Version 2.

DAIMLER-BENZ A.G.: NEGOTIATIONS BETWEEN DAIMLER AND CHRYSLER

In January 1998, Jrgen Schrempp, CEO of Daim er!"en# $.%., approache& Chrys er Corpora'ion(s chair an& chief e)ecu'i*e officer +CEO, -o.er' J. Ea'on a.ou' a possi. e merger, ac/uisi'ion, or &eep s'ra'egic a iance .e'0een 'heir '0o firms. $s Schrempp argue&1 2he '0o companies are a perfec' fi' of '0o ea&ers in 'heir respec'i*e mar3e's. "o'h companies ha*e &e&ica'e& an& s3i e& 0or3forces an& successfu pro&uc's, .u' in &ifferen' mar3e's an& &ifferen' par's of 'he 0or &. "y com.ining an& u'i i#ing each o'her(s s'reng'hs, 0e 0i ha*e a preeminen' s'ra'egic posi'ion in 'he g o.a mar3e'p ace for 'he .enefi' of our cus'omers. 4e 0i .e a. e 'o e)p oi' ne0 mar3e's, an& 0e 0i impro*e re'urn an& *a ue for our shareho &ers.1 $s Schrempp recoun'e& a'er1 I 5us' presen'e& 'he case, an& I 0as ou' again. 2he mee'ing as'e& a.ou' 16 minu'es. I &on(' 0an' 'o crea'e 'he impression 'ha' he 0as surprise&. 4hen 'he mee'ing 0as o*er, I sai&, 7If you 'hin3 I(m na8*e, 'his is nonsense I(m 'a 3ing, 5us' 'e me.9 :e smi e& an& sai&, 7Jus' gi*e me a chance. 4e ha*e &one some e*a ua'ions as 0e , an& I 0i phone you in 'he ne)' '0o 0ee3s.9 I 'hin3 he phone& me in a 0ee3 or so.2 Ea'on respon&e& posi'i*e y 'o Schrempp(s i&ea of an in&us'ria com.ina'ion. ;o0 'he 'as3 of forging 'he &e'ai s of 'he agreemen' ay ahea&. Schrempp appoin'e& a sma 'as3 force of .usiness e)ecu'i*es an& a0yers 'o represen' Daim er!"en# in 'he &e'ai e& nego'ia'ions.
1 2

Daim er!"en# $.%. press re ease, < =ay 1998. 7%en' emen, S'ar' >our Engines,9 Fortune +8 June 1998,1 1?@.

2his case 0as prepare& from pu. ic informa'ion .y -o.er' A. "runer, Be'ra Chris'mann, an& -o.er' Spe3man, an& .y assis'an's "rian Cannry an& =e in&a Da*ies. I' is in'en&e& 'o .e use& in a nego'ia'ion e)ercise 0i'h 7Chrys er Corpora'ion1 ;ego'ia'ions .e'0een Daim er an& Chrys er9 +DV$!A!12?@,. I' 0as 0ri''en as a .asis for c ass &iscussion ra'her 'han 'o i us'ra'e effec'i*e or ineffec'i*e han& ing of an a&minis'ra'i*e si'ua'ion. 2he financia suppor' of 'he Dar&en Bar'nership Brogram an& of 'he Dar&en Schoo Aoun&a'ion is gra'efu y ac3no0 e&ge&. Copyrigh' 1998 .y 'he Dni*ersi'y of Virginia Dar&en Schoo Aoun&a'ion, Char o''es*i e, V$. $ righ's reser*e&. To order copies, send an e-mail to sa esE&ar&en.usinesspu. ishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. -e*. 12F@1.

!2! Schrempp presen'e& 'he 'eam 0i'h se*era cha enges1 'o e)p oi' 'he .enefi's of com.ina'ionG 'o preser*e an& s'reng'hen 'he Daim er!"en# .ran&sG 'o minimi#e 'he a&*erse effec's of com.ina'ion on emp oyees an& e)ecu'i*esG an& 'o ma)imi#e 'he shareho &ers( *a ue. Schrempp ref ec'e& on 'he *arie'y of 'he 'erms of 'he &ea 'ha' 'he Daim er 'eam sough', an& imme&ia'e y con*ene& a mee'ing 'o p an 'he 'eam(s nego'ia'ion s'ra'egy. Chrysler Corporation In 192@, 4a 'er B. Chrys er, a mu 'imi ionaire an& 'he presi&en' of "uic3 a' age ?H, s'orme& ou' of 'he hea& office of %enera =o'ors +%=, 0i'h 'he i&ea of s'ar'ing his o0n car company. 2he Chrys er Corpora'ion 0as officia y aunche& in 192? 0i'h 'he in'ro&uc'ion of 'he Chrys er Si), an& rapi& y gre0 'o .ecome 'he 'hir& arges' au'oma3er in $merica. 4hi e Chrys er manage& 'o sur*i*e 'he %rea' Depression in'ac', a.or pro. ems an& rampan' mismanagemen' .rough' 'he company 'o 'he .rin3 of financia ruin se*era 'imes +for e)amp e1 19H<, 19<H, an& 199I,, .u' mos' no'a. y in 198@. Dn&er 'he ea&ership of Jee Iacocca an& 0i'h 'he suppor' of fe&era oan guaran'ees, Chrys er manage& 'o 'urn i'se f aroun& one more 'ime, re'urning 'o profi'a.i i'y .y 1982. 4hi e 'he a'e 198@s pro*e& 'ough for 'he in&us'ry as a 0ho e, 'he in'ro&uc'ion an& me'eoric rise of 'he fami y mini*an +a mar3e' con'ro e& .y Chrys er, 0hich ha& a ?6K share as of 199<,Lcoup e& 0i'h 'he 1986 ac/uisi'ion an& su.se/uen' e)p oi'a'ion of 'he Jeep .ran& nameLma&e Chrys er 'he en*y of 'he D.S. au'o mar3e' .y 'he mi&!199@s. $s Fortune maga#ine s'a'e& in a'e 199<, 7If a *ehic e is in &eman& an& genera'es high profi' margins, you can .e' Chrys er(s ma3ing i'.9I 4hi e Chrys er(s success an& re a'i*e y conser*a'i*e managemen' s'y e a''rac'e& praise from in&us'ry o.ser*ers, i' a so a''rac'e& 'he a''en'ion of Jas Vegas .i ionaire Cir3 Cer3orian 0ho, 0i'h 'he he p of re'ire& Jee Iacocca, moun'e& a hos'i e .i& for Chrys er in 199H. 2he +Dni'e& S'a'es &o ar, MHH!per!share .i& +M26.H@ 'o&ay fo o0ing a 2!for!1 s'oc3 sp i' in 199<, no' on y fai e& 'o 0in appro*a from Chrys er(s .oar&, .u' a so 'urne& ou' 'o .e arge y unfinance&, ea*ing Chrys er 'o con'inue un&er i's curren' managemen'. Chrysler products In i's pro&uc' offerings, Chrys er 0as hea*i y focuse& on 'ruc3s. In 1996, 'ruc3s +inc u&ing mini*ans, accoun'e& for a.ou' '0o!'hir&s of Chrys er(s *ehic e sa es in 'he Dni'e& S'a'esG cars accoun'e& for a.ou' one!'hir&. Chrys er(s 'ruc3s inc u&e& spor'!u'i i'y *ehic es +SDV, i3e 'he Jeep 4rang er, Jeep Chero3ee, an& Do&ge DurangoG pic3up 'ruc3s such as 'he Do&ge -amG an& mini*ans i3e 'he B ymou'h Voyager. One of Chrys er(s mos' successfu pro&uc's 0as 'he mini*an, 0hich Chrys er in*en'e& in 198I. 2he Do&ge Cara*anFB ymou'h Voyager, 'he 0or &(s mos' successfu mini*an, 0as in'ro&uce& in 198?. Chrys er &omina'e& 'he mini*an segmen' from 'ha' 'ime on. In 1996, mini*ans accoun'e& for a.ou' one!'hir& of Chrys er(s 'ruc3 sa es. Chrys er(s profi'a.i i'y 0as

John Bepper, 74hy Ea'on Cu' 'he Dea ,9 Detroit News, 6 =ay 1998, h''p1FF000.&e'ne0s.com.

!I! high in 'he spor'!u'i i'y mar3e' &espi'e increase& compe'i'ion from ne0 pro&uc's, especia y a' 'he 'op an& .o''om en&s of 'he mar3e'.

!?! Chrys er(s cars 0ere so & un&er 'he Chrys er, Do&ge, an& B ymou'h .ran& names. Chrys er(s arger cars +such as 'he S'ra'us, 0ere price& simi ar y 'o =erce&es!"en#(s o0er! mi&& e!c ass car +in si#e,, 'he C!C ass. 4hi e Chrys er(s cars 0ere much arger an& more po0erfu 'han 'he =erce&es *ersion of simi ar price, 'he cars ac3e& =erce&es(s a''en'ion 'o &e'ai in manufac'uring an& .ran& image. $' 'he .o''om en& of 'he range, Chrys er offere& 'he Do&geFB ymou'h ;eon. +See Exhibit 1 for Chrys er(s sa es in 199< an& 1996., Chrysler product development and manufacturing strategy Chrys er 0as 3no0n for i's shor' concep'!'o!mar3e' cyc e for ne0 pro&uc'sG o0 &e*e opmen' cos'sG efficien' p an'sG goo& supp ier re a'ionsG an& crea'i*e s'y ing. Vehic e &e*e opmen' 'ime for Chrys er &ec ine& 'o 2? mon'hs in 199< from <@ mon'hs in 1988. 2he efficiency in 'he pro&uc' &e*e opmen' process cou & .e main y a''ri.u'e& 'o p a'form 'eamsL au'onomous groups 'ha' consis'e& of a 'he professiona s re/uire& 'o &esign an& pro&uce a ne0 carL0hich 0ere in'ro&uce& .y Chrys er in 1989. Chrys er(s inno*a'ion 0as 'o pu' a 'he engineers an& &esigners assigne& 'o a specific pro5ec' 'oge'her on a sing e f oor, a ong 0i'h represen'a'i*es from mar3e'ing, finance, an& purchasing, an& e*en ou'si&e supp iers, an& 'o gran' 'hem consi&era. e au'onomy. 2his c ose con'ac' 3ep' 'he 'eams fas' an& efficien'. 2he 'eams use& 'arge' pricing, in 0hich 'he cos' of 'he car 0as &e'ermine& a' 'he .eginning of 'he process, no' a' 'he en&. Chrys er consis'en' y performe& .e''er 'han i's 'arge' 'ime an& .u&ge' goa s. 2he sys'em 0or3e& so 0e 'ha' in 1991, i' &isso *e& mos' of i's func'iona groups an& reassigne& 'heir mem.ers 'o four p a'form 'eams1 sma car, arge car, mini*an, an& JeepF'ruc3. :ar.our N $ssocia'es, a consu 'ing firm in 2roy, =ichigan, es'ima'e& 'ha' Chrys er(s research an& &e*e opmen' +-ND, cos' per *ehic e 0as MHH@, compare& 'o o*er M2,@@@ per *ehic e for =erce&es. S'ar'ing in 1989, Chrys er narro0e& i's supp ier .ase from 2,H@@ companies 'o 1,1?@, an& fun&amen'a y change& 'he 0ay i' 0or3e& 0i'h 'hose 'ha' remaine&. Supp iers 0ere offere& ong! 'erm con'rac's, 0ere in*o *e& in 'he &esign process for ne0 cars, an& 0ere encourage& 'o ma3e cos'!sa*ing sugges'ions 'hrough an ini'ia'i*e ca e& SCO-E +supp ier cos' re&uc'ion effor',, in'ro&uce& in 1989. 2his ini'ia'i*e yie &e& M2.H .i ion in sa*ings from i's incep'ion 'o 1998. ? $s a resu ', Chrys er .ecame 'he eas' *er'ica y in'egra'e& of 'he .ig 'hree D.S. au'oma3ers. I' purchase& 6HK of i's componen's, *ersus H@K a' Aor& an& I@K a' %=, as of ear y 1998.H Dn i3e o'her D.S. au'o manufac'urers, 0ho impro*e& 'he .o''om ine a mos' en'ire y 'hrough cu''ing cos's, Chrys er(s profi's surge& .y in'ro&ucing ne0 mo&e s. I's *ehic e ineup 0as 3no0n as one of 'he mos' inno*a'i*e in 'he in&us'ry. 2he J: series +Chrys er Concor&e, Do&ge In'repi&, an& Eag e Vision,, in'ro&uce& in 'he 199I mo&e year, 0as Chrys er(s firs' ne0 car p a'form in a &eca&e. 2hese cars 0ere *ery 0e recei*e& in 'he mar3e'p ace an& 0ere 0i&e y cre&i'e& 0i'h con'ri.u'ing 'o Chrys er(s a'es' 'urnaroun&.

Susan E. Cuhn, 7$u'o S'oc3s1 2o&ay(s "ig S'ea ,9 Fortune +2H ;o*em.er 199<,1 2@?O2@H. De.ra 4a 3er, 7Supp y Chain Co a.ora'ion Sa*e& Chrys er M2.H "i ion an& Coun'ing,9 Supply !anagement +$ugus' 1998,1 <@.
H

hain

!H! Chrysler international strategy In 'he 199@s, Chrys er su.s'an'ia y in'erna'iona i#e& i's sa es. In'erna'iona *ehic e sa es +sa es ou'si&e ;or'h $merica, rose from ess 'han H@,@@@ uni's in 199@, 'o 2I6,@<@ uni's in 1996, .u' s'i accoun'e& for ess 'han 1@K of Chrys er(s 'o'a uni' sa es. 2he Jeep name 0as in*a ua. e 'o Chrys er(s gra&ua sprea& in'erna'iona yG 'his 0as &ue 'o 'he appea an& name recogni'ion 'ha' Jeep en5oye& in significan' par's of 'he 0or &. +Chrys er(s $merican =o'ors ac/uisi'ion in 1986 inc u&e& Jeep., Ja'in $merica 0as 'he focus of Chrys er(s geographic e)pansion. Sa es of i's pro&uc's increase& .y more 'han 1@@K in 'ha' region from 199< 'o 1996. Vene#ue a, 0i'h re'ai sa es of 2@,61< uni's, 0as 'he num.er!one Ja'in $merican mar3e' for Chrys erG 'he company 0as four'h in mar3e' share in 'ha' coun'ry .ehin& 2oyo'a, %=, an& Aor&. Chrys er pro&uce& 'he Jeep Chero3ee an& %ran& Chero3ee spor'!u'i i'y *ehic es an& 'he ;eon passenger car a' i's Cara.o.o assem. y p an' in Va encia, Vene#ue a, for oca &is'ri.u'ion an& e)por' 'o Co om.ia an& Ecua&or. In 1998, Chrys er p anne& on opening a ne0 9H@,@@@!s/uare!me'er manufac'uring faci i'y in Curi'i.a, "ra#i , 'o assem. e 'he Do&ge Da3o'a pic3up 'ruc3G a&&ing Jeep Chero3ee pro&uc'ion 'o 'he Cor&o.a p an' in $rgen'inaG opening a par's 0arehouseF'echnica 'raining cen'er in "uenos $ires, $rgen'inaG an& .rea3ing groun& on a MH@@ mi ion 5oin'!*en'ure engine p an' 0i'h "=4 in "ra#i . +2he ?@,@@@!s/uare!me'er engine p an' 0ou & .e a&5acen' 'o 'he Do&ge Da3o'a assem. y p an'., "ecause 'he impor' &u'ies of Vene#ue a, $rgen'ina, an& "ra#i range& .e'0een <@K an& 6@K, Chrys er op'e& 'o pro&uce *ehic es in 'hose coun'ries, con'ras'ing 0i'h a genera preference 'o es'a. ish an in'erna'iona presence *ia impor'ing i's &omes'ica y pro&uce& *ehic es. Chrys er ha& .een comp e'e y a.sen' from Europe for many years. $f'er i' came .ac3 in 199@, i' 0as *ery successfu 0i'h 'he Voyager, 0hich 0as .ui ' in %ra#, $us'ria, for 'he European mar3e'. Chrys er 0as s'i far from .eing in 'he ea&ership posi'ion 'ha' i' ha& he & in 'he D.S. mini*an mar3e'. 2he ea&ing mini*an manufac'urers in Europe 0ere Aor& an& Vo 3s0agen +0hich accoun'e& for a.ou' one!'hir& of European mini*an sa es in 1996,, an& -enau ', 0hich surpasse& Aor& an& Vo 3s0agen in 1998 .y a&&ing 'he s're'che& %ran& Espace 'o i's pro&uc' ine. Aor& an& Vo 3s0agen so & 'hree .asica y i&en'ica mo&e sLAor& %a a)y, V4 Sharan, an& Sea' $ ham.raLpro&uce& in a 5oin' *en'ure fac'ory in Bor'uga . Chrys er(s o*era mar3e' share in Europe 0as s'i on y @.6K in 1996, 0hich 0as par' y &ue 'o a ac3 of car mo&e s for 'he European mar3e'. 2he VisionFConcor&eFIn'repi& 0as 'oo arge for Europe, 'he S'ra'us ha& on y a''rac'e& .uyers for 'he four! 'o fi*e!passenger con*er'i. e, an& 'he ;eon ha& 'oo many popu ar European compe'i'ors. $no'her reason for Chrys er(s compara'i*e y mo&es' impac' on 'he European mar3e' 0as i's s'i !ra'her!'hin sa es ne'0or3. Daimler-Benz A ! %o'' ie. Daim er an& Car "en# 0ere '0o ri*a %erman carma3ers 0ho 0en' in'o .usiness a' 'he 'urn of 'he cen'ury. 4hi e .o'h Daim er an& "en# achie*e& in&i*i&ua success in 'he ear y 19@@s, 'he cha enge of re.ui &ing %ermany af'er 4or & 4ar I, as 0e as compe'ing

