Eaton: Good 'Chemistry'

Q - What are the two or three things that were most important that drove you to say "We need to do this?"

A - I don't think there was any one thing. Again, I've been saying for a long time there was excess capacity in this industry. Consolidation was inevitable. I think being among the first, obviously consolidation has been going on for a long time, but I think if you went back about not many years ago you could find that there were 42 manufacturers. Today, I believe the number is 17 or 18. There's been a lot written that within another decade or so that may well be 9 or 10. I think being among the first with this big of a merger we were able to pick our favorite partner. When you look at the products, they're complementary. The complementary nature of our geographic positions, them being very strong in Europe and us being very strong here. Being early and being able to pick your partner at a time when both are very financially secure, I think is simply ideal.

Q - What were some of the obstacles to making this a German rather than an American company?

A - The biggest one was German law. German corporate law simply hasn't progressed near as far as American law, and it was German law as the biggest factor.

Q - Does the merger affect the plant in Toledo and the workers there?

A - No absolutely not. No way. In fact, this is a very good thing for Toledo. If anything, it might result in an increase in the size of that plant, not a reduction. I'm not suggesting that it will, but I'm saying if directionally anything's going to happen it will be to increase capacity there, not to slow it down or reduce it.

Q - What do you see as the nature of increased employment in North America?

A - We're going to have to see on that. Clearly, Juergen (Schrempp, Daimler-Benz chairman) indicated, and we've discussed it many times obviously, they need additional capacity for their M-class. Where that will occur exactly, I think it will probably be in one of our or one of their facilities. We expect that to add some employment. We expect to significantly increase our sales in Europe and South America relatively quickly. I think that will clearly have an effect here because those vehicles will largely come from these facilities. An example of that is the Ram pickup will be sold through the Mercedes distribution arm in South America with their trucks.

Q - Would those trucks be badged Dodge/Chrysler?

A - Oh sure. We have said we're not going to badge-engineer anything, period. I'm a very strong believer that your brands are the most important thing that any company owns. We're not going to jeopardize that.

Q - In Europe you said you'll expand very quickly. Will that be through Mercedes distribution channels?

A - No, again we have said we are not going to mix vehicles in showrooms in any of the established markets. In some of the emerging countries there might be, but that's down the road. I would never expect to see in Europe or the U.S., North America, a Mercedes and a Chrysler dealership or vice versa. But, it is very possible that yes we can share backrooms. We can share infrastructure etc., including service shops, but not showrooms.

Q - What do you say to those who feel an American icon has been sold out to a foreign interest?

A - As I've indicated, we're going to continue to be a very large employer. We're gonna continue to be involved in our communities. I don't think there's going to be any change. I clearly think that this is the wave of the future. The world is globalizing, and I think that this will not be uncommon in years to come.

Q - Given the expertise of Mercedes in engines, what do you see for Chrysler passenger cars? Any future in the States for more diesel engines?

A - Without a doubt. We have felt that way for a long time, and we've stated that publicly. We've been working with the government to get emissions regulations that permit that. As you probably know, the diesels that we're talking about probably shouldn't even be called a diesel, even though they are. They are so different from what you and I have known from the past. From the noise standpoint, as a matter of fact, I can tell you that a couple of our executive committee members rode in an experimental vehicle in Europe late in the third quarter of last year for an hour - even drove it - and did not know it was a diesel. And one of them was an engineer.

Q - Can you tell us more about the relationship between you two (Mssrs. Eaton and Schrempp)? What is going to make this relationship work?

A - The chemistry is very good. We've obviously spent a great deal of time together over the last few months. As I've said, we knew each other beforehand. We are focused on making this the leading automobile, leading transportation company in the entire world. I really think the opportunities are unlimited. That's what we're going to focus on, and I don't think we're going to have any problem at all getting along. We also recognized from the very beginning that that structure (co-chairman) was not appropriate long term. Quite frankly, very early on, I volunteered that after we got the thing moving - and I picked the three-year period - I would step down. I'm about six years older than Juergen, and I think that's appropriate.

Q - Will this affect your other partners you've been very close to for a long time like Mitsubishi, BMW in Brazil and so forth?

A - We have a terrific relationship (with BMW). We've got an engine design, we've got a plant under construction. They (BMW) need the engine, we need the engine, and I have every hope and belief that it will continue. The relationship with Mitsubishi will continue, absolutely as it has.

Q - How did you guys keep this secret?

A -This company has been known to leak like a sieve. We really started working a long time ago to change that. This is one of the biggest things we've kept secret. We were very careful, very deliberate as we brought people into it and we told them it hadn't gotten out. If it gets out, it's obviously you. In all seriousness, they understood the serious nature of it. We believed, whether it was right or not, that if it got out, it would not have happened.

Q - Do you foresee a time, after you step down that there will be an American at the head of this company?

A -Absolutely. I think Juergen has said that everybody has an equal ability to steal his job.

Q - What's the impact on suppliers and sourcing?

A -Both of us have very close relationships with our suppliers. We do not expect that to change. We are not going to tear up any contracts or anything like that. We'll honor our projects. We'll continue our Score program they'll continue their Tandem program, which is very similar.

Q - Would you leverage the buying power of these combined companies?

A -I believe we'll save about $400 million in the first year. We have much more purchasing power with respect to commodities. All of the financial people believe we have very much understated our synergies and in fact I suspect we have. You have to remember that let's say approximately 50 people really were involved in this. nce we get all of our people thinking about all of those synergies and things that can happen, I believe that all of those synergies will go out.