Is Bigger Really Better?--DaimlerChrysler merger faces hurdles

If size alone assures success, General Motors Corp. should be on top of the world.

Instead, GM - still the largest automaker - continues to wrestle with a multitude of challenges, not the least of which is its sheer size. Despite years of trying, GM's costs remain too high. Its once-vaunted design leadership has been co-opted by competitors. And it takes GM longer to bring new products to market, which is a leg iron in this go-go automotive age.

Moreover, GM continues to struggle with labor relations, excess capacity and assorted other problems. Sure it has made some big profits, keeping the Wall Street wolves at bay. But that's today. What about tomorrow when things are bound to get a lot tougher?

Sure, GM's top honchos can yell and scream all day about becoming more streamlined, slashing waste and getting its big bureaucracy high-stepping, but it's not as simple as barking a command. The complexities of managing 200 assembly and powertrain plants and 608,000 people in its global empire during a time of Mach 2 change is staggering.

Chrysler Corp., roughly a third GM's size, has snatched design leadership and otherwise exerted its agility to become purportedly the world's lowest-cost producer. GM by comparison has been stuck in first gear or, to be kind, second gear. GM still can escape the barracudas, but time is getting short.

It can be argued that Chrysler's turnaround during the 1990s was motivated by fear of yet another brush with bankruptcy. It took bold action to survive and prosper, but it also took a rare combination of free-wheeling, gung-ho talent at the top to fire up the troops.

Give them plenty of credit, but consider as well that their task was not nearly as awesome as GM's. Why? Because Chrysler is basically a North American company with only 26 assembly and powertrain plants and 121,000 people to worry about. Indeed, Chrysler's primary reason for teaming with Daimler-Benz is to extend its international reach.

Locating its core management, engineering, manufacturing, purchasing and design operations at a single location in Auburn Hills, MI, where decisions literally can be made in the hallways, also helps Chrysler's cause. GM's management is spread throughout metropolitan Detroit and overseas, although this fall its International Operations, based in Zurich, will be consolidated in Detroit.

All of the positive traits Chrysler has honed in recent years, from sturdy profit performance to shaving costs and leadership in minivans and sport/utility vehicles (SUVs), of course, made it an attractive partner for Germany's Daimler-Benz AG.

So now we have the pending DaimlerChrysler merger, which by most accounts is expected to win shareholder and government approvals in both countries and become effective in September.

By now most folks know it's the biggest industrial merger ever, that the merged company will become the third largest automaker in revenues and fifth in units built, and that Daimler, with 57% of the stock, will become the dominant partner.

It's also expected to trigger a flurry of other mergers as competitors take to their chess boards and map new strategies.

Like the big mergers taking place in banking, telecommunications and pharmaceuticals, the DaimlerChrysler marriage aims to take advantage of the "synergies" of size.

In theory it will lower their costs by getting better deals on volume purchases and by slashing redundancies to put the combined company in the big leagues with GM, Ford Motor Co. and Toyota Motor Corp.

But will they be able to move as quickly and effectively as Chrysler has demonstrated it can do on its own? Maybe and maybe not. These are only a few hurdles DaimlerChrysler faces:

Cultural dfferences: Ford and GM have had huge operations in Europe and Germany for decades. Their names are on the paychecks. Yet even today a chasm often remains between what the Yankee parents want and what their European subsidiaries are willing to deliver.

Engineering philosophies: Chrysler pushes from the bottom up, Daimler from the top down. Will the twain meet?

Labor relations: United Auto Workers union President Stephen P. Yokich in the early going views the deal as "win-win," but what happens if it doesn't jell as expected? And does he really think the UAW will get the fabulous (by comparison) perks Daimler-Benz workers enjoy - and if not, will that become a sticking point?

The next downturn: After a seven-year high, the next down-cycle in the United States can come anytime. Europe is harder to predict. But what if Stuttgart has to choose between Daimler and Chrysler in ordering crunch-time cutbacks?

Investments and other financial power: Those holding the pursestrings call the shots, and Daimler will have the combination to the safe. As a stand-alone automaker, Chrysler held the key to its own destiny. Not anymore.

DaimlerChrysler has a shot at emerging as a strong, unified company. Chrysler Chairman Robert J. Eaton, co-chairman with Daimler-Benz Chairman Juergen Schrempp of the merged organization until 2001, when Mr. Eaton retires, says the two men chose this particular moment to merge because both are riding high, and each needed the other's firepower to compete against the bigger guys in the 21st century.

At the risk of sounding nationalistic, I think Chrysler could have made it on its own. After all, it has proven that a smaller, more manageable outfit can give the big gunners a run for their money in nearly every measurable way, while Goliaths like GM are struggling to catch up.

In short, Chrysler's success can be traced precisely to its size, which makes for a fast-moving organization unhampered by the slow decision-making, turf-building structure of most large organizations.

A lot of people are going to become very wealthy out of all of this. But at the end of the day, big isn't necessarily better - as GM can well attest.