!<! 0i'h 'he .urgeoning Aor& =o'or Company, e& 'he '0o companies 'o merge in 192< 'o form Daim er!"en#. 2he company shif'e& 'o mi i'ary pro&uc'ion &uring 4or & 4ar II, .u' Daim er .egan manufac'uring cars again in 19?6. "y 'he 198@s, Daim er an& i's =erce&es .ran& ha& .ecome synonymous 0i'h premier /ua i'y an& craf'smanship. A ush 0i'h i's success, Daim er .egan a program of &i*ersifica'ion in 'he mi&!198@s, in'en&ing 'o 'ransform 'he company in'o a se f!&escri.e& 7in'egra'e& 'echno ogy group9 0i'h pro&uc' ines ranging from 'ranspor'a'ion 'o aerospace 'o microe ec'ronics 'o 0hi'e goo&s. Dnfor'una'e y, a s'ring of arge y unprofi'a. e ac/uisi'ions in 'he a'e 198@s ef' Daim er unfocuse& an& inefficien', cu mina'ing in a s'aggering +%erman &eu'sche mar3, DE=H.6 .i ion oss for 199H +'he arges' peace'ime oss e*er .y a %erman company,. Dn&er 'he &irec'ion of 'he ne0 chief e)ecu'i*e officer, Jrgen Schrempp, Daim er .egan 'o she& unprofi'a. e .usiness uni's, 'o re'urn 'he company 'o i's core .usiness of ma3ing high /ua i'y au'omo.i es, an& 'o mo*e 'o0ar& a more 7$merican s'y e9 of managemen' &esigne& 'o enhance 'he shareho &ers( *a ue. "y 1996, 'he company ha& re'urne& 'o profi'a.i i'y 0i'h recor& sa es. Daimler-Benz"s diversification under #euter 4i'h chair E&#ar& -eu'er, 0ho 'oo3 office in 1986, Daim er un&er'oo3 a series of ac/uisi'ions amoun'ing 'o an es'ima'e& M<.2 .i ion, 0hich 'urne& Daim er!"en# in'o one of 'he 0or &(s arges' in&us'ria cong omera'es. -eu'er reorgani#e& 'he company in 1989 in'o a ho &ing s'ruc'ure 0i'h four separa'e companies1 =erce&es for cars an& 'ruc3sG D$S$ for aerospaceG Daim er!"en# In'erSer*ices +De.is, for financia an& compu'er ser*icesG an& $E% for engineering. 2o refocus 'he company from &efense 'o ci*i ian aircraf', D$S$ un&er Schrempp(s ea&ership, ac/uire& H1K of 'he money! osing Du'ch Ao33er Company, a ma3er of shor'! an& in'erme&ia'e!range prope er an& 5e' passenger p anes, in 199I. During -eu'er(s ea&ership, %erhar& Jiener, Daim er(s chief financia officer +CAO,, pushe& for a is'ing of 'he company on 'he ;e0 >or3 S'oc3 E)change +;>SE,, 0hich necessi'a'e& pu. ishing 'he company(s re'urns un&er $merican accoun'ing ru es. 2hese accoun'ing ru es re/uire& Daim er 'o repor' on curren' opera'ions, an& 'his re*ea e& a huge opera'ing oss of MI.I .i ion in 199I. Of 'he four ho &ing companies, on y De.is repor'e& a profi'. -eu'er face& a .arrage of cri'icism, especia y as 'he ne0 companies remaine& oss! ma3ers 0hi e =erce&es!"en# s0ung .ac3 in'o .ig profi's in 199?. Schrempp rep ace& -eu'er as chair in 199H. $%rgen &chrempp Jrgen Schrempp 0as .orn in 'he 0es'ern %erman ci'y of Arei.urg in 19??. Ao o0ing his schoo ing, he 5oine& Daim er as an appren'ice mo'or mechanic a' 'he =erce&es!"en# Arei.urg .ranch in 19<6. :e a'er 0en' 'o co ege 'o 'rain as an engineer an& re'urne& 'o Daim er! "en#. Arom 19<6, Schrempp 0or3e& in a num.er of &ifferen' areas a' Daim er!"en# $.%. In 196?, he 0as appoin'e& 'o 'he managemen' 'eam of 'he Sou'h $frican su.si&iary, =erce&es! "en# of Sou'h $frica, ini'ia y in 'he ser*ice &i*ision an&, af'er 198@, as 'he .oar& mem.er responsi. e for engineering. In 1982, Schrempp 'oo3 o*er as presi&en' of Euc i&, Inc., of C e*e an&, Ohio, a manufac'urer of hea*y!&u'y 'ruc3s, an& a' 'he 'ime a 1@@K su.si&iary of

!6! Daim er!"en# $.%. Schrempp 'o & 'he hea&/uar'ers 'ha' i' 0ou & cos' 'oo much 'o fi) 'he uni' an& recommen&e& i's sa e. 2he .oar& 'oo3 his a&*ice, an& af'er Schrempp successfu y &i*es'e& 'he uni' in 198?, he re'urne& 'o .ecome *ice!presi&en' of =erce&es!"en# of Sou'h $frica. In 198H, he 0as appoin'e& presi&en' of 'he Sou'h $frican su.si&iary. 20o years a'er, he 0as ca e& .ac3 'o S'u''gar', %ermany, 'o 5oin 'he Daim er!"en# managemen' .oar& an& hea& 'he Daim er! "en# aerospace su.si&iary. :e orches'ra'e& 'he purchase of 'he Du'ch aircraf' ma3er Ao33er, as par' of -eu'er(s &i*ersifica'ion program, a mo*e 'ha' 0ou & 'urn ou' 'o .e a mis'a3e a'er on. Daimler-Benz restructuring under &chrempp 4hen Schrempp 'oo3 charge, cu's in &efense spen&ing 0ere hur'ing 'he aerospace uni'(s mi i'ary opera'ions. $&&i'iona y, cance a'ions of commercia aircraf' or&ersL'he resu ' of air ines( spen&ing cu's 'o .e compe'i'i*e in 'he &eregu a'e& air ine mar3e'L0ere pinching 'he $ir.us opera'ion. =ore 'han I@@ suppose& y firm or&ers 0ere cance e& in a'e 199? an& ear y 199H. 2his represen'e& more 'han ha f of 'he company(s .ac3 og an& 'he e/ui*a en' of a.ou' I@ mon'hs( 0or'h of pro&uc'ion. 2he 0or &0i&e 'ruc3 .usiness 0as s umping, an& 'he =erce&es au'o opera'ions ha& no' ye' reco*ere& from 'he ear y 199@s ons augh's of Je)us an& Infini'i. During his 'enure as chair, Schrempp pro*e& 'o .e a mas'er of .oar&room po i'ics, 0i'h 'he a.i i'y 'o ma3e &ecisions /uic3 y an& a 0i ingness 'o 'a3e ris3s. :e focuse& on shareho &er *a ue, some'hing 'ha' 0as no' 'ypica y &one .y European companies. Despi'e Daim er(s is'ing on 'he ;>SE an& 'he increase in 'ransparency of Daim er!"en#(s accoun's resu 'ing from 'he accoun'ing changes, Daim er(s 'op e)ecu'i*es 0ere no' in 'he ha.i' of pu''ing s'oc3ho &ers firs'. 2o se 'he i&ea of shareho &er *a ue, Schrempp s'ar'e& ca ing co eagues a' ran&om an& as3ing 'hem for Daim er(s curren' s'oc3 price. $' firs', he sai&, 7Se*en &i& no' 3no0 an& 'hree 0ere 0rong. ;o0a&ays 'hey can 'e me.9 Schrempp ins'i'u'e& 'he ru e 'ha' e*ery sing e .usiness a' Daim er ha& 'o achie*e a 12K re'urn on capi'a +-OC, or .e capa. e of achie*ing a 12K -OC in 'he foreseea. e fu'ure. If i' cou & no', i' 0ou & .e so &. Such a ru e 0as uncommon for %erman companies. 2his ru e resu 'e& in a re&uc'ion in 'he 'o'a num.er of .usinesses from IH 'o 2I. =a5or &i*es'i'ures inc u&e& 'he sa e of 'he company(s unprofi'a. e e ec'rica engineering .usiness +$E%,, an& 'he c osure of 'he aircraf' ma3er Ao33er. In a&&i'ion, Schrempp &eman&e& superior performance from 'he res' of 'he company(s uni's. $gains' 'he resis'ance of 'he s'rong %erman unions, he re&uce& 'he 0or3force .y 1@K. Schrempp reorgani#e& Daim er!"en# in'o fi*e &i*isions 'ha' con'aine& 2I .usiness uni's in 'he .eginning of 1996. 2he &i*isions 0ere passenger cars, commercia *ehic es, aerospace, ser*ices, an& &irec' y manage& .usinesses +rai sys'ems, au'omo'i*e e ec'ronics, =2DF&iese engines,. Cri'ics in %ermany sai& 'ha' Schrempp 0as a renega&e suppor'er of $ng o!Sa)on corpora'e e'hics, 0ho pu' Daim er!"en#(s share price .efore 'he 0e fare of 'he 0or3ers an& &isrup'e& 'he ong!s'an&ing socia con'rac' .e'0een emp oyers an& a.or .y &es'roying 'housan&s of 5o.s an& s/uee#ing pay an& .enefi's. Schrempp(s re a'ions 0i'h a.or 0ere &ifficu '. :is mos' famous c ash 0i'h emp oyees came o*er 'heir hea 'h .enefi's, 0hich he a''emp'e& 'o cu' .ac3 in 199<. 2ha' &ecision, 0hich 0as no' fo o0e& .y o'her companies, 'riggere& such an uproar 'ha'

!8! he 0as force& 'o .ac3 &o0n. On 'he o'her han&, Schrempp 0on praise from 'he in*es'ors. 2he resu 's of 'he res'ruc'uring 0ere impressi*e. $s sho0n in 'able 1, af'er a recor& ne' oss in 199H of MI.16 .i ion, one of 'he .igges' annua osses in European corpora'e his'ory, Daim er pos'e& profi's of a.ou' M1.< .i ion for 199< an& M1.8 .i ion .efore a 'a) cre&i' in 1996. 2a. e 1. Daim er!"en#(s opera'ing profi's an& re*enues .y &i*ision. +in DE= mi ions, 1(() +perating ,rofit I,1I2 ?81 ?I2 ?H6 +129, #evenues HI,892 I9,1?@ 1H,28< 1H,?98 6,HHH 1((* +perating ,rofit I,@9@ +IH?, +19<, 288 +H8H, #evenues ?<,<H2 I2,1H2 1I,@HI 1I,1?I 8,@1?

Bassenger cars Commercia *ehic es $erospace Ser*ices Direc' y manage& .usinesses

Daimler-Benz aerospace segment In 'he aerospace .usiness, Daim er .ecame more pro&uc'i*e an& efficien'. 2hree of 'en p an's 0ere c ose& an& ne0 pro&uc'ion me'ho&s he pe& 'o re&uce cyc e 'ime .e'0een p ane or&er an& &e i*ery .y H@K. Schrempp a so &eci&e& 'o s'op financing 'he company(s s'rugg ing Du'ch air ine ma3er, ;V Ao33er, an& 0ri'e off 'he en'ire in*es'men'. In 'he process, Schrempp pro*e& 'o .e a mas'er of .oar&room po i'ics. :e ac3no0 e&ge& his ro e in .uying 'he company a fe0 years ear ier an& as3e& for a *o'e of confi&ence from 'he .oar&. 2he .oar& .ac3e& him in fu . 7I am 'he firs' 'op man 0ho has . o0n ou' DE=2.I .i ion P.y in*es'ing in H1K of Ao33erQ an& 0ho says 0i'hou' a &ou.', 'his 0as my fau '. 4hi e o'her managers ha*e .een fire& for DE=H@ mi ion, I(m s'i here. $n& I 'hin3 I(m no' e*en arrogan'L5us' *ery se f assure&.9< In a&&i'ion, $ir.us s'ar'e& a ne0 effor' 'o cap'ure mar3e' share from "oeing, 'he 0or & ea&er. Cey 'o 'his p an 0as 'o en arge 'he $ir.us fami y of p anes, .ringing ou' ne0 mo&e s 'ha' 0ou & ea' in'o ca'egories 0here "oeing ha& a monopo y. 2his ne0 s'ra'egy, com.ine& 0i'h s'rong air ine or&ers an& 'he 0ea3 %erman &eu'sche mar3, resu 'e& in $ir.us(s reco*ery. In 1996, or&ers rose near y H@K 'o an a !'ime high of ?<@ p anes, *a ue& a' near y MI@ .i ion, gi*ing $ir.us ?HK of 'he 0or & mar3e'. $s a resu ', Daim er!"en#(s aerospace &i*ision D$S$ repor'e& 1996 opera'ing profi's of DE=?I2 mi ion on re*enues of DE=1H.28< .i ion, af'er pos'ing osses in 199H an& 199<.

2hese &a'a are &ra0n from a 'a. e 'i' e& 7Es'ima'e& Je*e s of In'egra'ion an& Bro&uc'ion Bar's Burchasing,9 in "utomotive News #urope +19 January 1998,.

