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Auto's odd couple
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May 7, 1998: 5:55 p.m. ET
Schrempp and Eaton discuss company culture, cost and consolidation
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NEW YORK (CNNfn) - The two key players in what promises to be the largest industrial merger ever spoke with CNNfn's Lou Dobbs Thursday.
Juergen Schrempp and Robert Eaton, the chief executives of Daimler-Benz AG and Chrysler Corp. respectively, spoke about their companies' newly announced merger, the cultural adjustments both sides will need to make and the trend toward consolidation in the auto industry. Following is a partial transcript of their conversation:
LOU DOBBS, CNNfn CORRESPONDENT: Let me start with you, Juergen, if I may. Wall Street analysts applaud the fit between Chrysler and Mercedes-Benz but at the same time are raising some questions about the price that you're paying. No concerns that it's too high?
JUERGEN SCHREMPP, CEO, DAIMLER-BENZ: No, not at all. We have a fixed exchange ratio on the . . . I think it was the 15th of April . . . on the basis. We take into account the P/E ratio of Chrysler and of Daimler-Benz and obviously also the cash flow and net-profit situation. I think it works out perfectly, because, you know, you don't do that in the United States, but you can do a cross-check on that one if you do a discount to cash-flow calculation, if you come about through the same ratio. So, I think it's fair--and what was important for us, it must be fair to both shareholders, Chrysler and Daimler-Benz shareholders.
DOBBS: Bob, at this point, I know your largest shareholder, Kirk Kerkorian, has to be delighted. I have to wonder about you as co-CEO for three years. Why that decision?
ROBERT EATON, CEO, CHRYSLER: Well, we recognize that it was absolutely critical to have the two of us to bring the cultures together to, to get the synergies and so forth. But we also recognize that long- term, that is not a good structure to run a company. And we talked about how that ought to work and I volunteered that at the end of three years, I would step down.
DOBBS: Now, long-term these days, Bob, Juergen, as both of you know better than most, three years can be long-term in this global competitive environment. How do you expect it to work over three years?
SCHREMPP: You know, I tell you, cultures. We have to create really this great company, DaimlerChrysler. So, I think we will be very busy for three years and there will be no possibility to put your mind on anything else. If we are in three years really there--what we anticipate--I think the two of us have done a great job and then obviously I envy Bob that he steps down.
DOBBS: One of the great concerns, obviously, and one of the things that you must have spent some considerable time laboring over is the relationship of your two organized- labor work forces. How will that work?
EATON: Well, obviously they're going to continue to be valued employees of the new company. And the initial reaction on both sides of the Atlantic, they obviously have questions. But, I think they're generally enthusiastic about this new company.
DOBBS: Now, will that enthusiasm extend to a parity amongst your organized labor in the United States vis-…-vis your labor force in Germany.
EATON: Well, no, obviously you continue to be competitive in every country that you're in, whether it be Germany, the U.S. or South America, or Asia.
DOBBS: If we look at the most recent attempted alliances, mergers, transatlantic deals, gentlemen-Bertelsmann-Random House, American-British Air, British Telecom-MCI--the results have not been happy. What is there in any of the experience of those deals--in particular, the most recent deals--that you would fall upon for guidance in your deal?
SCHREMPP: I think I would like to assess what might happen there, but when you look at the situation of Chrysler and Daimler-Benz, you see actually a perfect fit. Perfect fit as far as the product range is concerned. And secondly, also a geographic fit as far as their activity in the U.S. and our activities in Europe are concerned. So, I think we have a very good basis that the merger will work. Secondly, we have had some experience. In '95, we were already talking for a few months on whether we can work together. For some reason it failed. We started again seriously in January. So, we've been together for four months. We have been able to resolve the most complex issues together. So, you know, somebody told me that they have never seen an announcement of a merger where so many details have been agreed on already. So, I think we have a good chance that this merger is working well.
DOBBS: Both of you--Juergen, Bob--you mentioned that you think you're going to change the landscape of the automobile business. In point of fact, that's happening. We've just received word that Volkswagen, not BMW, has succeeded in its bid for Rolls-Royce. Now, what do you expect to come next from your competitors? You created what you describe as a perfect fit, what many analysts agree with you is an extremely good fit. What do your competitors do? What do you anticipate? And what will you do next?
EATON: Well, Lou, as you know, there's been reports of talks going on between virtually all of the auto companies around the world. I don't think it's fair of us to start guessing here on what might happen. But we are convinced, as we have been convinced for a long time, that there really will be a consolidation and ultimately, in 10 or 20 years we'll be down to eight, nine, 10 manufacturers versus the 18 or 19 that's out there now. So, I think there will continue to be activity. As you say, it's happening even today with Volkswagen.
SCHREMPP: You know what the most important point is: we have to indicate the studies in the industry. In fact, there's agreement among the chief executives of the various companies that the consolidation process will continue. We have about 18 now. In 10 years, you might have eight or 10. What is important for us, one is now for certain, this is DaimlerChrysler.
DOBBS: Gentlemen, to make DaimlerChrysler a reality, your forecast is that it will take to the end of the year. What do you anticipate to be the biggest hurdles for you to overcome? Will it be regulators in the United States? Germany? What?
EATON: No, Lou, we're hoping to close in September, at the latest, October. Clearly, we've got to go through registration. We have to go through the SEC process, and all of the other agencies. But we have done a lot of pre-work in those areas and we think they will go quite smoothly. Ultimately, we obviously have to go to our shareholders and they will ultimately determine if in fact this merger will occur. But all indications are from our large shareholders as well as the reaction in the marketplace, we really don't have any doubt that it will in fact occur. 
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Chrysler
Daimler-Benz
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