Commentary

Most auto makers these days are clamoring to get bigger, not smaller.

Not so DaimlerChrysler, whose investors appear thrilled with this week’s decision to sell a majority of Chrysler to private-equity firm Cerberus.

But is DC’s decision to shrink really the right one over the long haul, and will shareholders in the newly created Daimler AG still look back fondly on this move, say, nine years from now?

Remember, Wall Street was ecstatic when Chrysler and Daimler-Benz originally hooked up in 1998 – and we now know how that’s turned out.

But the failure of DaimlerChrysler may be less about the strategy than the execution. And perhaps done right, Daimler ultimately would be much better off with Chrysler than without it.

The trouble is, the two cultures never really meshed. The Germans always have viewed Chrysler as a millstone around the neck of Mercedes. They saw competitor BMW begin to thrive once it jettisoned British subsidiary Rover, which like Chrysler trafficked in lower-priced, higher-volume vehicles. And they remain convinced Mercedes will perform similarly if left on its own.

Had DC been more focused on leapfrogging BMW, rather than simply matching it, the auto maker might have seen Chrysler in a different light, however.

More cost-saving synergies may have emerged, for example, had DC stopped trying to make expensive platforms and technologies developed by Mercedes work for Chrysler and taken the opposite approach instead.

“We overestimated the impact of Mercedes technology on Chrysler,” DC CEO Dieter Zetsche admits. “The American volume customer was not willing or able to pay significant premium prices.”

No kidding. It should have been obvious to DC management from the get-go they were trying to apply the synergy formula backwards.

A lower-cost small-car platform developed by Chrysler but incorporating Mercedes engines and more upscale technology and content could have cut costs and worked well for the German brand as a next-generation A-Class. A similar plan could have been applied in producing a slightly upscale midsize car for Chrysler that also would fill the slot occupied by the Mercedes C-Class. Ditto in the SUV-cross/utility vehicle sector.

The blueprint to follow is there – just look at how more mundane Toyotas get turned into higher-priced Lexuses.

But Mercedes was too stubborn to give ground, and as a result it may have passed up a chance to force BMW to chase instead of lead. Imagine the advantage of a vehicle with Mercedes’ brand cachet but a more Lexus-like cost structure.

With Chrysler gone, Daimler certainly will pour more resources into Mercedes, which now will be able to do what it does best – design and engineer cars any way it wants to. And Daimler’s continued minority equity in Chrysler ensures there will be opportunities to work together, if they so choose.

But as the global industry evolves, and more and more auto makers in lower-cost countries start to move in on the world’s lucrative luxury-car market, will a smaller, standalone Mercedes really be best positioned to compete?

dzoia@wardsauto.com