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!9! Daimler-Benz commercial vehicle segment 4hen Schrempp 'oo3 o*er, 'he 'ruc3 .usiness ha& .een hur' .y a com.ina'ion of 0ea3 European mar3e's, fierce price compe'i'ion from Vo *o an& Scania, Daim er(s ou'mo&e& 'ruc3 an& .us &esigns, an& 'he company(s high!cos' pro&uc'ion me'ho&s. In Europe, Daim er a&&resse& 'hese pro. ems 'hrough pro&uc'ion of a series of ne0 hea*y!&u'y 'ruc3s, igh'er 'ruc3s, an& *ans. In a&&i'ion, 'he company 0en' face 'o face 0i'h i's unionsLs're'ching 'he .oun&aries of %ermany(s co ec'i*e .argaining agreemen's 'o 'he imi'L'o nego'ia'e pro&uc'i*i'y agreemen's on a p an'!.y!p an' .asis. =any 'ruc3 opera'ions 0ere re oca'e& 'o p aces i3e 2ur3ey an& "ra#i so 'ha' rough y ha f of a Daim er 'ruc3 pro&uc'ion 0as ou'si&e %ermany. Daim er(s D.S. 'ruc3 opera'ion, Areigh' iner, 0as in a &ifferen' posi'ion. 2he company ha& .een .oos'ing mar3e' share since 'he ear y 199@s. Areigh' iner(s share in 'he ;or'h $merican mar3e' in hea*y!&u'y C ass 8 'rac'or! 'rai er ca.s rose from 2IK in 199H 'o 29K in 199< an& I@K in 1996. 2he aim 0as 'o increase 'he share 'o more 'han ?@K .y 2@@@. 2he effor' 0as he pe& .y 'he 1996 purchase of Aor& :ea*y 2ruc3s. =a3ing 'he &ecision 'o .uy Aor&(s hea*y!&u'y 'ruc3 opera'ion 'oo3 on y '0o 0ee3s. 7Dn&er 'he pre*ious sys'em, i' 0ou & ha*e 'a3en si) 'o eigh' mon'hs,9 Schrempp no'e&.6 Daimler-Benz passenger car segment 2he au'omo'i*e &i*ision 0as hur' in 'he ear y 199@s .y ne0 u)ury cars in'ro&uce& .y 2oyo'a +Je)us,, :on&a +$cura,, an& ;issan +Infini'i,. 2hese cars compare& in /ua i'y, comfor', an& s'y ing 'o =erce&es, .u' 'hey cos' much ess. Bar' of 'he price &ifference 0as &ue 'o e)change ra'es, 0hich ga*e 'he Japanese a 'emporary a&*an'age. %ermany(s high a.or cos's hur' Daim er 'oo. $' more 'han MI@ an hour p us .enefi's, 'he coun'ry(s a.or cos' 0as 'he 0or &(s highes'. Daim er a so suffere& from an'i/ua'e& an& inefficien' pro&uc'ion me'ho&s. "y one accoun', 0hi e i' 'oo3 2@ hours 'o .ui & a Je)us, i' 'oo3 .e'0een <@ hours an& 8@ hours 'o ma3e a =erce&es. =erce&es &i& no' ignore 'he 0a3eup ca from Japan, .u' 'here 0as consi&era. e resis'ance 'o change from managemen' an& 'hus progress 0as s o0. One of Schrempp(s firs' mo*es af'er .eing appoin'e& chair 0as +as 0as &one 0i'h 'he 'ruc3 opera'ions, 'o face &o0n 'he po0erfu unions an& 'o hammer ou' ne0 p an' con'rac's 'ha' 0ou & .oos' pro&uc'i*i'y an& cu' cos's. $rowth strategy and models1 =erce&es!"en# specia i#e& in 'op!/ua i'y u)ury *ehic es, an& e*en 'he company(s mi&& e!c ass cars 0ere 'he choices' mo&e s cos'ing more 'han compara. y si#e& compe'i'ors. Schrempp 0as con*ince& 'ha' 'o sur*i*e, =erce&es ha& 'o gro0. %ro0'h, he figure&, mean' e)pan&ing &o0n mar3e'. 2he .asic aim 0as 'o essen 'he company(s &epen&ence on pricey mo&e s such as 'he S!C ass. =erce&es(s s'ra'egy 0as no' 'o en'er 'he mass mar3e', .u' ra'her 'o es'a. ish premium niches 0i'hin e*ery par' of 'he mar3e'Lno' 5us' a niche for peop e 0ho pai& a premium for pres'ige an& percei*e& /ua i'y. In essence, =erce&es 0as 'rying 'o en'er 'he mass mar3e' 0i'hou' .ecoming a par' of i', a fea' 'ha' 'he company ha&
$n&rea -o'hman an& -uper' Spiege .erg, 7A am.oyan' Daim er E)ecu'i*e is Aamous for :is -is3!2a3ing,9 Seattle Times, 6 =ay 1998, D1.
6

!1@! manage& 'o pu off .efore 0i'h i's C!C ass, 0hich 0as un*ei e& in 1982. 4i'h 'ha' e)amp e in min&, Schrempp pu' his au'hori'y .ehin& 'he =!C ass spor'!u'i i'y *ehic e, 'he $!C ass 'o0n car, an& 'he Smar' Car 5oin' *en'ure 0i'h S0a'ch. In a&&i'ion, he e)'en&e& 'he e)is'ing E!C ass, C! C ass, an& S!C ass pro&uc' ines .y in'ro&ucing ne0 mo&e s. $s Schrempp sa0 'hings, 'he common fac'or 0i'h a 'hose cars 0as 'ha' 'hey ser*e& no' 'he mass mar3e', .u' a niche of peop e 0ho 0ere prepare& 'o pay e)'ra for percei*e& /ua i'y an& 'he =erce&es name. 2ha', he figure&, offere& some pro'ec'ion from 7&o0n9 au'o cyc es. 2he =!C ass spor'!u'i i'y *ehic e, .ui ' in =erce&es(s faci i'y in 2usca oosa, $ a.ama, 0hich opene& in 1996, ha& a is' price s'ar'ing a' a.ou' MIH,@@@ an& compe'e& 0i'h 'he i3es of 'he Aor& E)p orer an& 'he Jeep %ran& Chero3ee. 2he $ a.ama faci i'y 0as =erce&es(s firs' ma5or foray in'o car ma3ing ou'si&e %ermany. 2he =!C ass 0as *ery successfu from i's aunch in a'e 1996. In ear y 1998, a po'en'ia .uyer ha& 'o 0ai' up 'o eigh' mon'hs for &e i*ery. 2here 0ere p ans 'o increase 'he pro&uc'ion capaci'y of 'he $ a.ama p an' .y 2@K in 1999, from <H,@@@ 'o 8@,@@@ uni's a year, 0i'h some uni's &esigna'e& for e)por' 'o Europe. 2he $!C ass, a sma commu'er car 'ha' so far ha& on y .een mar3e'e& in Europe, 0as surroun&e& .y con'ro*ersy from 'he .eginning. I' 0as 'he eas' e)pensi*e =erce&es 'o &a'e +a' a.ou' M1?,@@@,. I' 0as sma , an& ha& on y an 82!horsepo0er engine. =os' of 'he con'ro*ersy, ho0e*er, s'emme& from 'he fac' 'ha' 'he car fai e& 'o pass 'he so!ca e& 7E 3 2es'9 performe& .y S0e&ish au'o 5ourna is's, a no!.ra3es, high!spee&, *io en' s0er*e 'o simu a'e a*oi&ing a arge anima 'ha' has 0an&ere& on'o 'he high0ay. 2he fron' 0hee &ri*e car f ippe& o*er, 'hrea'ening Daim er 0i'h a huge mar3e'ing &isas'er. 2he ne0s cause& Daim er(s s'oc3 'o &rop 2HK 'o a o0 of M<I, an& 'he company 0as force& 'o .ac3 &o0n from . aming 'he 5ourna is's. Schrempp pu' 'oge'her a 'as3 force of 0ha' he ca e& 7our mos' .ri ian' peop e9 'o come up 0i'h a so u'ion. ;ine'een &ays a'er, 'hey re ease& a p an 'ha' inc u&e& a ha ' on a $!C ass sa es an& a change in 'he car(s &esign 'o o0er 'he chassis, pu' on 0i&er 'ires, an& ins'a 7e ec'ronic s'a.i i#ing runners9 on 'he insi&es of 'he 0hee s, a' a cos' of M2@@ mi ion. "y January 1998, af'er 'he changes ha& .een ma&e, 'he car passe& 'he 'es' an& norma sa es resume&. Daim er es'ima'e& 'ha' i' cou & se a of 'he 1H@,@@@ $!C ass cars 'ha' i' cou & ma3e in 'he year. $f'er fi)ing 'he pro. ems 0i'h 'he $!C ass an& pos'ing hea 'hy 1996 resu 's, 'he shares reco*ere& an& resume& 'heir ascen'. Schrempp 3ne0 he 0as 0a 3ing a 'igh'rope1 7If 0e ma3e a mis'a3e, i' 0ou & no' on y affec' 'he profi'a.i i'y of 'he $!C ass, i' 0ou & ha*e a nega'i*e impac' on =erce&es genera y.98 "y 1999, =erce&es hope& 'o .e pro&ucing 2@@,@@@ $!C ass *ehic es in %ermany an& ano'her 6@,@@@ in a ne0 M?@@ mi ion p an' in "ra#i . 2he Smar' Car +.ui ' .y Daim er, .u' no' a =erce&es, 0as 'he pro&uc' of an 81F19 percen' 5oin' *en'ure of Daim er!"en# an& S=: $.%., 'he S0iss ma3er of S0a'ch 0a'ches. 2he car 0as a 'iny '0o!sea'er &esigne& for ci'y use. I' 0as no' e)pec'e& 'o e*er se in 'he Dni'e& S'a'es. 2his car 0ou & .e .ui ' in a ne0 fac'ory in Arance, 0i'h an annua capaci'y of 2@@,@@@ uni's.

%reg S'einme'# an& "ran&on =i'chener, 7Dn&er Schrempp, Daim er S0i'ches Aocus 'o Cars, Brofi',9 %all Street &ournal, 6 =ay 1998, "1.

!11! Daim er ha& a so in'ro&uce& a s'ream of ne0 mo&e s, inc u&ing 'he ne0 E!C assG 0agons for 'he C!C assG an& 'he ne0 SJC, a sma roa&s'er 'ha' ha& a s'ee roof 'ha' re'rac'e& in'o 'he 'run3. 2his car, 0hich so & a' M?@,@@@, fo o0e& "=4(s RI an& Borsche(s "o)s'er 'o open up a comp e'e y ne0 spor's car niche in 'he Dni'e& S'a'esLsome0here .e'0een 'he M2@,@@@ =a#&a =ia'a an& 'he M6@,@@@ Borsche 911. 2he SJC represen'e& a more you'hfu image for =erce&es. 4ai'ing is's for 'his car 0ere as ong as '0o years in 'he mi&& e of 1996. In 1996, Daim er in'ro&uce& i's CJC coupe, fo o0e& .y a CJC con*er'i. e in 1998. $ so in 1998, Daim er e)pec'e& 'o in'ro&uce an a !ne0 u)ury S!C ass mo&e , fo o0e& perhaps in 2@@1 or 2@@2 .y 'he =ay.ach, an e*en more u)urious car 'ha' +'he pro'o'ype sugges's, cou & come 0i'h such fea'ures as a ho'!an&!co & &rin3 .ar, an in!car persona compu'er, an& a arge!screen 2V. Bassenger!car sa es .y mo&e an& .y geographica area are sho0n in 'able 2. 2a. e 2. Daim er!"en# passenger car sa es in 1996. -nits . Change +@@@, from 1((* 61H 11 6 I?9 2? 22 ?6 266 SH <I S8 1< I S2I ?66 8 19? 11 266 1I@ 122 6 28 ?2 9 12 H ?@ IH 11 S6 2 1 S18 ,rice Category M1?,@@@ MIH,@@@ M?@,@@@ M<H,@@@ MI?,@@@

4or & of 0hich1 $!C ass C!C ass of 0hich1 CJC SJC E!C ass S!FSJ!C ass =!C ass %!C ass Europe 4es'ern Europe +e)c u&ing %ermany, %ermany ;or'h $merica D.S.$. +re'ai sa es, Ja'in $merica Aar Eas' +e)c u&ing Japan, Japan +ne0 regis'ra'ions, =i&& e Eas' -epu. ic of Sou'h $frica

In 1996, g o.a au'omo'i*e sa es increase& .y on y IKG ho0e*er, Daim er sa es increase& .y 11K, one of 'he .igges' increases of any ma5or au'oma3er. 2his increase 0as primari y &ue 'o 'he success in 'he mar3e' of 'he ne0 *ehic es an& 'o fa*ora. e e)change ra'es.

!12! Design and production1 2o achie*e i's goa of pro&ucing cheaper cars 0i'hou' pena i#ing profi'a.i i'y, Daim er .ro3e 'he ru es on ho0 'o succee& in 'he au'o .usiness. Con*en'iona 0is&om sugges'e& 'ha' au'oma3ers shou & re&uce 'he num.er of &ifferen' p a'forms on 0hich 'hey .ui & 'heir &ifferen' chassis. 2ha' 0as 0ha' 2oyo'a, Chrys er, an& V4 ha& &one. "u' =erce&es pro&uce& a ne0 p a'form for each of i's ne0 car ines, an& e)pec'e& money on each a' a pro&uc'ion e*e 'ha' 0as .e o0 'he .rea3e*en poin' for 'he .igger fu ! ine manufac'urers. Sharing p a'forms 7is cer'ain y cos' effec'i*e, .u' I &on(' 'hin3 i'(s 'he 0ay 'o &o i',9 sai& Schrempp. 7If you 5us' pu' a &ifferen' .o&y on 'he same .ase, a you are &oing is foo ing cus'omers. 2ha'(s no' 'he 0ay 'o 0in sa es.9 9 Daim er!"en# re&uce& i's e*e of *er'ica in'egra'ion .u', a' ?@K, Daim er 0as s'i more *er'ica y in'egra'e& 'han Chrys er a' 2HK. 'nternational strategy1 Daim er so & i's cars 0or &0i&e an& ha& a g o.a &is'ri.u'ion ne'0or3. $s &epic'e& in 'able /, i' 0as a so increasing y oca'ing i's au'omo'i*e pro&uc'ion ou'si&e %ermany. 2a. e I. Vehic e opera'ions .y geographic area. ,roduction 0ocations Europe ;or'h $merica Sou'h $merica $frica $us'ra iaFOceania $sia 21 1@ ? I 1 6 &ales #evenues ,ersonnel +rganization +in mi ions DE=, 0ocations I,?IH HH,9<< 161,668 <HH 19,19@ 1H,I21 ?<8 ?,<8I 1I,128 262 I,@66 I,81H 18< 1,@?? <82 9I1 6,<62 2,<18

=ore 'han '0o!'hir&s of Daim er(s 'o'a re*enues origina'e& ou'si&e %ermany, an& more 'han one!'hir& of i's s'oc3 0as he & in'erna'iona y. +1nership of Daimler-Benz"s e2uity Deu'sche "an3 ha& cu' i's in'eres' in Daim er from 28K 'o 21.6K. $' 'imes, Deu'sche "an3 ha& 'a3en 'he ea& in s'ra'egic &ecisions a' Daim er. I' engineere& 'he appoin'men' of E&#ar& -eu'er as chair of Daim er(s managemen' .oar& in 1986 an& suppor'e& Daim er(s &i*ersifica'ion s'ra'egy in 'he 198@s. %erman ins'i'u'iona in*es'ors he & a.ou' ?8K of Daim er(s shares. 2he Emira'e of Cu0ai' o0ne& a.ou' 1IK. Dn i3e 'he sing e .oar&s foun& in 'he Dni'e& S'a'es, %erman companies ha& a managemen' .oar& ()orstand*, compose& so e y of e)ecu'i*es charge& 0i'h a company(s &ay!'o! &ay opera'ions, an& a super*isory .oar& + "ufsichtsrat,, 0hich represen'e& a company(s arges'
9

Bau C e.ni3o*, 7=erce&es!"en#(s "o & ;iche S'ra'egy,9 Forbes +8 Sep'em.er 1996,1 <8.

