Worldwide Fender Blender

By Frank Gibney Jr./Stuttgart

There are lots of details that can strangle a $48 billion merger--different accounting practices, the need to rationalize information technology, patent ownerships--and Tom Stallkamp thought he'd worked through them all. As president of Chrysler, he had helped orchestrate the American company's merger with Germany's Daimler-Benz. But last November, as the new outfit, DaimlerChrysler, approached the date it would debut on the New York Stock Exchange, the whole thing stalled seemingly over whether the company would use American- or European-size business cards. The more tradition-bound Germans dug in their heels, not surprisingly. But the more flexible Yanks wouldn't budge either. "It got all the way up to me, and I said, 'What the hell, they're only business cards,'" Stallkamp recounts--and he chose the slightly wider European style, for novelty's sake.

By now the novelty has worn off--and with it the notion that DaimlerChrysler was a merger of equals. Just a year ago, the CEOs of Daimler-Benz and Chrysler Corp.--Jurgen Schrempp and Bob Eaton, respectively--made the surprise announcement that their two companies were going to combine. But Eaton, the executive who presided over Chrysler's transformation into America's hottest car company, ceded too much authority too early, giving the Germans an advantage in the high-stakes game of musical chairs that happens when two huge corporations marry.

It's no surprise that Schrempp is running the show. What is surprising is the way in which he is putting the two organizations together: forcing head-on confrontations, with the survivors left to run the company. "Most mergers have this deadly wish for harmony," says Schrempp. "We put the tough issues up front."

This deal probably means a lot more to the world than money and ego. The largest industrial merger in history is a test of whether globalization can really bring together the leading capitalists of Europe and the U.S. Can fastidious Germans join with freewheeling Americans and teach the Japanese a lesson or two? Although only the world's fourth largest carmaker, DaimlerChrysler's $95 billion market capitalization looms over General Motors, and the company is sitting on $22 billion in cash. Its 440,000 employees make everything from cars and trucks to Airbuses, trains and ocean-liner engines.

Schrempp knows this is risky, because mergers often fail, and big ones fail more often. So DaimlerChrysler is dancing a transoceanic jitterbug that is testing the limits of corporate convention. German and American bosses are fusing their cultures on napkins in airport lounges and in the conference rooms of five-star hotels. The transatlantic traffic became so heavy that DaimlerChrysler, which owns 20% of Airbus, bought an A320 and outfitted it like an NBA charter so its executives could get some sleep between meetings. The 53-seat plane (an A320 normally has 150 seats) flies four weekly round trips between Stuttgart, Germany, and Auburn Hills, Mich.

All that jetlagged jawboning in the wrong language is taking its toll on top managers. The stress has already led to some marital de-mergers, including Schrempp's. The chain-smoking CEO is so determined to make DaimlerChrysler the world's No. 1 transportation-services company that he let his 35-year marriage collapse, because, as he told the German tabloid Bild last month, "the merger means more to me than anything in the world."

Despite the odds, and the human costs, the whole thing just might work. Bolstered by a sizzling auto market in the U.S., the new company is raking in profits even as its executives redefine the boundaries of their businesses. At New York City's tony Le Cirque 2000 two weeks ago, Stallkamp and a chorus line of executives trotted out their achievements: more than $1.4 billion in savings, a healthy stock price of $94 and 34 new products already on the drawing boards. "Nobody's done this before," crooned Stallkamp. "But we're feeling pretty good about where we are so far."

Ironically, all this came about because two companies just...needed each other. Schrempp, the tough-talking 54-year-old iconoclast who became Daimler-Benz chairman in 1995, had already slashed the company's divisions from 35 to 25--taking tens of thousands of jobs along the way. It was an outrageous move in a country where labor rules. Schrempp wanted a new empire that would no longer depend on luxury cars, which were becoming prohibitively expensive to produce.

Eaton was worried that in 10 years only six of the current 30 automakers would be around. Although Chrysler was hugely successful, he feared it would never have the financial muscle to best Ford and GM. That's why Schrempp needed a mere 17 min. around a coffee table in suburban Detroit in January 1998 to convince Eaton that a combination was a good idea.

Yet in his enthusiasm for the deal, Eaton acceded to an acquisition of Chrysler by Daimler-Benz. And over months of secret talks, Chrysler's leverage was whittled away. Although Chrysler was more profitable, Daimler-Benz was bigger. Although the Americans wanted the new company to be based in the U.S., German law made it impractical and expensive. Inevitably, a German-registered company was going to be dominated by German managers, and it is. When it came to money, though, Eaton won a handsome premium for Chrysler shareholders (and top Chrysler executives) in a head-to-head negotiation with Schrempp. And in a symbolic win, he persuaded Schrempp to crop the "Benz," thus the name DaimlerChrysler.

