What Chrysler can do for Daimler - Column

Automotive Industries, July, 1998 by Jim Harbour

Daimler-Benz has pulled off one of the biggest coups in auto industry history -- its acquisition of the Chrysler Corporation, the smallest of the Big Three North American automakers. Chrysler, which sold over 2.85 million cars and trucks in 1997, will be absorbed by Mercedes which sold just 38% of Chrysler's volume.

This acquisition -- which both companies call a merger -- brings together several world-renowned brand names including Mercedes, Jeep, Dodge Truck and Chrysler. It also includes one huge product, the Chrysler minivan -- the worldwide volume of which is only slightly less than Mercedes' total passenger car sales.

It is doubtful that any Chrysler products will immediately show up in Mercedes car dealerships worldwide or vice-versa. There are some great opportunities, however, such as a Chrysler minivan and/or some extension of the Jeep brand for Mercedes. Chrysler, however, has scant unused capacity, so expansion is needed for any significant added vehicle production.

Harbour and Associates took a deep look at the individual results of each corporation for the 1997 calendar year, to see how their separate accomplishments compared:

The analysis reveals that the average Daimler-Benz sales prices for its luxury cars are more than double Chrysler's average sales prices per vehicle. Yet for its luxury passenger cars, Daimler has an operating profit of $2,460, or 5.8% -- exactly the same percentage as Chrysler's. Looking back, however, Chrysler had a 1996 per-vehicle operating profit of 8.6%.

Perhaps the most astonishing fact is that Chrysler's R&D costs, the industry's lowest at only $590 per vehicle, are only one-fourth of Daimler's. That's because the American company relies heavily on suppliers for product engineering as well as the product.

Productivity differs wildly between these two automakers. In our analysis, we assumed the German employees worked 35 hours per week, 48 weeks per year, for a total of 1,680 hours annually. This compares to Chrysler's employees, who work 40 hours per week, 48 weeks per year. Daimler-Benz's 92,000 autoworkers build 715,000 passenger vehicles each year, so its approximate total hours-per-car is 216. Chrysler averages just 75 hours per car -- 65% less time than Daintier.

In effect, each Daimler worker produces 7.8 cars per year, while each Chrysler worker makes 26 -- a huge disparity. Granted, there may be inhouse sourcing differences, but Chrysler does assemble all of its vehicles and produces all of its automatic transmissions, all but two of its engines, and most of its body stampings.

So what can Chrysler do for Daimler-Benz? Chrysler has the most productive, and leanest product and process development system of any automaker. Daimler, which will manage the new company's R&D, might well study file attributes of Chrysler's system. Chrysler also has an efficient supplier enterprise system that produces low-cost components coupled with select design and product development.

Daimler-Benz's low productivity is not due to the fact that it is mainly a luxury car maker. Lincoln and Cadillac prove that luxury cars can be made productively. Chrysler's manufacturing leadership can provide Daimler with some critical insight on "doing it right the first time," using substantially fewer hours per vehicle.

Acquisition or merger? It doesn't matter. In three years, Chrysler will be managed from Stuttgart.

                                   DAIMLER         CHRYSLER
                                   BENZ(*)          CORP.

Annual Volume (x100)                   715           2,886
Sales Revenue/Vehicle              $42,300         $19,730
Operating Profit/Vehicle            $2,460          $1,140
R&D Costs/Vehicle                   $2,430            $590
Productivity:
  Vehicles/worker/year                 7.8            25.8
  Hours/vehicle                        216              75

At 1.780DM/$1.00 (*)Includes Only

Jim Harbour is a manufacturing consultant with Harbour and Assoc. in Troy, Mich.