!1I! shareho &ers an& i's 0or3ers, an& o*ersa0 'he managemen' .oar&. 2he sys'em ga*e each .oar& cer'ain chec3s an& .a ances so 'ha' nei'her &omina'e& 'he firm. Daimler-Benz labor unions %ermany ha& a &ua sys'em of 0or3er represen'a'ion. $' 'he company e*e , 0or3ers ha& 'he righ' 'o par'icipa'e in managemen' &ecisions. Dn&er 'he %erman sys'em of co&e'ermina'ion, a mos' ha f of 'he sea's of 'he "ufsichtsrat ha& 'o .e fi e& 0i'h a.or represen'a'i*es in arge en'erprises. 4hi e 'hey cou & .e ou'*o'e& in 'he super*isory .oar&, 'heir access 'o informa'ion an& &ecision!ma3ing ga*e 'hem a s'ronger han& in a.or nego'ia'ions. 4or3er counci s (+etriebsr,te* a so represen'e& 'he in'eres's of 'he 0or3ers a' 'he company e*e . 2hey ha& a *oice in socia an& personne ma''ers. $' 'he na'iona e*e , 16 arge a.or unions, 0hich 0ere organi#e& on an in&us'ry .asis, 0ere primari y responsi. e for in&us'ry!0i&e co ec'i*e .argaining of 0ages an& sa aries, an& o'her ma''ers such as 'he shor'ening of 'he 0or30ee3 an& *aca'ion 'ime. I% =e'a , 'he po0erfu me'a 0or3ers union, 0hich ha& 2.6 mi ion mem.ers, represen'e& 'he au'omo.i e in&us'ry(s 0or3ers. Compare& 'o o'her coun'ries, 'he co ec'i*e .argaining process for 0ages 0as accompanie& .y re a'i*e y fe0 s'ri3es in %ermany. -easons con'ri.u'ing 'o 'his o0 s'ri3e ra'e 0ere 'he e)is'ing conf ic' reso u'ion mechanism as 0e as %erman a.or a0s, 0hich o. ige& managemen' an& a.or groups 'o see3 peacefu so u'ions 'o conf ic's, as 0e as genera y coopera'i*e re a'ionships .e'0een capi'a an& a.or. Executive compensation Compensa'ion for %erman e)ecu'i*es 0as significan' y o0er 'han for 'heir $merican coun'erpar's. E)ecu'i*e pay in %erman firms ha& 'o .e re*ie0e& .y 'he super*isory .oar& of 'he company. In a&&i'ion, %erman companies 0ere no' re/uire& 'o &isc ose e)ecu'i*e pay 'o 'he same e)'en' 'ha' D.S. companies &i& +as re/uire& .y 'he D.S. Securi'ies an& E)change Commission,. Daim er &isc ose& pay on y on an aggrega'e .asis, an& repor'e& 'ha' in 1996 'he 1@ e)ecu'i*es on 'he managemen' .oar& recei*e& 'o'a remunera'ion of DE=2@ mi ion, 1@ or M11.I mi ion a' 'he recen' e)change ra'e of DE=1.66 'o 'he D.S. &o ar. Schrempp ma&e a.ou' M2.H mi ion a year. In comparison, Chrys er chair an& CEO -o.er' Ea'on ma&e M1< mi ion in 1996. Dn&er Schrempp, Daim er 0as 'he firs' %erman company 'o offer s'oc3 op'ions 'o i's e)ecu'i*es. 2he union mem.ers on 'he super*isory .oar& oppose& Schrempp(s &ecision 'o offer s'oc3 op'ions 'o managemen', .u' Schrempp pre*ai e& on an 11!'o!9 *o'e 0i'hin 'he .oar&. $no'her proposa , 'o crea'e an incen'i*e pay p an 'ha' re0ar&e& emp oyees .ase& on 'heir con'ri.u'ion 'o o*era profi's, passe& more easi y. $ 1H@,@@@ =erce&es 0or3ers 0ou & /ua ify for a .onus.
Jay Ba mer, 7Sha3e!Dp $r'is'1 Daim er!"en# Chairman Jrgen Schrempp has Cnoc3e& 'he Dus' off =erce&es, -es'oring :ope for European =anufac'urers,9 +arron-s +2I =arch 1998,1 IH.
1@

!1?! 'rends in the !lobal Automobile 3ndustry "y ear y 1998, recen' e*en's sugges'e& 'ha' 'he compe'i'i*e an&scape of 'he au'omo.i e in&us'ry ha& change& permanen' y. 4hi e 'he announcemen' of a iances an& mergers 0as a s'ea&y occurrence o*er 'he years, 'he na'ure an& fre/uency of 'hese &ea s ha& .ecome more in'ense. Brice 4a'erhouse es'ima'e& 'ha' 0or &0i&e in 1996, au'o firms s'ruc3 6H@ mergers or a iances 0i'h a 'o'a *a ue of M28 .i ion. Consis'en' 0i'h .o'h 'he air ines an& 'he 'e ecommunica'ions in&us'ries, 'here 0as a more asser'i*e a''emp' 'o conso i&a'e p ayers in 'he in&us'ry, 'here.y crea'ing a ne0 form of compe'i'ionL'he 'ru y g o.a car company. On y a sma num.er of au'oma3ers, i3e 2oyo'a, V4, Aor&, an& %=, ha& 'he capa.i i'y 'o go g o.a 0i'hou' ma5or ac/uisi'ions. 2hese firs'!'ier firms cou & pursue a 0or &0i&e s'ra'egy .y .uying sma er pro&ucers 0i'h recogni#e& name .ran&s. 2he man'ra .ecame, 7If you 0ish 'o succee&, you ha*e 'o .e 0or &0i&e.9 S'an&ar& N Boor(s D-I pre&ic'e& 'ha' o*er 'he ne)' 'en years 'here 0ou & .e a re&uc'ion in 'he num.er of in'erna'iona pro&ucers, 0here.y 'he I9 curren' pro&ucers 0ou & .e re&uce& 'o a.ou' 2@ ma5or companies. Car manufac'urers ha& .een opera'ing in'erna'iona y for many years. 2hey ha& e)por'e& mo&e s 'o o'her coun'ries, assem. e& an& engineere& cars an& 'ruc3s for foreign mar3e's, an& source& from non!D.S. supp iers for years. In a&&i'ion, 'hese firms ha& 'a3en e/ui'y s'a3es in numerous foreign par'ners. 2he is' inc u&e&, for e)amp e, Aor& an& Jaguar, Aor& an& =a#&a, %= an& Saa., %= an& Su#u3i, an& "=4 an& -o*er. >e' effor's 'o form 'ru y g o.a companies 0ere of a &ifferen' or&er. 2here 0ere /ui'e simp y *ery fe0 successes a' .ui &ing an& &is'ri.u'ing a global car. 2he mo'i*a'ions &ri*ing Chrys er an& Daim er!"en# e)'en&e& .eyon& 'he &e*e opmen' of a g o.a car, ho0e*er. 2ypica y, conso i&a'ion 0as &ri*en .y a series of fac'ors. 2hese fac'ors 0ere a responses 'o 'he pressures of a &ynamic, changing in&us'ry. I' 0as 'oo simp e 'o say 'ha' 'he 0or & 0as changing. 2here 0ere re en' ess cos' an& 'ime pressures 0herein 'he &esign an& in'ro&uc'ion of ne0 an& inno*a'i*e mo&e s ha& 'o .e comp e'e& in shor'er 'ime perio&s an& ess e)pensi*e y. O'her fac'ors a&&e& 'o 'he comp e)i'y1 consumer 'as'es 0ere changingG 'he In'erne' 0as o0ering .arriers 'o informa'ion 'ransferG pro&uc' in'ro&uc'ion an& commona i'y among processes an& pro&uc's 0as .ecoming 'he pa'h 'o 'he .o''om ine. 11 $' 'he e)'reme, 'here 0as 'a 3 a.ou' 'he era of 'he *ir'ua cus'omer 0ho 0ou & .e in'egra'e& in'o a manufac'uring process 'ha' 0as fe& .y g o.a supp iers an& 'ha' fe& in'o 0or &0i&e &is'ri.u'ion. 2here 0ere a num.er of recen' 'ren&s 'ha' appeare& 'o ie a' 'he hear' of 'he recen' conso i&a'ion 0a*e. +vercapacity 2he in&us'ry 0as p ague& .y e)cess capaci'y. 2hrough conso i&a'ion, assem. y p an's cou & .e ra'iona i#e&. Carma3ers in 4es'ern Europe a rea&y ha& 'he capaci'y 'o pro&uce I@K more cars 'han 'hey cou & se .12 2his resu 'e& in i& e e/uipmen', 0as'e& in*es'men's,
Daim er!"en# 1996 $nnua -epor', 8@. Da*i& Smi'h, 7D.S. $u'oma3ers 2a3e a ;e0 SpinG 2he 4or & :as Change& an& so :a*e 2hey,9 %ard-s "uto %orld I?, I1 I8.
12 11

!1H! un&eru'i i#e& 0or3ers, an& su.norma re'urns. 2he 'ension aroun& 'hese &ecisions 0as 'he po i'ica pressure agains' shu''ing &omes'ic p an's, aying off 0or3ers, an& searching for o0er! cos' a.or an& manufac'uring si'es in &e*e oping coun'ries. Ironica y, 'his mo*emen' of manufac'uring 'o &e*e oping coun'ries par' y e)acer.a'e& 'he pro. em of e)cess capaci'y. =any of 'he p an's in $sia, for e)amp e, ha& .een .ui ' 0i'h go*ernmen' . essing as an a''emp' 'o promo'e manufac'uring an& crea'e fair y high!paying 5o.s, no' 'o men'ion 'ha' a homegro0n au'o in&us'ry is a manner of na'iona pri&e. Coun'ries 0i'h emerging economies, i3e "ra#i , sa0 an au'omo'i*e in&us'ry as a 0ay 'o increase 'he a.i i'y 'o e)por' pro&uc's an& s'imu a'e in'erna gro0'h. >e' a num.er of 'he sma er companies, par'icu ar y in $sia, 0ere a' ris3 i3e Cia an& :yun&ai. 4hi e no' ac/uisi'ion 'arge's per se, .o'h 0ere i3e y 'o .e sough' as 5oin' *en'ure par'ners. =any .e ie*e& 'ha' 'he conso i&a'ion 0ou & 'a3e ou' capaci'y, 0hich 0ou & re&uce 'he pricing pressures cause& .y 0or &0i&e e)cess pro&uc'ion capaci'y. Development costs 2he cos's associa'e& 0i'h a aspec's of ne0 mo&e &e*e opmen' ma&e i' *ery &ifficu ' for a sma manufac'urer 'o sur*i*e, since 'hose cos's 0ere a oca'e& o*er a sma er *o ume of cars. De*e opmen' cos's inc u&e& &esign an& 'oo ing, emissions engineering, e ec'ronics, an& manufac'uring process &esign. O'her nonpro&uc'ion cos's associa'e& 0i'h manufac'uring inc u&e& 'he e)pense of in3ing supp iers an& &ea ers e ec'ronica y an& g o.a y. $''emp's 'o shor'en 'he pro&uc'ion an& &esign cyc es 0ou & pay off o*er 'ime, .u' 'hese re/uire& a su.s'an'ia ini'ia in*es'men'. $ &rama'ic re&esign of a car cou & inc u&e 'he use of igh'er! 0eigh' ma'eria s, 'he use of a 'erna'i*e fue sources, an& changes 'o .o'h 'he engine an& 'he .ra3ing sys'em. 2he price 'ag for 'hese changes 0ou & 0orry e*en 'he arges' companies. &ourcing and supply-chain costs In par', 'he in&us'ry(s conso i&a'ion 0as &ri*en .y a &esire 'o o0er 'he cos's of purchase& ma'eria s .y com.ining purchasing func'ions an& e)ercising grea'er po0er as a resu '. 2ypica y, firms a''emp'e& 'o 0in price concessions from supp iers .ase& on sheer *o ume. "eyon& 'he sa*ings 'ha' accrue& 'hrough *o ume, 'here 0ere gains 'o .e ma&e in 'he use of common par's. 4hen Chrys er .egan purchasing 'he same air!.ag par' from -o.er' "osch, 0ho ha& pre*ious y supp ie& =erce&es, 'he cos' 'o .o'h fe ?@K since "osch cou & no0 5us'ify &e&ica'e& pro&uc'ion in =e)ico. Smar' sourcing a so affec'e& 'he re*enue si&e of 'he e/ua'ion, since .y 0or3ing more c ose y 0i'h 3ey supp iers, carma3ers cou & e*erage 'heir supp iers( e)per'ise an& o'her sources of compe'i'i*e a&*an'age. :on&a, for e)amp e, a''ri.u'e& significan' gains in i's a.i i'y 'o &esign an& pro&uce ne0 mo&e s a' o0er cos's 'o 'he inpu' an& e)per'ise of i's 3ey supp iers.

!1<! 4ar5et access and product diversity 2he a.i i'y of niche manufac'urers 'o sur*i*e o*er 'he ong 'erm 0as imi'e& .o'h .y geography an& .y 'he narro0 focus of 'heir pro&uc' ines. $' 'he core of merger &iscussions in 'he au'omo'i*e in&us'ry of 'he 199@s 0as 'he no'ion of comp emen'ari'y1 2he po'en'ia par'ners( a.i i'y 'o fi gaps in .o'h mar3e's an& pro&uc's. One assump'ion 0as 'ha' on y fu pro&uc' ine, g o.a pro&ucers 0ou & sur*i*e. =ar3e' access 0as affec'e& .o'h .y e)is'ing &is'ri.u'ion ne'0or3s an& .y na'iona po icy, 0hich &ic'a'e& 'he manner in 0hich a foreign au'oma3er cou & en'er a hos' coun'ry. In some ins'ances, oca pro&uc'ion migh' .e re/uire&, or 'here migh' .e ru es regar&ing a cer'ain percen'age of oca con'en' in 'he cars so &. $ 'hough 'he merger fai e&, par' of 'he ra'iona e for 'he Vo *o!-enau ' marriage 0as a comp emen'ari'y in mar3e' presence. In a&&i'ion, 'he pro&uc' ines &i& no' o*er ap much, an&, on 'he surface, each seeme& 'o fi gaps in 'he o'her(s offerings. "=4 0as a''rac'e& 'o -o*er, .ecause i's pro&uc's .roa&ene& "=4(s pro&uc' offering 0i'hou' &i u'ing 'he up!mar3e' "=4 image 0i'h sma er cars an& spor'!u'i i'y *ehic es. "=4(s s'ra'egy 0as 'o encourage -o*er(s "ri'ishness 0i'h .ig in*es'men's in 'he Dni'e& Cing&om, 0hi e sharing par's an& impro*ing /ua i'y an& &is'ri.u'ion.1I 0egal and financial considerations I' 0as i3e y 'ha' 'he conso i&a'ion among companies 0ou & pro*i&e access 'o capi'a an& capi'a mar3e's 'ha' migh' o'her0ise ha*e .een imi'e& ei'her .ecause of regiona .iases or si#e consi&era'ions. 2o .e g o.a in scope an& si#e no' on y .es'o0e& more fa*ora. e ra'es on 'he issuance of s'oc3 or &e.', .u' i' a so .roa&ene& 'he range of a*ai a. e financia mar3e's. Aor ins'ance, as a .enefi' of conso i&a'ion, a foreign!.ase& company migh' 'ra&e in 'he Dni'e& S'a'es as a g o.a s'oc3 ra'her 'han 'hrough 'he use of $merican Deposi'ory -eceip's +$D-, 'ha' en'ai e& comp e) regu a'ory issues an& of'en a&&e& e)pense. 2he poin' is 'ha' such g o.a firms se' 'he pace for 'he g o.a i#a'ion of 'he e/ui'y mar3e's. In a&&i'ion, a secon&!or&er effec' in*o *e& 'he go*ernance s'ruc'ure of 'he ne0 y conso i&a'e& company an& 'he /ues'ion of 0hich coun'ry(s a0s shou & 'a3e prece&ence. 2here migh' .e ess go*ernmen'a con'ro o*er ho0 'he ne0 y forme& g o.a firm .eha*e& compare& 'o 0hen 'he in&i*i&ua companies 0ere separa'e en'i'ies. 2o some e)'en', compe'ing on 'he 0or & scene migh' re&uce 'he regu a'ory po0er an& inf uence of na'iona go*ernmen's. Aor Chrys er an& Daim er!"en#, 'here 0ere a num.er of gains 'o .e achie*e& 'hrough 'heir merger. 'able 6 summari#es 'he a&*an'ages for .o'h. 2he /ues'ion remaine& 0he'her each gaine& e/ua y. $ 'hough Schrempp an& Ea'on con'emp a'e& a merger of e/ua s, crea'ing 'he 'hir& arges' au'oma3er in 'he 0or &, Daim er!"en# migh' appear 'o .e 'he more senior par'ner .ecause of i's si#e.

1I

$nne S0ar&son, 7European Carma3ers( 2raffic Jam,9 %ashington .ost, 1@ Sep'em.er 1998, C1.