The deal was cast publicly as a "merger of equals" because neither Eaton nor Schrempp wanted to use the word acquisition. Schrempp feared it would touch off a xenophobic outcry in Washington. Eaton did not want to seem as if he'd just sold out. But Eaton blundered. He announced last May that he would step down as co-chairman within three years and turn the company over to Schrempp. Stallkamp, sensing what the consequences might be, pleaded with him not to say it, but Eaton wasn't swayed. "I believed strongly there should not be two CEOs," he explains. "But I probably made a mistake in saying I would leave."

Eaton, now a lame duck, had basically surrendered Chrysler's power base. As Stallkamp had feared, the announcement undercut the Americans' influence with the Germans. He "abdicated," in the words of a DaimlerChrysler official. At a top-management seminar in Seville, Spain, last December, Eaton delivered a passionate speech on the new company and how its leaders had to band together to make it work. The oration left even Schrempp uncharacteristically at a loss for words. But by February the Germans were referring derisively to the speech as "Eaton's farewell."

From the start, the culture gap made DaimlerChrysler's post-marriage period of adjustment more difficult than that of any other merger around. When Stallkamp and two other Chrysler execs named Tom were introduced to their German counterparts, who by custom all use the title Doctor, Stallkamp broke the ice. "Titles are important in America too," he said. "'Tom' is the title you get when you have an M.B.A."

The Germans' laughter belied their misgivings. Many Daimler-Benz executives initially viewed Chrysler as a primped-up matron would regard an earnest young suitor. Chrysler marketing chief Jim Holden recalls his first meeting at the Mercedes-Benz U.S. headquarters in Montvale, N.J. As the Germans presented their view of the brand hierarchy--Mercedes on top and everything else far, far below--the tension in the room was palpable. Says Holden: "We felt like we were marrying up, and it was clear they thought they were marrying down."

From the outset, the German obsession with planning has kept everyone on edge. No sooner was the merger announced last May than Schrempp's phalanx of strategic thinkers began issuing reams of organizational flow charts. Every phase was delineated with titles like "synergy tracking"; every group had its weekly meeting schedule, from last year until 2001, when the integration is to be complete. The process is directed by Rudiger Grube, the tireless tactician who helped Schrempp restructure Daimler-Benz.

For Grube, the company's best measure of success is whether his schedules are being met. He set up a "post-merger integration" (PMI) structure in which 12 "issue-resolution teams" are assigned to push and cajole their counterparts into combining everything from supplies to research. Every time there is disagreement, the integration process for that group is halted until a solution is found. Progress is tracked in the "war room," a nondescript office down a dark second-floor corridor in Daimler's imposing brown headquarters in Stuttgart.

The Chrysler culture that evolved in the '90s--a creative collection of industry renegades held in check by Eaton--was spectacularly unsuited for this European model of management. Eaton shaped a team of hotshots led by product wizards Bob Lutz and Francois Castaing. In addition to inventing the minivan and sport-utility vehicle, categories that are such profit machines today, Chrysler's designers proved with models like the Viper and the Prowler that cars don't have to be boring.

By 1997 Chrysler had become a world leader in low-cost, high-volume auto production. Purchasing arrangements had been revamped so that suppliers took on as much as 70% of the cost and manufacturing responsibility for new cars--a success that prompted the Harvard Business Review to describe Chrysler and its suppliers as an "American keiretsu," a reference to Japan's synergistic business groups.

Chrysler managers thrived on spotting opportunities and going for them, if necessary chucking previous plans as if they were gum wrappers. And here they were, trapped in Stuttgart's planning hell, bristling at constantly being reminded what to do. A top manager coined the phrase "I'm having a bad PMI day." Steve Harris, Chrysler's former communications chief who defected to General Motors in February, says the Germans played literally by the book--theirs. "You'd go into a meeting and have to turn to Volume 7, Section 42, page 597," he recalls. "The Germans pride themselves on analytical research that produces a plan, while the American way is to try for the impossible and keep coming up with new ideas to make it happen."

At the Seville conference, American managers politely wondered out loud whether they were wasting time reporting to Grube's PMI teams. Schrempp's response was less than polite. "What?" he barked at one point, gesturing so hard his momentum nearly carried him off the podium. "You have a problem, you call me and we fix it." Schrempp has been convinced all along that unless one side took the initiative, the union would fail. "I must have studied 50 mergers," says Schrempp. "And I learned that to avoid others' mistakes the only answer is speed, speed, speed."

Speed kills careers. In the scrimmage between Germans and Americans for jobs, Schrempp lost his top legal counsel, a senior manufacturing executive and a handful of others. Dennis Pawley, the man who revolutionized Chrysler's manufacturing operations, retired as he had planned--even though Schrempp tried several times to change Pawley's mind. In February and March a series of top Chrysler executives defected to Ford and General Motors. Although company officials have downplayed the departures, they hurt; all were part of the winning team.

