0/$151.0
billion.”
Recently, the German financial magazine “Capital”
conducted a survey on the provision of shareholders’ information on the
Internet. The overall winner was DaimlerChrysler, which was recognized as the
best provider of company information on the Internet.
Survey of recent stock performance
Immediately after the merger, the stock price of the new company went up
very drastically. The reason for this is that investors strongly believe in
the future success of DaimlerChrysler.
Currently, the stock
price is down. This fact can be explained by the general performance of the
market, which is experiencing very sudden slumps. Many huge companies do not
trade at all out of fear of prices drop. Below is the chart of stock price
performance of the DaimlerChrysler since the merger.
Below is a valuation of DaimlerChrysler by analysts at Standard &
Poor’s.
“DCX has fallen sharply
from its early 1999 peak. The automotive sector has been out of investor favor
for some time, with DaimlerChrysler contributing to the negative sentiment with
its much lower than expected earnings in the second quarter. Despite DCX’s
attempt to portray the divergence from expectations as mostly accounting and
temporary items, the honeymoon for investors and DaimlerChrysler is clearly
over. DaimlerChrysler has a strong balance sheet, with significant cash
reserves available for the next industry downturn, as well as for strategic
investments and alliances. With strong sales through September, we expect 1999
domestic automotive volume, led by minivans and sport utility vehicles, DCX
strengths, to reach a record. Still, given negative investor sentiment and
uncertainty in the company’s ability to meet financial objectives, despite a strong
third quarter, we would not add to positions.”[ii]
Comments
on some of the Financial Ratios of the New Corporation
As the ratios reveals new
corporation by some of the ratios overcome industry average. Valuation ratios
show us DaimlerChrysler is in better standing in comparison with the industry.
Dividends payout ratio proves that the company pays more dividends than
average, but I think it is not what investors expected and this lead to a drop
in price of the stock.
Financial strength of the
company in terms of LT Debt to Equity and Total Debt to Equity ratios is almost
twice stronger than the average in the industry. Low return on
Equity ratio might be explained by the fact that the company keeps a lot of
cash for the purpose of new investment. In general, the company shows strong
figures and this view is supported by Standards & Poor’s specialists’
statement. “DaimlerChrysler has a strong balance sheet, with significant cash
reserves available for the next industry downturn, as well as for strategic
investments and alliances.”[iii]
Government
Concerned that...
One of the problems that
can arise for the economies of the US and Germany is downsizing of some of the
departments. For example, one company does not need two raw material purchase
departments. In this case, the new company will need both of its departments
because of different languages. The new company will provide more job
opportunities for both countries. There are two reasons why this might be so:
1) Expansion plans will require more
people to be hired for the new company
2) Because of different languages,
much of the documentation has to be translated back and forth.
This figure shows
expansion so far:
Since both companies are
introduced to new markets and new opportunities, they will have to increase
their production capacities in order to meet demand in the new market. This
factor will require more labor ( as can be seen from the above graph), so more
people will be hired. Government does its best to support companies that can
provide more employment opportunities for the population, because this
contributes to the solution to the unemployment problem. Simultaneously, with
the increase of labor involved in the production process, there will be an
increase in gross domestic product.
Environmental Issues in the New Corporation
Protection of the
surrounding environment and conserving the natural foundations of life should
be one of the main concerns of every company and every human being on the
Earth. Due to lack of attention to these issues the current environment
conditions of the earth have changed dramatically for the worse.
DaimlerChrysler is one of
the world corporations that pays a great deal of attention to environmental
issues. Its management clearly understands the importance of these issues in
the long run. The following facts speak up for themselves:
“DaimlerChrysler
and the European Nature Heritage Fund (Euronatur) presented an upbeat review of
ten years of environmental cooperation at a press conference in Berlin today.
"The concerted efforts of DaimlerChrysler and Euronatur have decisively
moved forward environmental protection and habitat security in important large
natural landscapes," a joint statement said.[iv]
“On March 29, 2000,
DaimlerChrysler’s manufacturing facility in Toluca, Mexico, introduced to
production a new wastewater recycling facility. The recycling facility will
conserve precious water resources and reduce the potential for pollution by
totally recycling all of the water used in the plant.”
In 1998, DaimlerChrysler
spent $1.3 billion on environmental protection, according to the company’s
Annual Environmental Report. Most of this amount (about $813 million) was
spent on research and development activities on green products and
manufacturing processes.[v]
Conclusion
There
is only one thing can be said about the future of the new company—it is
unclear. As one can see throughout the research, firstly after the merger
investors strongly believed in the future of DaimlerChrysler, and as a result
of that the stock price soared high. Recently the stock price has dropped
significantly, but some believe that it is because entire market experiences
slumps. As seen on the prior chart of the stock performance, DaimlerChrysler’s
stock price lost 1/3 of its value. Another reason why the stock price slumps
is that estimated earnings did not match actual ones. As a December 1999,
difference in estimated and actual earning was ($0.64).[vi]
One
of the positive aspects of the merger is intensified competition in the
auto-production industry. The new company is far from monopolist size in this
very giant market. General Motors and Ford Corporation are still main
competitors of DaimlerChrysler.
Bibliography
[i] London CNN, #"#_ednref2"
name="_edn2" title="">[ii] Standard & Poors, Stock Report,
March 4, 2000
[iii] Standard & Poors, Stock Report,
March 4, 2000
[iv] www.daimlerchrysler.com
[v] www.daimlerchrysler.com
[vi] Yahoo Finance, Market Guide—Multex
Earnings Estimates for DaimlerChrysler AG
Indirect sources
1. World Motor Vehicle Data, American
Automobile Manufacturers Association, 1998
2. www.yahoofinance.com,
Market Guide—Comparisons for DaimlerChrysler AG
3. “The Causes and consequences of
antitrust”; the public-choice perspective; Fred S.McChesney, William F.Shughart
II; University of Chicago Press, 1995.
4. “The corporate merger”; William W.
Alberts & Joel E. Segall; University of Chicago Press, 1966
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