!16! 2a. e ?. Bo'en'ia .enefi's 'o .o'h Chrys er an& Daim er!"en#. BE7E83'& '+ C9#:&0E# "oos's none)is'en' posi'ion in Europe Impro*e& /ua i'y from D!" engineering %i*es a European manufac'uring .ase =igh' gain from us'er of =erce&es name p a'e "roa&ens ine 'o u)ury en& Dses some pro&uc'ion capaci'y aroun& 'he 0or & Impro*es 'echnica capa.i i'y, o0er 0arran'y cos's Impro*e& safe'y fea'ures a*ai a. e &trategic Alternatives $s companies e)amine& 'he op'ions a*ai a. e 'o 'hem 'o 5oin forces an& a''emp' 'o accomp ish goa s 'ha' 0ou & .e &ifficu ' 'o achie*e a one, 'here 0ere a num.er of a 'erna'i*es 'o consi&er. 2he au'omo'i*e in&us'ry ha&, in recen' years, 0i'nesse& a num.er of a iances +some in 0hich e/ui'y s'a3es 0ere 'a3en an& o'hers 0here 'here 0as no e)change of o0nership,, as 0e as 5oin' *en'ures, mergers, an& ac/uisi'ions. 4erger In a merger, companies agree 'o an e)change of s'oc3 'ha' resu 's in 'he 5oin' o0nership of a ne0 company. 2ypica y, 'he '0o companies, in a frien& y e)change of s'oc3, com.ine 'o achie*e cos' sa*ings 'hrough 'he e imina'ion of re&un&an' faci i'ies an& .y o'her mechanisms. In a&&i'ion, 'hey of'en pursue oppor'uni'ies 'ha' 0ou & .e har& 'o 'a3e a&*an'age of a one. Schrempp an& Ea'on e)pec'e&, for e)amp e, 'o rea i#e pre'a) cos' sa*ings of M1.? .i ion in 1999 'hrough 'he e)change of componen's an& 'echno ogy, com.ine& purchasing, an& share& &is'ri.u'ion ne'0or3s. Schrempp(s s'aff .e ie*e& 'ha' 'hese synergies 0ou & gro0 'o MI.@ .i ion .y 2@@1, an& gro0 a' 'he ra'e of inf a'ion in 'he D.S. &o ar 'hereaf'er. +2hese synergies are not ref ec'e& in 'he e)hi.i's accompanying 'his case., 2here 0ere a so a num.er of o'her .enefi's 'ha' resu 'e& from .o'h par'ners earning from each o'her, an& incorpora'ing 'he .es' prac'ices of .o'h in 'he merge& company. &9A#ED BE7E83'& M1.? .i ion in pre'a) cos' sa*ings, e)pec'e& in 1999G e)pec'e& 'o gro0 'o MI.@ .i ion .y 2@@1, an& a' ra'e of inf a'ion 'hereaf'er Burchasing po0er "e''er capaci'y u'i i#a'ion 2echno ogy 'ransfer BE7E83'& '+ DA340E#-BE7; E)pan&s manufac'uring an& &ea ership opera'ions in D.S. Crea'es oppor'uni'y for 5oin' &e*e opmen' a' o0er cos's E)pan&s pro&uc'ion a.i i'y in 'he D. S. Com.ines 0i'h 'ruc3s, 'he igh'er ines from Chrys er :e ps a ign cos' s'ruc'ure "orro0s crea'i*e s'y ing Jeep a&&s 'o 'he image for SDV +ur.an an& rugge&,

!18! Alliances Dn i3e a merger, an a iance com.ines separa'e companies for 'he purposes of 'he co a.ora'i*e effor's &e inea'e& .y 'he par'ners. 2he separa'e organi#a'ions remain au'onomous .usinesses, each re'aining i's o0n go*ernance s'ruc'ure an& opera'ing processes an& princip es. Join' ac'i*i'ies, share& &ecision ma3ing, coor&ina'ion of ac'i*i'ies, an& open ines of communica'ion are a par' of 'he g ue 'ha' ho &s an a iance 'oge'her. $n a iance is a /uasi! organi#a'iona form in 0hich separa'e an& &is'inc' firms 5oin 'o accomp ish goa s 'ha' 0ou & .e &ifficu ' 'o achie*e a one. 2he cha enge is 'o &e*e op a managemen' process 'ha' encourages 'he coopera'i*e effor's of 'he par'ners. 2o 'he e)'en' 'ha' one en'ers an a iance 0i'h a 'ra&i'iona 7comman& an& con'ro 9 men'a i'y, i' can .e &ifficu ' 'o accomp ish goa s1 One canno' con'ro 0ha' one &oes no' o0n. $ iances, if proper y forme& an& nur'ure&, can accomp ish 'he same goa s as *er'ica y in'egra'e& firms 0i'hou' 'he a&&i'iona cos' .ur&en. $ iances are co a.ora'i*e *en'ures in 0hich companies ac3no0 e&ge 'heir in'er&epen&ence an& ac' in 'he in'eres' of 'he a iance. In con'ras' 0i'h a merger or ac/uisi'ion, 'here remains 'he possi.i i'y of oppor'unis'ic .eha*ior 0here.y one par'ner ac's in i's o0n se f!in'eres' 'o 'he &e'rimen' of 'he o'her. 2ha' is, a iance par'ners ha*e mu 'ip e 'as3s1 2hey 0or3 'oge'her 'o accomp ish 5oin' goa s, .u' a so main'ain in&i*i&ua agen&as an& o.5ec'i*es. 4hen 'hose &ifferen' goa s conf ic', 'he a iance suffers an& 'he propose& a&*an'ages are os'. In 'his regar&, a iances are /ui'e fragi e an& are su.5ec' 'o pressures an& 'ensions no' foun& in *en'ures 0here '0o or more firms re in/uish 'heir so*ereign'y 'o .ecome one cen'ra y manage& an& con'ro e& organi#a'ion 0i'h one se' of goa s. $ 'hough a iance con'rac's are i3e y 'o .e use& 'o forma i#e 'he 'erms an& con&i'ions of a re a'ionship, a iances are he & 'oge'her .y 'rus' an& commi'men' 'o 'he share& *ision of 'he a iance par'ners. $oint ventures Join' *en'ures +JV, are ano'her form of a iance in 0hich par'ners 5oin se ec'e& asse's an& form a separa'e en'i'y 'ha' .ecomes 5oin' y o0ne& .y 'he par'ners. One primary &ifference .e'0een JV a iances an& 'he a iance forms &iscusse& a.o*e is 'he &egree of em.e&&e&ness .e'0een 'he par'ners. JV par'ners ha*e commi''e& resources +for e)amp e1 peop e, fac'ories, &o ars, 'echno ogy,, an& 'hese asse's .ecome comming e& in 'he 5oin' *en'ureG i' is of'en much more &ifficu ' 'o e)i' 'he re a'ionship. $ so, JVs 'en& 'o ha*e more forma agreemen's .e'0een par'ners, .ase& main y on 'he fac' 'ha' par'ners ha*e forma y comming e& asse's in 'his ne0 y forme& separa'e en'i'y. 2here is a 5oin' go*ernance s'ruc'ure for 'he JV 'ha' is 5oin' y a&minis'ere& .y 'he par'ners, &epen&ing on 'heir e/ui'y sharing agreemen'. 4hi e mos' managers .e ie*e 'hey 0ou & prefer 'o .e 'he &ominan' shareho &er +i.e., ho & e/ui'y in'eres' in e)cess of H@K,, 'here is a compe ing argumen' for e/ua !e/ui'y JVs. 2his argumen' is .ase& on 'he .e ief 'ha' e/ua share in 'he JV ea&s 'o grea'er commi'men' an& a 0i ingness on 'he par' of 'he par'ners 'o 0or3 har& 'o o*ercome pro. ems in 'he JV. $gain, 'he e emen's of 'rus' an& commi'men' are impor'an' an& ser*e 'o comp emen' 'he 5oin' *en'ure agreemen' 'ha' nomina y se's 'he s'ruc'ure of 'he re a'ionships.

!19! Join' *en'ure par'ners some'imes s'rugg e e/ui'a. y 'o &e'ermine 'he *a ue of each par'ner(s con'ri.u'ion 'o 'he a iance. Aor e)amp e, one par'ner migh' .ring har& asse's 'o 'he JV, 0hi e 'he o'her .rings in'e ec'ua capa.i i'y +for e)amp e1 inno*a'ions, 'echno ogy, 3no0 e&ge of mar3e's,. 2he pro. em .ecomes ho0 'o &e'ermine a fair e)change ra'e. Simp y, 'he /ues'ion migh' arise1 :o0 many ne0 i&eas e/ua a fac'ory 0or'h MH mi ion con*er'e& for 'he nee&s of 'he 5oin' *en'ureT ,referred relationships Of 'he four re a'ionship 'ypes &iscusse& here, preferre& re a'ionships are 'he eas' forma an& 'herefore 'he mos' *o a'i eG 'hey are more 'ransac'iona in na'ure an& more su.5ec' 'o 'he 0hims of 'he par'ners. 2ies an& in3ages 'en& 'o .e oose an& *ie0e& as ess ong!'erm in na'ure. Aor ins'ance, par'ies may &eci&e 'o 'ra&e 0i'h each o'her, an& may &o so for many years. :o0e*er, 'he e*e of communica'ions an& 'he con'en' of informa'ion share& ne*er go .eyon& 'he 'ransac'ion a' han&. In an a iance, as oppose& 'o 'hese more arms! eng'h &ea ings, par'ners 'en& 'o e)change informa'ion germane 'o onger!'erm p ans an& s'ra'egic re/uiremen's o*er 'ime. Breferre& re a'ionships sugges' 'ha' a 'hings .eing e/ua , par'ners 0i con'inue 'o in'erac', .u' 'here is a much ess episo&ic na'ure 'o 'he re a'ionship. Commi'men' 'o 'he re a'ionship 'en&s 'o .e o0er 'han in any of 'he o'her re a'ionships men'ione& a.o*e. 2hese 3in&s of re a'ionships are of'en foun& .e'0een .uyers an& supp iers 0here one is gi*en 'he s'a'us of a preferre& supp ier .y *ir'ue of cer'ain s'an&ar&s .eing me' +for e)amp e1 cer'ifica'ion or ISO9@@2,. In a&&i'ion, 'here migh' e)is' a ong!'erm re a'ionship 'hrough 0hich .o'h par'ies share a &egree of comfor' an& 'rus'. $' 'he same 'ime, &isengagemen' is re a'i*e y easy 'o accomp ish, .o'h .ecause of 'he na'ure of 'he in3ages an& 'he fac' 'ha' 'he psycho ogica .on& .e'0een par'ners is re a'i*e y 0ea3. 'able < compares 'he *arious re a'ionship 'ypes &iscusse& here.

!2@! 2a. e H. $n array of re a'ionships. 0o1 Commitment 93!9 0ong-term focus S'ra'egic sourcing E*ergreen con'rac's Breferre& supp iers Commitment 0+= &hort-term focus Degree of commitment Commo&i'y purchasing or&er Joose in3ages Jus'!in!'ime +JI2, an& s'an&ar& ou'sourcing -ese er re a'ionships Co a.ora'i*e a&*er'ising S'an&ar& resources Share& fun&s Share& e/ui'y 4ho y o0ne& +1nership 9igh Join' *en'ure Co! manufac'uring pro&uc'ion $c/uisi'ionF merger

Join' *en'ure -ND par'nerships 'o co&e*e op Share& info a.ou' mar3e'sF -ND

Chrys er(s nego'ia'ion 'eam 0ou & nee& 'o assess 'hose a 'erna'i*e forms of com.ina'ion, paying par'icu ar a''en'ion 'o 'he re a'i*e a''rac'i*eness of 'he ou'righ' ac/uisi'ion of Chrys er .y Daim er *ersus 'he o'her 'ypes of &ea s. Schrempp ha& specifica y men'ione& an ac/uisi'ion. I' 0as -o.er' Ea'on(s e)pec'a'ion 'ha' 'he nego'ia'ing 'eam 0ou & serious y e)p ore 'his pa'h as 'he firs' course of ac'ion. "u' u 'ima'e y, Chrys er(s .oar& of &irec'ors 0ou & 0an' some 5us'ifica'ion as 'o 0hy ou'righ' ac/uisi'ion &omina'e& o'her 'ypes of &ea s as a 0ay 'o e)p oi' 'he .enefi's of com.ina'ion. 9istory of the 4erger Discussions1? $' 'he De'roi' In'erna'iona $u'o Sho0 in mi&!January 1998, Jrgen Schrempp, CEO of Daim er!"en#, *isi'e& 0i'h -o.er' Ea'on, chair an& CEO of Chrys er. Schrempp &iscusse& 0i'h Ea'on some of his 'hough's a.ou' 'he i3e ihoo& of conso i&a'ion in 'he 0or &0i&e au'omo'i*e in&us'ry an& sugges'e& i' migh' .e mu'ua y .eneficia if Daim er!"en# an& Chrys er 0ere 'o consi&er a merger. Ea'on in&ica'e& 'ha' Chrys er ha& con&uc'e& i's o0n s'u&ies of 'he in&us'ry an& he & simi ar *ie0s. Ea'on sai& 'ha' he 0ou & 'e ephone Schrempp 0i'hin 'he ne)' coup e of 0ee3s. 2o0ar& 'he en& of January, Ea'on 'e ephone& Schrempp 'o sugges' a mee'ing ear y in
"ran&on =i'chener, 7"=4!-o*er Dea Offers C ues 'o Au'ure Daim er!"en#,9 %all Street &ournal 'nteractive, 29 =ay 1998.
1?

!21! Ae.ruary. On Ae.ruary H, 1998, 'he Chrys er .oar& 0as .riefe& on 'he &iscussion .e'0een Schrempp an& Ea'on. On Ae.ruary 12, 1998, Ea'on an& %ary Va a&e, e)ecu'i*e *ice presi&en' an& chief financia officer of Chrys er, me' 0i'h Schrempp an& Dr. Ec3har& Cor&es, 'he Daim er!"en# .oar& mem.er responsi. e for corpora'e &e*e opmen' an& &irec' y manage& .usinesses, 'o &iscuss 'he possi.i i'y of com.ining 'he '0o companies. Ao o0ing 'ha' &iscussion, 'hey &eci&e& 'o consu ' 0i'h 'heir respec'i*e financia a&*isors an& 'o mee' again on Ae.ruary 18, 1998. On Ae.ruary 16 an& 18, 1998, Cor&es an& represen'a'i*es of %o &man Sachs +Daim er(s merger a&*iser, me' 0i'h Va a&e an& represen'a'i*es of Cre&i' Suisse Airs' "os'on +Chrys er(s merger a&*iser, 'o &iscuss *arious 'ransac'ion s'ruc'ures. During 'he course of 'hose &iscussions, Va a&e s'a'e& 'ha' i' 0as impor'an' 'o Chrys er 'ha' any po'en'ia 'ransac'ion ma)imi#e i's shareho &er *a ueG 'ha' i' .e 'a)!free 'o Chrys er(s D.S. s'oc3ho &ers an& 'a)!efficien' for Daim erChrys er $.%.G 'ha' i' ha*e 'he pos'!merger go*ernance s'ruc'ure of a 7merger of e/ua s9G 'ha' i' ha*e op'ima a.i i'y 'o .e accoun'e& for as a poo ing of in'eres'sG an& 'ha' i' resu ' in 'he com.ina'ion of 'he respec'i*e .usinesses of Daim er!"en# an& Chrys er in'o one pu. ic company. Cor&es in&ica'e& 'ha' i' 0as impor'an' 'o Daim er!"en# 'ha' any po'en'ia 'ransac'ion ma)imi#e i's s'oc3ho &ers( *a ueG 'ha' i' .e 'a)!free 'o Daim er!"en#(s %erman s'oc3ho &ers an& 'a)!efficien' for Daim erChrys er $.%.G an& 'ha' 'he sur*i*ing en'i'y of any com.ina'ion .e a %erman s'oc3 corpora'ion, 'here.y enhancing 'he i3e ihoo& of accep'ance of 'he 'ransac'ions .y a !impor'an' cons'i'uencies of Daim er!"en#. During 'hose mee'ings, *arious 'a), corpora'e, an& managemen' issues 0ere &iscusse& 0i'h a *ie0 'o0ar& &e*e oping a 'ransac'ion s'ruc'ure 'ha' accommo&a'e& 'he par'ies( o.5ec'i*es. Va a&e an& Cor&es 0ere sche&u e& 'o mee' again in 'he firs' 0ee3 of =arch, 'o &iscuss 'heir 'eams( progress. $' 'ha' 'ime, Va a&e re/ues'e& 'ha' Daim er!"en# pro*i&e Chrys er 0i'h i's pre iminary 'hough's on *a ua'ion. >aluation and Earnings per &hare ?E,&@ Analysis Exhibits 2 'hrough ( presen' forecas's of financia s'a'emen's for .o'h companies, as 0e as &iscoun'e& cash f o0 +DCA, *a ua'ions using 'he free cash f o0F0eigh'e&!a*erage cos' of capi'a +4$CC, approach. 2he ana ys's( financia mo&e ac'ua y es'ima'e& *a ue using 'hree DCA approaches +4$CC, a&5us'e& presen' *a ue, an& e/ui'y resi&ua ,, an& using '0o 0ays 'o es'ima'e 'ermina *a ues +cons'an' y gro0ing perpe'ui'ies an& mu 'ip es of earnings,. $na ys's cou & a so consi&er 'he firms( curren' s'oc3 price, a'es' .oo3 *a ue, an& *a ua'ions .ase& on *arious in&us'ry!a*erage mu 'ip es. 2he resu 'ing e/ui'y *a ues are gi*en in 'able *.

!22! 2a. e <. Cey *a ua'ion resu 's.

