The Ultimate Outsource ---DaimlerChrysler is a German company

The big news is the merger of Chrysler Corp. and Daimler-Benz AG. As a former Chrysler executive, what are my thoughts?

What immediately comes to mind is that this must be really big because it replaced President Clinton and his escapades on the front page.

Another thing I notice is that American newspapers seem to be very positive about the merger. If it was the other way around, I'm sure the German newspapers would look at it very negatively.

OK, how about my second thoughts? There's no doubt in my mind that DaimlerChrysler will be a German company. For one thing, it will be incorporated in Germany, and for another its management board will consist of 10 people from Daimler and eight from Chrysler. It's said to be one of the largest mergers in history.

Despite its complexity, the transition is expected to be complete in about three years. By then top management undoubtedly will come predominantly from Daimler. I'm sure Chrysler execs will work for a smooth transition because o f the generous financial package they will receive.

Over time there probably will be some changes in production facilities because manufacturing processes in the U.S. are slightly more efficient than in Germany. These changes will have little effect on hourly workers. That may not be true for suppliers. Both chairmen talk about consolidating, and when you consolidate, somebody is left out. It could very well be an American supplier.

Let me outline a scenario: Let's say Chrysler has a quality problem with one of its cars. It could be either engineering-related, bad design or manufacturing-related. Because Chrysler buys 65% of its parts, if the problem is manufacturing-related, it can probably be traced back to a supplier. If the problem is engineering-related, it gets re-engineered, but if it's a manufacturing problem and it's inherent with the supplier process, the supplier probably gets replaced with a German supplier.

Why? Because they believe they are better. There's also another way of looking at it: a Mercedes sells for between $30,000 and $100,000-plus. It thus can afford to use the best suppliers, not necessarily the lowest bidders. They can spend more to engineer reliability into their products, which could include better prototype development programs and more time spent on testing.

So I believe a big influence on Chrysler will be Daimler's engineering. There's no question in my mind that German engineers, overall, are better trained academically. I'm willing to bet that most of their department heads carry the title of doctor of engineering and speak English.

I don't know of too many American engineers who speak German, or any other foreign language. That has to tell you something. Everybody talks about the new era of globalization, yet our colleges do not require their graduates to speak a foreign language.

While engineering will be more influenced by Daimler, styling will be more influenced by Chrysler.

How will the merger enhance their competitiveness in the two large markets outside of the U.S., Europe and Southeast Asia? Obviously in Europe Daimler will take the lead. Europeans are very loyal to products produced in Europe, so it's going to take more than just sticking a Mercedes emblem on Chrysler cars to sell them there.

The market in Southeast Asia is basically smaller cars with smaller engines, manual transmissions and both left-hand and right-hand drive. If the new company wants to participate in this market, and it indicated that it does, it will have to work on this challenge.

Because it will be a German company, there may be some political ramifications. For example, German companies can sell to countries that American companies can't, such as Iran, Iraq and Cuba.

Some people believe the merger simply will provide Chrysler with some much-needed luxury cars to fit into its product lineup and that Daimler will get some mid-size and smaller cars to fit into its product line, and that otherwise everything else will remain basically status quo.

I doubt that. Because DaimlerChrysler will become a German company, the essential parts of the organization such as engineering and cost-control will be predominantly German.

I also suspect there'll be some consolidation of suppliers favoring the Germans. I can't visualize it the other way around because there's no way Daimler will use very many American suppliers, except in rare cases such as in its Alabama M class plant.

Mercedes suppliers are selected on the basis of their perfection and reliability. That's what people pay for when they buy a Mercedes car. Chrysler outsources two-thirds of its component parts, and it's thought to be very successful. Maybe this merger is the ultimate outsource.

- Steve Sharf is a native German and retired Chrysler Corp. executive vice president-manufacturing.