In effect, Schrempp may have saved Chrysler. Even before the merger, Lutz and Castaing had resigned, and the camaraderie was fading. "We were in a transition that would have continued, in part because of Bob's age," concedes Stallkamp. "[The merger] gave us a very strong leader and solved the problem sooner rather than later."

Cynics abound, especially in Germany, where Daimler-Benz had to take a huge write-off because of Schrempp's disastrous acquisition of Fokker, a Dutch aviation company. But the mountain-climbing chairman has won astonishing support from the Americans for his straight talk, quick decision making and more charisma than most rooms can handle.

Since DaimlerChrysler's incorporation in November, the company has melded its duplicate financial-services and technology divisions. Marketing chief Holden has succeeded in creating a global-sales and marketing organization with German counterpart Dieter Zetsche. Says chief engineer Bernie Robertson: "We have a strong operation here, there's a strong operation in Europe, and now there's the rest of the world to go after." Robertson admits, however, that he's still having a tough time getting German and American engineers to swap jobs.

Most important, the merger is now producing metal. In Graz, Austria, this month, Mercedes and Chrysler vehicles began rolling off the same assembly line--in auto manufacturing, this is akin to walking on water. The Graz plant originally made the Jeep Grand Cherokee. But when the merger talks began last year, Mercedes car chief Jurgen Hubbert spotted a golden opportunity to expand production of the new M-class suv without paying the exorbitant costs of a new factory. In an odd twist, Mercedes saves more than $70 million by shipping components from its plant in Tuscaloosa, Ala., back to Europe for assembly alongside the Jeep. "There was the distinct opinion on the Mercedes side that we would never build a Mercedes under a Chrysler roof," says Schrempp, with a smug grin. "We're doing it already."

Your next Chrysler may not be a Mercedes, but chances are it will share some of the same blood. Early this year the two sides established an automotive-strategy group that is already coming up with new products. Plans for a Mercedes minivan have been canceled. Yet the group has commissioned at least one new minivan-like vehicle, to be built probably by Mercedes, and a Chrysler car that will be marketed in Europe against Volkswagen's successful Golf. Both products are being designed with input from both Stuttgart and Auburn Hills. Marketers Holden and Zetsche insist that brand identities and marketing will remain separate. Yet inevitably, Mercedes engineering will make Chrysler cars more reliable, and Chrysler's flashy designs will make Mercedes less boring.

The cross-pollination would not have worked without American patience and flexibility. "Forget 'merger of equals,'" says Stallkamp. "We're one company now, and we're making it work." Despite the early arrogance of the Germans, Stallkamp and his band impressed them with technical prowess--the best auto-manufacturing operation in the world--and a willingness to bury differences and just get the job done.

In turn, the Germans began to listen. The watershed moment came when the Yanks (with a little inside help) persuaded Schrempp in March to drop a long-standing bid to buy Japan's Nissan Motors. Schrempp wanted Nissan badly, to consolidate his empire, and he had been negotiating with an absolutely desperate Yoshikazu Hanawa, Nissan's chairman. But the Americans, who would have been saddled with turning Nissan around, had been uncomfortable with the plan from the start.

Since then, meeting schedules have been altered and their venue changed from Stuttgart to New York in order to reduce travel stress for both sides. The corporate-communications department, which has lost top staff members to cross-cultural tension (remember the business cards?) and job competition, last month hired an outside facilitator to help the communicators communicate with one another. "I never thought much of outside consultants," admits Roland Klein, a senior vice president for corporate communications. "But this seemed to work very well."

Still, says Schrempp, "our toughest times are ahead." Last year, in a move that still draws an angry reaction from Schrempp, DaimlerChrysler was refused admission to the Standard & Poor's 500 index--important because inclusion would make the company's stock a must-buy for many money managers. The majority of the company's shareholders are now in Europe, though the largest stake is controlled from Kuwait. Another concern is contract negotiations this summer with an increasingly feisty United Auto Workers union. In Europe the economy still trails Schrempp's ambitious expectations, and so do sales of the Smart, a clever but perhaps fatally flawed experiment in making a Mercedes for the masses.

No matter what happens, America's Chrysler Corp. is history. If Bob Eaton simply cashes in his stock, he stands to make at least $200 million. As early as the end of this year, insiders expect, he will step down, leaving Schrempp to deliver on a promise that Chrysler's creative culture will survive.

Schrempp, for his part, is house hunting in the Detroit suburbs. "I am learning that ultimately a company is people, nothing else, and I can handle both sides," he says. In fact, he ran a Mercedes truck subsidiary in Euclid, Ohio, during the 1980s. "I know when to tell the Germans to loosen up and when to tell the Americans, 'Look, we made a decision on Monday--wouldn't it be nice if it sticks on Tuesday?' If it is managed well, then we will be so much better than all the others."

If it is managed well, then Tom Stallkamp should never again have to worry about the size of his business card.

--With reporting by Joseph R. Szczesny/Auburn Hills

With reporting by Joseph R. Szczesny/Auburn Hills