- & BC&hare >aluation of ChryslerAs E2uity -ecen' share price "oo3 *a ue per share DCA es'ima'es 0i'h 'ermina *a ues using1 4$CC approach E/ui'y resi&ua approach $&5us'e& presen' *a ue =u 'ip es es'ima'es using in&us'ry a*erages +see case E)h. 1I, BriceFEarnings 'imes for0ar& EBS BriceFcash f o0 'imes for0ar& cash f o0 from opera'ions =ar3e'F.oo3 *a ue 'imes .oo3 *a ue >aluation of DaimlerAs E2uity -ecen' share price "oo3 *a ue per share DCA es'ima'es 0i'h 'ermina *a ues using1 4$CC approach E/ui'y resi&ua approach $&5us'e& presen' *a ue =u 'ip es es'ima'es using in&us'ry a*erages +see case E)h. 1I, BriceFEarnings 'imes for0ar& EBS BriceFcash f o0 'imes for0ar& cash f o0 from opera'ions =ar3e'F.oo3 *a ue 'imes .oo3 *a ue
1

M?@.6H M1<.82 1 =u 'ip es MI<.12 M?@.?9 M?I.8H M6H.@9 M82.1< MI8.@@

Cons'an' gro0'h MH2.H8 MH@.?9 MH<.8<

M99.<I M<8.@I =u 'ip es1 M92.8H M111.H1 M1@I.?? M<2.?1 M8?.@< M1HI.61

Cons'an' gro0'h2 M111.1H M6@.II M1@2.8@

2ermina *a ue mu 'ip es for Chrys er are I.H 'imes E"I2D$ for 'he 4$CC an& a&5us'e& presen' *a ue +$BV, approaches, an& 8.@ 'imes earnings for 'he price 'o earnings +BFE, approach. Aor Daim er, 'he mu 'ip es are 8.@ an& 16. 2 Cons'an' gro0'h ra'es use& in es'ima'ing 'ermina *a ues are IK for Chrys er, an& HK for Daim er.

2he Daim er!"en# &ea 'eam 0ou & a so 0an' 'o consi&er 'he financia repor'ing impac' of any propose& 'erms. =ere y for i us'ra'ion, Exhibit 1D summari#es 'he ca cu a'ions of earnings!per!share &i u'ion 'ha' migh' resu ' from a share!for!share e)change an& poo ing!of! in'eres's accoun'ing. 2his i us'ra'ion assumes an e)change ra'io of @.< share of Daim er s'oc3 per one share of Chrys er s'oc3, an& re*ea s earnings &i u'ion of ?.6K in 1996 for Daim er, fo o0e& .y earnings accre'ion in su.se/uen' years. In con'ras', if 'he merger 0ere accoun'e& for as a purchase, Daim er(s earnings &i u'ion in 1996 0ou & .e 1@.<K. Exhibit 1D a so sho0s 'ha' Chrys er 0ou & con'ri.u'e ?<.9K of ;e0co(s re*enues, an& <@.8K of i's earnings .efore in'eres', 'a)es, &eprecia'ion, an& amor'i#a'ion +E"I2D$,. Exhibits 11 an& 12 presen' 'he onger!'erm financia an& s'oc3!price his'ories of .o'h companies in 'he form of repor's from )alue /ine 'nvestment Survey. Exhibit 1/ gi*es

!2I! informa'ion on peer firms in 'he au'omo.i e manufac'uring in&us'ry. Exhibit 16 gi*es 'he recen' s'oc3 price his'ory of .o'h firms, as 0e as es'ima'es of 'heir .e'as an& sigmas, or percen'age *o a'i i'y of 'heir s'oc3 prices, .ase& on 'ra&ing on 'he ;e0 >or3 S'oc3 E)change +;>SE,. Exhibit 1< presen's &e'ai s on 'he &e.' capi'a i#a'ion of .o'h firms. Exhibit 1* gi*es informa'ion on recen' mergers an& ac/uisi'ions ac'i*i'yG Exhibit 1) offers &e'ai s on a se ec'ion of ac/uisi'ions in 'he au'omo.i e in&us'ry. Exhibit 1E presen's &a'a on recen' macroeconomic 'ren&s in 'he Dni'e& S'a'es an& %ermany. Exhibit 1( gi*es informa'ion on capi'a mar3e' con&i'ions pre*ai ing in 'he Dni'e& S'a'es an& %ermany a' 'he en& of Ae.ruary 1998. 7egotiation of Detailed Ac2uisition 'erms Ec3har& Cor&es an& 'he Daim er!"en# nego'ia'ing 'eam con'emp a'e& a *arie'y of &imensions for 'he &ea . ,rice or value :o0 much *a ue shou & Chrys er(s shareho &ers recei*e in consi&era'ion for 'he sa e of 'heir firmT 8orm of payment Ini'ia y, Ea'on an& Schrempp ha& con'emp a'e& a s'oc3!for!s'oc3 'ransac'ion. :o0e*er, once 'he nego'ia'ors go' in'o 'he &e'ai e& &ea &esign, 'he possi.i i'y arose 'ha' 'he &ea cou & .e s'ruc'ure& in 'erms of cash for s'oc3 or fi)e& income securi'ies for s'oc3. In&ee&, some sor' of con'ingen' paymen' migh' .e inc u&e& in 'he consi&era'ion gi*en for Chrys er(s shares. If a s'oc3!for!s'oc3 &ea 0ere propose&, 'he '0o si&es 0ou & nee& 'o s'a'e an e)p ici' e0change ratio in&ica'ing ho0 many shares of Daim er 0ere 'o .e recei*e& for one share of Chrys er. $ separa'e ra'io migh' in&ica'e 'he e)change of emp oyee s'oc3 op'ions for 'he .uyer(s shares, a 'hough or&inari y 'his 0as .ase& on 'he assump'ion of 'he op'ion in'o s'oc3 an& 'herefore 0as no' necessari y re/uire&. $ re a'e& issue 0as 0he'her 'he e)change ra'io 0as 'o .e fi)e& or cou & *ary 0i'hin imi's as 'he s'oc3 prices of Daim er an& Chrys er *arie& up 'o 'he &a'e of c osing. I' migh' 'a3e si) mon'hs 'o consumma'e an ac/uisi'ion of 'his si#e, once 'he merger announcemen' 0as ma&e. 2hese imi's, popu ar y ca e& a co ar, &efine& 'he range 0i'hin 0hich 'he s'oc3 prices of 'he '0o firms 0ou & .e a o0e& 'o *ary .efore any a&5us'men' in 'he &ea 'erms migh' .e ma&e. If 'he nego'ia'ors agree& 'o a co ar, i' 0ou & .e necessary 'o specify 'he imi's 0i'hin 0hich 'he s'oc3 prices cou & *ary 0i'hou' 'riggering an a&5us'men' in 'he e)change ra'io, an& 'he a&5us'men's 'o .e ma&e if 'he s'oc3 prices e)cee&e& 'hose imi's. 4erger or ac2uisition 2he 'ransac'ion cou & s'ruc'ure& as a merger of e/ua s, or as an ac/uisi'ion of one firm .y ano'her. 2he Chrys er si&e 0as main y in'eres'e& in a merger of e/ua s. Shareho &ers migh' .e inf uence& in 'heir *o'ing .y 'he appearance of one firm &omina'ing 'he o'her, regar& ess of 'he economic rea i'y of 'he &ea .

!2?! 7eed for shareholder vote Shareho &er *o'ing pro*isions inf uence& &ea &esign .y affec'ing 'he spee& 0i'h 0hich a &ea cou & .e c ose&, an& 'he possi.i i'y for in'erference .y arge shareho &er groups. In 'he Dni'e& S'a'es, a *o'e of 'he shareho &ers re/uire& 'he &is'ri.u'ion of a prospec'us an& pro)y s'a'emen', an& 'he sche&u ing of a specia shareho &er mee'ing. 2he concern a.ou' in'erference 0as 'ypica y impor'an' for ac/uirers, 0ho feare& secon&!guessing .y in*es'ors or ou'si&ers. 20o 'ypes of &ea s 0ou & re/uire *o'es .y Daim er shareho &ers. 2he firs' 0as 0here a arge num.er of ne0 shares 0ou & .e crea'e&, as in a arge s'oc3!for!s'oc3 ac/uisi'ion. 2he secon& 0as a s'a'u'ory merger in 0hich .o'h firms 0ou & .e e)'inguishe& an& an en'ire y ne0 firm +;e0co, 0ou & emergeL'his re/uire& a *o'e of .o'h firms( shareho &ers. Accounting treatment In 'he Dni'e& S'a'es, merging firms cou & accoun' for 'heir merger on a purchase .asis or on a pooling-of-interests .asis. %enera y, poo ing accoun'ing resu 'e& in higher earnings per share for 'he ne0 firm, .ecause i' &i& no' en'ai 'he crea'ion of goo&0i 'ha' ha& 'o .e amor'i#e& un&er 'he Dni'e& S'a'es( genera y accep'e& accoun'ing Brincip es +%$$B,. In or&er for 'he 'ransac'ion 'o .e accoun'e& for on a poo ing .asis, i' ha& 'o mee' se*era 'es's, of 0hich 'hese 0ere primary1 1. con'inui'y of o0nership in'eres's +a' eas' 8@K of 'he shareho &ers of 'he ac/uire& firm ha& 'o remain shareho &ers of 'he ne0 firm, 2. e/ua si#e of 'he '0o firms I. each en'i'y mus' ha*e .een in&epen&en' of 'he o'her for '0o years prior 'o 'he &ea ?. 'he com.ina'ion mus' .e effec'e& in a sing e 'ransac'ionLcon'ingen' payou's 0ere no' permi''e& in poo ing 'ransac'ions H. 'he ac/uiring firm mus' issue on y common s'oc3 in e)change for near y a 'he *o'ing common s'oc3 of 'he o'her company +for e)amp e1 9@K, <. 'he ne0 firm mus' no' &ispose of a significan' por'ion of asse's 0i'hin '0o years af'er 'he merger. 'reatment for maFor shareholders Deu'sche "an3, 'he arges' %erman financia ins'i'u'ion, he & a 21.6K in'eres' in Daim er!"en#. Deu'sche "an3 he & se*era sea's on +an& 'he chairmanship of, Daim er(s .oar&, an& 0as ins'rumen'a in appoin'ing Jrgen Schrempp as CEO in 199? in a push for shareho &er *a ue ma)imi#a'ion. $ so, 'he Emira'e of Cu0ai' he & 1IK of Daim er(s s'oc3. Cir3 Cer3orian he & appro)ima'e y 1?K of Chrys er(s s'oc3 'hrough his ho &ing company, 2racin&a Corpora'ion. In 199? an& 199H, Cer3orian 'hrea'ene& Chrys er 0i'h a hos'i e 'a3eo*er a''emp', c aiming 'he firm 0as un&erperforming, an& 'ha' i' 0as si''ing on 'oo much cash +M8 .i ion,. Chrys er fen&e& off Cer3orian(s a&*ances 0i'h promises 'o increase 'he &i*i&en&, acce era'e

!2H! share repurchases, an& re a) 'he poison pi 'rigger from 1@K 'o 1HK of shares ou's'an&ing. 4hi e Cer3orian ha& agree& 'o pos'pone his a''emp's 'o 'a3e o*er 'he firm, his in'eres' 0as arge enough 'o inf uence o'her in*es'ors in any Chrys er shareho &er *o'e on a &ea . Cer3orian 0as 3no0n 'o .e a sophis'ica'e& in*es'or, someone 0ho 0ou & pro.a. y fa*or a 'a)!&eferre& &ea . Deu'sche "an3, 'he Emira'e of Cu0ai', an& Cer3orian emerge& from a s'oc3!for!s'oc3 ac/uisi'ion as significan' shareho &ers in 'he ne0 firm. 2herefore, i' 0ou & .e a&*isa. e 'o o.'ain 'he a&*ance suppor' of 'hese in'eres'e& par'ies. 'ax treatment Some &ea s'ruc'ures cou & 'rigger an imme&ia'e 'a) ia.i i'y for 'he se ing +Chrys er, shareho &ers, on 'he &ifference .e'0een 'he cos' .asis of 'heir shares an& 'he consi&era'ion recei*e&. O'her s'ruc'ures 0ou & &efer 'his ia.i i'y. %enera y, 'he 'a)!&eferre& &ea s +or 7'a)! free9 &ea s, as 'hey 0ere popu ar y ca e&, en'ai e& 'he ac/uisi'ion of 'he 'arge' firm(s s'oc3 0i'h 'he s'oc3 of 'he .uyer, or 'he .uyer(s su.si&iary. Dea s 'ha' en'ai e& paymen' 0i'h cash or no'es, or 'ha' en'ai e& 'he purchase of asse's, 0ou & 'rigger an imme&ia'e 'a) ia.i i'y. 2he opinion of a 'a) a&*isor, an& u 'ima'e y a ru ing, or e''er, from 'he D. S. In'erna -e*enue Ser*ice, 0ou & confirm 0he'her any con'emp a'e& s'ruc'ure 0ou & .e 'a)a. e or 'a)!free. Applicable la1 2he ne0 corpora'ion cou & .e incorpora'e& in %ermany or 'he Dni'e& S'a'es. If incorpora'e& in %ermany, i' 0ou & .e su.5ec' 'o %erman a0s. If incorpora'e& in 'he Dni'e& S'a'es, 'hen D.S. a0s 0ou & app y. !overnance 2he merger agreemen' 0ou & nee& 'o specify 'he oca'ion of hea&/uar'ersG 'he 'rea'men' of 'he 0or3ers +especia y 'he &is'ri.u'ion of .oar& sea's 'o Daim er(s principa a.or union, I% =e'a , or 'o 'he Dni'e& $u'o 4or3ers,G 'he e ec'ion of &irec'ors genera yG an& 'he in&i*i&ua 'o .e name& CEO of 'he firm. Dn&er 'he %erman Co!De'ermina'ion Ja0 of 196<, a firm of Daim er(s si#e 0ou & ha*e a super*isory .oar& +much i3e an $merican .oar& of &irec'ors, an& a managemen' .oar&. %erman a0 re/uire& a super*isory .oar& of 2@ mem.ers, 1@ of 0hom 0ere appoin'e& .y shareho &ers an& 'he res' .y emp oyeesL%erman a0 specifica y re/uire& 'ha' corpora'ions mus' ha*e ?9K a.or represen'a'ion on 'heir super*isory .oar&s. 2he 'erms of 'he &ea cou & specify in a&*ance 0he'her an& ho0 'he Daim er an& Chrys er si&es 0ou & &i*i&e up 'he 'en super*isory &irec'ors, as 0e as 'he si#e an& composi'ion +Daim er *ersus Chrys er, of 'he managemen' .oar&. -nion recognition Daim er opera'e& a non!unioni#e& fac'ory in $ a.ama. In a com.ina'ion .e'0een Daim er an& Chrys er, i' 0as i3e y 'ha' Chrys er(s union, 'he Dni'e& $u'o 4or3ers +D$4,, 0ou & re/uire 'ha' i' .e recogni#e& as 'he .argaining agen' for 'ha' p an'.

!2<! +fficial language I' 0as cus'omary in cross!.or&er mergers an& ac/uisi'ions for 'he &ea 'erms 'o specify 'he officia anguage for 'he firm, pos'!consumma'ion. Executive compensation 2he con'rac' migh' a so specify any senior e)ecu'i*e compensa'ion for 'he foreseea. e fu'ure. 2his 0ou & .e impor'an' if 'he ana ys's sough' 'o e/ua i#e compensa'ion across 'he ne0 y merge& firm. 0isting on stoc5 exchanges Consi&ering 'he com.ine& shareho &ers of .o'h companies, a s'oc3!for!s'oc3 &ea 0ou & ea*e $merican an& %erman shareho &ers 0i'h a ma5or in'eres' in a mu 'ina'iona firm. If shares 0ere is'e& ou'si&e 'he home coun'ry of 'he shareho &ers, i' 0ou & ma3e 'hose shares some0ha' ess i/ui&, an& ess a''rac'i*e. $greeing in a&*ance on 0here 'he shares 0ou & .e is'e& 0ou & inf uence 'he *o'es of 'he shareho &ers on any merger or ac/uisi'ion.

!26! E)hi.i' 1 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Chrys er Corpora'ion Dni' Sa es 2ren&s

1(() D.S. re'ai mar3e'1 Car sa es Car mar3e' share 2ruc3 sa es +inc u&ing mini*ans, 2ruc3 mar3e' share Com.ine& car an& 'ruc3 sa es Com.ine& car an& 'ruc3 mar3e' share =ini*ans on y =ini*an mar3e' share D.S. an& Cana&ian re'ai mar3e'1 Com.ine& car an& 'ruc3 sa es Com.ine& car an& 'ruc3 mar3e' share ;or'h $merica1 Com.ine& car an& 'ruc3 sa es Com.ine& car an& 'ruc3 mar3e' share 4or &0i&e1 Com.ine& car an& 'ruc3 sa es In'erna'iona shipmen's +ou'si&e ;or'h $merica,
Source1 Chrys er Corpora'ion $nnua -epor'.

1((*

Change M+9<,1@I, O@.8K M+H@,9IH, O1.6K M+1?6,@I8, O1.@K ;.$. ;.$. @.@K M+1I@,I9@, O1.@K ;.$.

M6I<,HI@ M8I2,<II 9.6K 8.9K M1,H<6,2H8 M1,<18,19I 2I.?K 21.6K M2,I@I,688 M2,?H@,82< 1?.9K 1H.9K MH18,??H O ??.?K O M2,HH9,9H@ 1H.1K M2,<?9,H?2 M2,<9@,I?@ 1<.1K O

M2,88<,981 M2I6,@@@

M2,9H8,8@@ M22?,@@@

M+61,819, M1I,@@@

!28! E)hi.i' 2 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Chrys er Corpora'ion Income S'a'emen' +*a ues in mi ions of D.S. &o ars,
1((< 1((* 1(() -e*enues MHI,19H.@ M<1,I96.@ M<1,1?6.@ Cos' of goo&s so & +e)c u&ing &eprecia'ion, ?1,I@?.@ ?H,8?2.@ ?<,6?I.@ Se ing, genera , N a&minis'ra'i*e H,226.@ <,1??.@ <,1?H.@ E"I2D$ <,<<?.@ 9,?11.@ 8,2H9.@ Deprecia'ion 2,22@.@ 2,I12.@ 2,<9<.@ $mor'i#a'ion of goo&0i N in'angi. es @.@ @.@ @.@ O'her e)pense +income, @.@ @.@ @.@ E"I2 ?,???.@ 6,@99.@ H,H<I.@ In'eres' +income, @.@ @.@ @.@ In'eres' e)penseOs'raigh' &e.' 99H.@ 1,@@6.@ 1,@@<.@ In'eres' e)penseOcon*er'i. e &e.' @.@ @.@ @.@ In'eres' e)penseOre*o *er @.@ @.@ @.@ Bre'a) income I,??9.@ <,@92.@ ?,HH6.@ Income 'a)es 1,I28.@ 2,I62.@ 1,6H2.@ =inori'y in'eres' @.@ @.@ @.@ E)'raor&inary i'em +income, 9<.@ 191.@ @.@ ;e' income 2,@2H.@ I,H29.@ 2,8@H.@ S'raigh' preferre& &i*i&en&s @.@ @.@ @.@ Con*er'i. e preferre& &i*i&en&s 21.@ I.@ 1.@ ;e' income 'o common M2,@@?.@ MI,H2<.@ M2,8@?.@ Earnings per share1 "asic Au y &i u'e& ,roFected 1((E 1((( 2DDD M<I,898.< M<<,66?.1 M<9,668.9 ?8,8?<.? H1,@??.H HI,I?1.H <,?21.H <,61@.H 6,@12.H 8,<I@.6 9,@19.@ 9,?2?.9 I,19?.6 I,?@<.6 I,<I1.? I9.I I8.I I6.? @.@ @.@ @.@ H,I9<.< H,H6?.@ H,6H<.1 +?@9.I, +?26.6, +??<.9, 1,@1?.? 99H.I 9<I.8 @.@ @.@ @.@ +1?.?, +62.I, +1H2.<, ?,8@H.9 H,@68.< H,I91.8 1,8?H.H 1,9H@.2 2,@6@.? @.@ @.@ @.@ @.@ @.@ @.@ 2,9<@.H I,128.? I,I21.I @.@ @.@ @.@ @.@ @.@ @.@ M2,9<@.H MI,128.? MI,I21.I 2DD1 M62,918.9 HH,6?1.9 6,I28.@ 9,8?9.@ I,8<9.6 I<.? @.@ H,9?2.9 +?<6.@, 9I2.? @.@ +22I.<, H,6@1.2 2,189.I @.@ @.@ I,H11.9 @.@ @.@ MI,H11.9 2DD2 M6<,2@@.I H8,2H@.I 6,<H6.8 1@,292.2 ?,122.2 IH.H @.@ <,1I?.H +?88.@, 9@@.9 @.@ +291.@, <,@12.6 2,I@8.9 @.@ @.@ I,6@I.8 @.@ @.@ MI,6@I.8

M2.<8 M2.H<

M?.8I M?.6?

M?.1H M?.@9

M?.91 M?.<6

MH.19 M?.9I

MH.H1 MH.2I

MH.8I MH.H?

M<.1? MH.8?

!29! E)hi.i' I DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Chrys er Corpora'ion "a ance Shee's +*a ues in mi ions of D.S. &o ars,

!I@! E)hi.i' ? DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Chrys er Corpora'ion DCA Va ua'ion +*a ues in mi ions of D.S. &o ars,

!I1! E)hi.i' H DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Daim er!"en# $.%. Income S'a'emen' +*a ues in DE= mi ions, e)cep' per!share amoun's,
-e*enues Cos' of goo&s so & +e)c . &eprecia'ion, Se ing, genera , N a&minis'ra'i*e e)penses E"I2D$ Deprecia'ion $mor'i#a'ion of e/uip. on opera'ing eases O'her e)pense +income, E"I2 In'eres' +income, In'eres' e)penseOs'raigh' &e.' In'eres' e)penseOcon*er'i. e &e.' In'eres' e)penseOre*o *er Bre'a) income Income 'a)es =inori'y in'eres' E)'raor&inary i'em +income, ;e' income S'raigh' preferre& &i*i&en&s Con*er'i. e preferre& &i*i&en&s ;e' income 'o common Earnings per share1 "asic Au y &i u'e& nmf U no' a meaningfu figure. 1((< 1@2,98H.@ 6H,H81.@ 2<,2@I.@ 1,2@1.@ 8,<<1.@ 2,???.@ +1,6?2.@, +8,1<2.@, +2,11I.@, 1,18?.@ @.@ @.@ +6,2II.@, +1,<2@.@, 11<.@ @.@ +H,629.@, @.@ @.@ +H,629.@, 1((* 1@<,II9.@ 66,81<.@ 21,HI?.@ <,989.@ ?,9@8.@ 2,@18.@ +1,?@2.@, 1,?<H.@ +1,I<8.@, 8<H.@ @.@ @.@ 1,9<8.@ +612.@, +89.@, @.@ 2,6<9.@ @.@ 6.@ 2,6<2.@ 1(() 12?,@H@.@ 91,?22.@ 2I,@9<.@ 9,HI2.@ H,198.@ 2,I2I.@ +1,<2@.@, I,<I1.@ +1,H89.@, 9II.@ @.@ @.@ ?,286.@ +1,@6?.@, 189.@ +2,9@8.@, 8,@8@.@ @.@ I8.@ 8,@?2.@ 1((E 1I<,?HH.@ 1@@,H<?.2 2H,?@H.< 1@,?8H.2 I,82<.8 2,8@6.6 +2,629.1, <,H69.9 +1,82I.1, 2,21H.2 @.@ @.@ <,186.6 2,?6H.1 @.@ @.@ I,612.< @.@ @.@ I,612.< 1((( 1H@,1@@.H 11@,<2@.< 26,9?<.2 11,HII.6 ?,2?1.< 2,II9.6 +I,@@2.@, 6,9H?.? +2,1H6.8, 2,2@6.? @.@ @.@ 6,9@?.8 I,1<1.9 @.@ @.@ ?,6?2.9 @.@ @.@ ?,6?2.9 ,roFected 2DDD 1<H,11@.< 121,<82.6 I@,6?@.8 12,<86.1 ?,<89.< 1,9?9.8 +I,I@2.2, 9,IH@.@ +2,?H1.<, 2,2@6.? @.@ @.@ 9,H9?.1 I,8I6.6 @.@ @.@ H,6H<.H @.@ @.@ H,6H<.H 2DD1 181,<21.< 1II,8H1.@ II,81?.9 1I,9HH.8 H,16I.? 1,<2?.8 +I,<I2.?, 1@,69@.@ +2,6I1.8, 2,2@6.? @.@ @.@ 11,I1?.? ?,H2H.6 @.@ @.@ <,688.< @.@ @.@ <,688.< 2DD2 199,68I.8 1?6,2I<.@ I6,19<.I 1H,IH1.? H,<9<.@ 1,IH?.@ +I,99H.6, 12,296.1 +I,@16.6, 2,2@6.? @.@ @.@ 1I,1@6.I H,2?2.9 @.@ @.@ 6,8<?.? @.@ @.@ 6,8<?.?

nmf nmf

H.I6 H.IH

1H.H9 1H.I@

6.18 6.@6

9.18 9.@I

11.1? 1@.9<

1I.1? 12.92

1H.22 1?.96

!I2! E)hi.i' < DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Daim er!"en# $.%. "a ance Shee's +*a ues in DE= mi ions,

!II! E)hi.i' 6 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Daim er!"en# $.%. DCA Va ua'ion +*a ues in mi ions of D.S. &o ars, e)cep' per!share amoun's,

!I?! E)hi.i' 8 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Daim er!"en# $.%. Income S'a'emen's +*a ues in mi ions of D.S. &o ars,
1((< 1((* 1(() 1((E 1((( M61,H16 M<8,<@< M<9,I@2 M66,HI1 M8<,6<I H2,?86 H@,2@? H1,@6? H6,1I9 <I,9?I 18,196 1I,89I 12,9@I 1?,?IH 1<,1H? 8I? ?,H@9 H,I2H H,9H8 <,<<6 <,@1H I,1<< 2,9@? 2,16? 2,?H2 1,<96 1,I@2 1,298 1,H9H 1,IH2 +1,21@, +9@H, +9@H, +1,HH1, +1,6IH, +H,<<8, 9?H 2,@28 I,6I9 ?,H98 +1,?<6, +88I, +888, +1,@I<, +1,2?6, 822 HH8 H21 1,2H9 1,26< +H,@2I, 1,26@ 2,I9H I,H1< ?,H<9 +1,12H, +?H9, +<@@, 1,?@< 1,828 81 +H6, 1@< @ @ @ @ +1,<2H, @ @ +I,968, 1,68< ?,H1? 2,1@9 2,6?2 @ H 21 @ @ +MI,968, M1,682 M?,?9I M2,1@9 M2,6?2 H1I,@@@ nmf H1I,9@@ MI.?6 H1H,6@@ M8.61 H1<,6?8 M?.@8 H1<,6?8 MH.I1 ,roFected 2DDD 2DD1 2DD2 M96,12? M1@8,1@8 M12@,IH2 61,H68 69,<6I 88,<9< 18,@8I 2@,128 22,?@6 6,?<I 8,I@6 9,2?8 2,6H9 I,@69 I,?I1 1,1?6 9<6 81< +1,9?2, +2,1<2, +2,?@6, H,H@@ <,?2I 6,?@8 +1,??2, +1,<2<, +1,818, 1,298 1,I1? 1,II@ H,<?? <,6IH 6,89< 2,2H6 2,<9? I,1H8 @ @ @ @ @ @ I,I8< ?,@?1 ?,6I8 @ @ @ MI,I8< M?,@?1 M?,6I8 H1<,6?8 M<.HH H1<,6?8 M6.82 H1<,6?8 M9.16

-e*enues Cos' of goo&s so & +e)c . &eprecia'ion, Se ing, genera , N a&minis'ra'i*e e)penses E"I2D$ Deprecia'ion $mor'i#a'ion of e/uip. on opera'ing eases O'her e)pense +income, E"I2 In'eres' +income, In'eres' e)pense Bre'a) income Income 'a)es =inori'y in'eres' E)'raor&inary i'em +income, ;e' income Breferre& &i*i&en&s ;e' income 'o common Shares ou's'an&ing +a*erageO.asic, Earnings per share +.asic,
nmf U no' meaningfu figure

!IH! E)hi.i' 9 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Daim er!"en# $.%. "a ance Shee's +*a ues in mi ions of D.S. &o ars,

!I<! E)hi.i' 1@ DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# EBS an& Di u'ion $na ysis, Boo ing!of!In'eres's 2ransac'ion
4erger &cenarioG ,ooling of 3nterests 2ransac'ion $ssump'ions 2arge' name $c/uiror name 2ransac'ion 'ype +1 U poo ingG 2 U purchase, +1@@K S'oc3, Chrys er Daim er!"en# 1 Curren' Va ua'ion Brice per share =erger price Imp ie& premium E)change ra'io Shares ou's'an&ing +in mi ions, Op'ions, s'oc3 apprecia'ion righ's, con*er'i. es 2o'a pos'&ea shares Earnings per Share +.asic, Chrys er Daim er!"en# Source of pro5ec'ions 1996 Ainancia Da'a +in mi ions, -e*enues E"I2D$ E"I2 ;e' income 'o common E)is'ing goo&0i amor'i#a'ion 2o'a cash N e/ui*a en's E)cess cash %oo&0i 2o'a asse's 2o'a &e.' Breferre& e/ui'y Common e/ui'y Chrys er Daim er!"en# M99.<I M?@.6H MH9.68 ?<.6K @.<@@@ <?8.? I1.6 <8@.1 1996 M?.1H M8.61 mo&e H1<.6 6.H1 H2?.I 1998E M?.91 M?.@8 1999E MH.19 MH.I1

K cash +inpu' K for a 'ransac'ion 'ypes, -efinance 'arge' &e.' +1 U yesG 2 U no, -efinancing ra'e1 >ie & 'o ma'uri'y on 1@!year 2reasuries Sprea& -efinancing ra'e Curren' 0eigh'e!a*erage cos' of &e.' +in'eres' e)penseF&e.' .a ance, Effec'i*e 'a) ra'e "ase year for com.ina'ion

@.@K 2

H.?K @.6K <.1K <.HK

I8.?K 1996

Chrys er Daim er!"en# M<9,I@1.6 M<1,1?6.@ MH,I2H.1 M8,2H9.@ M2,@28.H MH,H<I.@ M?,?92.6 M2,8@?.@ M@.@ M6,8?8.@ M8?8.@ M1,H6I.@ M<@,?18.@ M1H,?8H.@ M@.@ M11,I<2.@ M1,296.8 M11,?<I.6 M8,<6@.? M9,?11.2 M6<,H91.< M21,9H<.? M@.@ M19,<@@.<

;o'e1 Com.ina'ion mo&e e)c u&es effec' of 'ransac'ion e)penses +i.e., ega , .an3ing, accoun'ing fees,.

!I6! E)hi.i' 1@ +con'inue&,

'ransaction AdFustments Bro Aorma ;e' Income +&i u'e&, Daim er!"en#Vs ne' income Chrys erVs ne' income Dna&5us'e& com.ine& 1996 M?,?92.6 M2,8@?.@ M6,29<.6 1998E 1999E M2,1@9.? M2,6?1.< M2,9<@.H MI,128.? MH,@<9.9 MH,86@.@ %oo&0i Crea'e& Cos' of e/ui'y ac/uire& B us1 ia.i i'ies assume& Jess1 e)cess cash 2o'a consi&era'ion Jess1 a&5us'e& *a ue of asse's %oo&0i crea'e& in 'ransac'ion %oo&0i amor'i#a'ion perio& $&5us'e& asse' *a ue 2o'a asse's Jess1 goo&0i Jess1 e)cess cash B us1 assume& asse' 0ri'e!up $&5us'e& *a ue of asse's

;.$. ;.$. ;.$. ;.$. ;.$. ;.$. ;.$.

$&5us'men's 'o ;e' Income1 E)penses +!,, or Cre&i's +W, %oo&0i amor'i#a'ion M@.@ ;e0 in'eres' income +e)pense, M<18.? -efinancing a&5us'men's M@.@ $ssume& com.ina'ion synergies M@.@ Bre'a) a&5us'men's M<18.? Income 'a)es on a&5us'men's +M2I6.6, $f'er!'a) a&5us'men's MI8@.< $&5us'e& ne' income Bro forma EBS M6,<66.? M8.I@

M@.@ M@.@ M<18.? M<18.? M@.@ M@.@ M@.@ M1,?@@.@ M<18.? M2,@18.? +M2I6.6, +M66<.@, MI8@.< M1,2?2.? MH,?H@.H MH.89 M6,112.? M6.<9

;.$. ;.$. ;.$. ;.$. ;.$.

&ummary +utputsG ,ooling of 3nterests ?1DD. &toc5@ Bro Aorma Earnings Impac' Daim er!"en#Vs s'an&!a one EBS ;e0CoVs com.ine& EBS $ccre'ionF+&i u'ion, $&&i'iona pre'a) synergies re/uire& for no &i u'ion 1996 M8.61 M8.I@ !?.6K 1998E M?.@8 MH.89 ??.?K 1999E MH.I1 M6.<9 ?H.@K 1996 Con'ri.u'ion $na ysis -e*enues E"I2D$ ;e0Co shares K o0nership Chrys er Daim er!"en# HI.1K ?<.9K I9.2K <@.8K ?@8.1 ??.1K H1<.6 HH.9K

<1<.H

@.@

@.@

!I9! E)hi.i' 11 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# )alue /ine -epor' on 'he Chrys er Corpora'ion

Source1 )alue /ine 'nvestment Survey +use& 0i'h permission,

!?@! E)hi.i' 12 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# )alue /ine -epor' on Daim er!"en# $.%.

Source1 )alue /ine 'nvestment Survey +use& 0i'h permission,.

!?1! E)hi.i' 1I DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Compara. e $u'omo.i e =anufac'urers +*a ues in mi ions of D.S. &o ars, e)cep' as no'e&,
,rice 8eb-(E Dni'e& S'a'es Aor& =o'or %enera =o'ors Chrys er ;a*is'ar $*erage1 D.S. Japan :on&a =o'or ;issan =o'or 2oyo'a =o'or $*erage1 Japan Europe Daim er!"en# Vo *o "=4 Beugeo'!Ci'roen Aia' $u&i -enau ' $*erage1 Europe $*erage1 a firms 1(() 1(() 1(() E,& MH.6H M8.6@ M?.1H M1.<H #evenues ,rofits M<,92@ M<,26< M2,8@? M1H@ 1((EE E,&1 MH.I8 M6.96 MH.@1 M2.<@ 1(() C8C&hr M11.96 M22.82 M8.?I MI.II M11.<? 'railing ,CE <.H 6.9 9.8 18.? 1@.<6 8or1ard ,CE 6.@ 8.< 8.1 11.6 8.8< ,riceC &hares 0ong-'erm C8 I.1 I.@ ?.8 9.1 H.@I +ut 1,19? 621 <?8 62 DebtC 4ar5etC Beta2 @.8< @.9< @.8H 1.@I @.9I Debt 'otal Cap B5 >alue M8@,2?H M?1,962 M9,@@< M1,I1< <?K ?<K 2HK I6K ?IK 1.H1 2.<6 2.II 2.8I 2.II

I6 9F1< M1HI,<26 <8 1HF1< M1<<,??H ?@ IF? M<1,1?6 I@ IF8 M<,I21

6@ IF8 8 6F8 H? 6F8

M?H,111 M?9,IH8 M86,8@6

M1,9<@ MI82 MI,?1<

M?.@2 M@.I@ M1.69

M?.?@ M@.HH M2.IH

M<.I9 MI.I? MI.81 M?.H1

16.H 29.< I@.6 2H.92

1<.@ 1<.1 2I.? 18.?9

11.@ 2.6 1?.? 9.I<

?86 1,2H6 1,9@2

MH,@9< M12,HH? M1<,@@<

1IK HIK 1IK 2<K

?.HH @.92 2.6@ 2.62

@.8@ @.<< @.<I @.6@

DE= A-A I2J DE= A-A

99 HF8 26 1F8 1,?6H 8<6 <,292 1,?H@ 212

M<8,9H1 M2I,118 <@,1I6 18<,68H 89,<H8 22,?1@ 2@6,912

M1,6<? M?@@ 1,2?< +2,6<8, 2,?16 I<6 H,?26

MI.I8 M@.88 H@.<I +HH.2?, ?H9.9@ 8H.IH 22.69

MI.6H M2.2@ H9.H@ ?8.2@ I69.<@ 12H.@@ 1<.@@

M11.H@ M2.99 ?12.99 II<.96 2,1?1.6< HI<.28 ?8.88 nmf

29.H I@.8 29.1 nmf 1I.6 16.@ 9.I 21.H6 19.22

2<.< 12.I 2?.8 18.@ 1<.< 11.< 1I.I 16.H9 1H.29

8.6 9.1 I.< 2.< 2.9 2.6 ?.I ?.8? H.8<

H16 ??2 2H H@ H ? 2I8

M9,H<? M2,91I 1@,H1< 16,@@? 1@,9I8 ! I@,6<@

1<K 2@K 22K 28K 2HK @K I8K 21K 29K

2.<9 1.H9 I.H9 @.82 1.IH 2.9I 1.1< 2.@2 2.2<

@.8< @.61 @.88 @.88 @.6I @.<8 @.68 @.69 @.81

nmf U no' meaningfu figure ;o'e1 Da'a is 'a3en from )alue /ine 'nvestment Survey an& " oom.erg, an& may no' ma'ch e)ac' y 0i'h o'her &a'a gi*en in 'he case. 1 Domes'ic EBS es'ima'es are 'a3en from ;e sonVsG in'erna'iona EBS es'ima'es are 'a3en from Va ue Jine an& I"ES. 2 "e'a is ca cu a'e& agains' 'he SNB in a cases an& is .ase& on 0ee3 y o.ser*a'ions .e'0een =arch 199< an& Ae.ruary 1998.

!?2! E)hi.i' 1? DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# -ecen' S'oc3 Brice Informa'ion for Chrys er Corpora'ion an& Daim er!"en# $.%.

$D- U $merican &eposi'ary receip'. 1 "e'a 0as ca cu a'e& re a'i*e 'o 'he SNB H@@ In&e) from 0ee3 y &a'a o*er 'he perio& HF@IF9< 'o IF@1F98 an& a&5us'e& for .e'a(s 'en&ency 'o con*erge 'o 1, per 'he formu a1 $&5us'e& .e'a U +@.<6, X -a0 .e'a W +@.II, X 1.@@. 2 Vo a'i i'y 0as ca cu a'e& from &ai y &a'a for 'he 2<@ mos' recen' 'ra&ing &ays. Source of &a'a1 " oom.erg Ainancia Ser*ice

!?I! E)hi.i' 1H DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Jong!2erm De.' S'ruc'ure as of Decem.er I1, 1996 +*a ues in mi ions of D.S. &o ars,
Chrysler Corporation Chrys er Corp. &e.en'ures &ue 2@26!2@96 Chrys er Corp. no'es &ue 1999!2@2@ Chrys er Ainance Corp. senior no'es &ue 1999!2@18 Chrys er Ainance Corp. mor'gage no'es an& capi'a eases 2o'a Jess curren' por'ion 2o'a ong!'erm &e.' +J2D, 1(() M1,H88.@ <89.@ 9,IIH.@ I2.@ M11,<??.@ 2,<I8.@ M9,@@<.@ 1((* M2<H.@ 1,?<6.@ 8,?I6.@ 1I.@ M1@,182.@ 2,998.@ M6,18?.@ 0'D #epayment &chedule M1,998.@ 1,999.@ 2,@@@.@ 2,@@1.@ M2,@@2.@ 2hereaf'er M2,<I8.@ I,?2I.@ 2,I<I.@ ?I1.@ M?6@.@ M2,I19.@ M11,<??.@

Daimler-Benz +in D.S. M, 1(() MH,<19.@ I,6<9.I I@9.H H89.9 M1@,286.6 <<9.8 M9,<16.9 1((* M?,62@.@ I,2<1.I 2?H.2 I6@.I M8,H9<.8 I1I.H M8,28I.2 0'D #epayment &chedule M1,998.@ 1,999.@ 2,@@@.@ 2,@@1.@ M2,@@2.@ 2hereaf'er M<<9.8 1,I1H.1 1,6H@.8 1,HHI.< M1,?2<.I MI,H62.1 M1@,286.6

"on&s an& no'es &ue 1999O2@@6 Jong!'erm .an3 oans &ue 1999O2@19 Jia.i i'ies 'o affi ia'e& companies &ue 1999O2@@? Capi'a eases an& resi&ua *a ue guaran'ees 2o'a Jess curren' por'ion 2o'a ong!'erm &e.' +J2D,
Sources1 Chrys er Corpora'ion an& Daim er!"en# $.%. 1996 $nnua -epor's

!??! E)hi.i' 1< DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# 2ren&s in -ecen' =ergers N $c/uisi'ions $c'i*i'y +*a ues in .i ions of D.S. &o ars, e)cep' as no'e&,

!?H! E)hi.i' 16 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# -ecen' Jum.o =N$ $c'i*i'y1 %rea'er 'han D.S. M1@ "i ion +in mi ions of D.S. &o ars, e)cep' as no'e&,
7onfinancial Companies Ac2uirer 2racin&a Corp. 4a ' Disney S"C Communica'ions 4or &Com CSY Corp. "e $' an'ic "oeing Corp. CDC In'erna'iona Joc3hee& =ar'in S'ar0oo& Jo&ging 'arget Chrys er Capi'a Ci'iesF$"C Bacific!2e esis =AS Communica'ions Conrai ;>;EY Corp. =cDonne Doug as :AS Incorpora'e& ;or'hrup %rumman I22 Corp. Date $pr!9H Ju !9H $pr!9< Jan!96 Jun!96 $ug!96 $ug!96 Dec!96 Ae.!98 Ae.!98 >alue M21,<18 M18,8I6 M1<,?9@ M1I,H9< M1@,?I< M21,I?< M1I,IH9 M11,I?I M11,8I1 M1I,6?8 ,CE H.?@ 2H.?@ 1H.H@ nmf H8.?@ 19.H@ nmf ?@.I@ 28.@@ 2?.6@ ,remium to &toc5 ,rice +ne =ee5 ,rior I6.H@K 2H.2@K I<.2@K <@.@@K <@.I@K !@.?@K 22.6@K I.@@K ?1.2@K 98.I@K +utcome 4i'h&ra0n Comp e'e& Comp e'e& Comp e'e& 4i'h&ra0n Comp e'e& Comp e'e& Comp e'e& 4i'h&ra0n Comp e'e&

8inancial Companies Ac2uirer Chemica "an3ing Corp. 4e s Aargo Dean 4i''er Disco*er Co. ;a'ions.an3 'arget Chase =anha''an Corp. Airs' In'ers'a'e Corp. =organ S'an ey "arne'' Date =ar!9< $pr!9< Ae.!96 Jan!98 >alue M1@,??< M1@,9I@ M1@,H6I M1?,822 ,CE 1@.6@ 1I.1@ 1@.6@ 2H.@@ ,remium to &toc5 ,rice +ne =ee5 ,rior 6.H@K I<.I@K 12.8@K ?I.9@K +utcome Comp e'e& Comp e'e& Comp e'e& Comp e'e&

nmf U no' meaningfu figure Sources1 Securi'ies Da'a Corpora'ion, " oom.erg.

!?<! E)hi.i' 18 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# -ecen' Economic Da'a for %ermany an& 'he Dni'e& S'a'es
-nemployment !ermany !ermany ?'otal@ ?=est@ H.6@K <.H@K 9.<@K 8.1@K 9.I@K 8.2@K 9.9@K 8.<@K 1@.8@K 9.H@K 11.8@K 9.9@K 11.@@K 9.I@K 3nflation +CBI, !ermany -& ?'otal@ I.1@K 2.9@K I.I@K 2.6@K ?.2@K 2.6@K 2.H@K 2.H@K 1.8@K I.I@K 1.?@K 1.6@K 1.8@K 1.6@K 1.2@K Annual !D, !ro1th !ermany !ermany -& ?'otal@ ?=est@ @.I9K I.I@K I.6@K @.9@K @.I@K 2.?@K !@.2@K !@.9@K I.I@K I.?@K 2.6@K 2.1@K @.@@K !@.2@K I.9@K 2.1@K 1.9@K I.8@K 2.I@K 2.H@K I.<@K 2.H@K 2.<@K 3ndustrial ,roduction !ermany !ermany -& ?'otal@ ?=est@ @.I@K !@.1@K ?.?@K !H.@@K !H.H@K I.8@K !1.H@K !2.<@K <.8@K <.8@K H.9@K 2.I@K !?.9@K !H.1@K ?.6@K I.1@K 2.H@K H.6@K I.2@K I.6@K I.2@K 1.<@K 1.6@K

1((1 1((2 1((/ 1((6 1((< 1((* 1(() 1((E

-& 6.I@K 6.?@K <.H@K H.?@K H.<@K H.I@K ?.6@K ?.H@K

!ermany ?=est@ ?.2@K I.?@K I.I@K 2.H@K 1.H@K 1.?@K 1.6@K 1.1@K

CBI U consumer price in&e) %DB U gross &omes'ic pro&uc'

Source1 " oom.erg

I!=o. 1@.@@ 268 1,I28 H.68K I.6< Ji.or 1@.H@ (S&P500) (DAX) 1@.H@K 1988 <!=o. 6.H@ IHI 1,69@ 1989 H.I@ I.?I 1!>r. II@ 1,I98 199@ H.I1 I.?8 I!>r. <.@@ ?16 1,H68 1991 H.I9 I.<< H!>r. ?I< 1,H?H 1992 H.HI ?.1H 1@!>r. 8.6H ?<6 2,2<6 199I H.H6 ?.?9 I@!>r. 8.2H ?H9 2,1@6 199? H.<1 ?.9I 199< 8.H@ <.6HK 1996 <1< 2,2H? 199H H.91K H.?9K 2!"i 2!;o'e 2!"i 2!"on& ,rime &toc5 D.S. %ermany #ates

4ar5et on &enior Ban5 0oans 3ndexes

!?6! E)hi.i' 19 DA340E#-BE7; A ! G 7E!+'3A'3+7& BE'=EE7 DA340E# A7D C9#:&0E# Curren' Capi'a =ar3e' Con&i'ions
,rime #ates on &enior Ban5 0oans %ermany D.S. 1988 1@.H@K 1989 1@.H@K 199@ 1@.@@K 1991 6.H@K 1992 <.@@K 199I <.@@K 199? 8.H@K 199H 8.6HK 199< 8.2HK 1996 <.6HK 8.H@K Jan!98 <.<2K 8.H@K Ae.!98 <.HHK 8.H@K #ecent 4oney #ates +Ae.ruary 26'h, 1998, %ermany I.6<K I.?IK I.?8K I.<<K ?.1HK ?.?9K ?.9IK H.?9K D.S. H.68K H.I@K H.I1K H.I9K H.HIK H.H6K H.<1K H.91K &toc5 4ar5et 3ndices !ermany -& +D$Y, +SNBH@@, 1988 1,I28 268 1989 1,69@ IHI 199@ 1,I98 II@ 1991 1,H68 ?16 1992 1,H?H ?I< 199I 2,2<6 ?<6 199? 2,1@6 ?H9 199H 2,2H? <1< 199< 2,889 6?1 1996 ?,2H@ 96@ Jan!98 ?,??@ 98@ Ae.!98 ?,61@ 1,@?9

JI"OI!mo. 2!.i <!mo. 2!.i 1!yr. 2!.i I!yr. 2!no'e H!yr. 2!no'e 1@!yr. 2!.on& I@!yr. 2!.on&

- & Corporate Bond #atings H :ields1 AAA A BBB BB Dec!96 <.16K <.??K <.<2K 6.8HK Jan!98 H.9@K <.21K <.?9K 6.<?K Ae.!98 <.@<K <.I6K <.H8K 6.6<K

:ields to 4aturity of &elected 3ssues as of 2C2)C(E Chrysler Daimler-Benz $2F$ $1F$W 6.9HKF@@ <.12K 1@KF99 <.@2K <.9HKF@2 <.19K <.<2HKF@@ <.@@K 6.?HKF26 <.8?K <KF@2 <.1@K 6.?HKF96 6.@2K 6.I6HKF@< <.I<K 1 "ase& on 1@!year yie &s from 'he " oom.erg in&e) for se ec'e& in&us'ria s. Sources1 " oom.erg, Ae&era -eser*e "u e'in

&H, Bond #atings Chrys er Corp. Daim er!"en#