Market Concerns

Market Concerns. The automotive industry has seen increased global consolidation over the past two years, The New York Times reported. According to industry analysts, the consolidation is fueled by three major trends brands growing in importance, manufacturers forging into difficult markets, and rising costs of technology. While many industry experts see the consolidation as inevitable and strategically beneficial, some analysts warn excessive consolidation could lead to diminishing choices and higher prices for consumers.

The Daimler-Chrysler merger is one of the few examples when the merger benefits the competitiveness of the market. Chrysler Corporation manufactures lower-range trucks, minivans, and sport utilities, when Daimler-Benz majors in high-priced vehicles. No significant overlap in production will take place. Since both of the companies specialize in different areas, neither of them will have to give up on some of their production.

There was no real overlap in products they filled in each other s blank spaces said David Cole, the head of the University of Michigan s Office for the Study of Automotive Transportation. In turn, this meant that there will be no decrease in competition in the market place, which is one of the main concerns of the Federal Trade Commission when a merger takes place. In a horizontal merger, the acquisition of a competitor could increase market concentration and increase the likelihood of collusion.

The elimination of head-to-head competition between two leading firms may result in unilateral anticompetitive effects. Another concern of The Federal Trade Commission and European Commission is the possibility of monopolization of the market. The automobile market is very large and diversified. For example, July 1999 car sales in the USA for the three largest companies are as shown on the graph Even after the merger, Daimler-Chrysler is not capable of keeping such a huge market under control.

As one can see on the above chart, Daimler-Chrysler 243420 vehicles is on the third place in production after General Motors 422029 vehicles and Ford Motor Co. 355765 vehicles. In the case of Chrysler Corporation and Daimler-Benz, the hazard of competition decrease does not exist, because the companies produce different types of cars. There would be a decrease of competition if after the merger, one of the companies would have to give up some of its production plans and eventually consumers would be hurt. Instead, it will just intensify competition in the car manufacturing world.

On July 24 and July 31 of 1998, the European Commission and the Federal Trade Commission, respectively, approved the merger of Chrysler and Daimler-Benz Corporation, and appearance of Daimler-Chrysler. This merger is classified as a horizontal merger. In order to become the largest car-producing corporation in the world, Daimler-Chrysler has to acquire or merger with some other companies, and this is in fact, what Daimler-Chrysler is looking at right now. On March 10, 1999, Daimler-Chrysler broke off talks about buying a stake in Nissan Motor of Japan, but it has not given up. On March 22, 1999, Schrempp held negotiations with Japan s Mitsubishi Motors about a possible merger.

As it can be seen, the new corporation very actively looks for partners in Asia, but the question that might rise soon will be whether the next merger will be approved by the Federal Trade Commission.

Another fact that might alert the US government is that on February 25, 2000, General Motors Corporation, Ford Motor Corp. and DaimlerChrysler jointly announced that they are planning to combine their efforts to form a business-to-business integrated supplier exchange through a single global portal. Some view this fact as a slow movement towards market monopolization. Facts German-American automaker DaimlerChryslter agreed on March 27, 2000, to buy a controlling 34 stake in Japan Mitsubishi Motors Corp. for 2.1 billion, extending its international reach.

The agreement gives DaimlerChrysler access to the Asian market and small-car expertise of Mitsubishi, Japan s fourth-largest automaker. Carmakers are increasingly seeking cross-border alliances as overcapacity prompts them to cut costs through the sharing of parts and vehicle platforms with manufacturers in a range of markets.

DaimlerChrysler s deal excludes Mitsubishi s trucks division, which has an alliance with Sweden s AB Volvo. Together DaimlerChrysler and Mitsubishi will have a combined market share of about 10.8 in Japan and 9.4 in other parts of the Asia-Pacific region. Daimler s purchase gives it the right to veto board-level decisions at Mitsubishi. London CNN, httpCNNfn.com, Monday, 27 March, 2000 New Corporation Daimler-Chrysler provides a variety of transportation products and financial and other services.

It operates seven business segments passenger cars and trucks Chrysler, Plymouth, Jeep, Dodge 43 of 1998 sales, passenger cars Mercedes-Benz, Smart 23, commercial vehicles Mercedes-Benz, Freightliner, Sterling, Setra 17, aerospace 7, services 6, Chrysler financial services 2, and other 2. Daimler- Chrysler Corporation is primarily active in Europe, North and South America and Japan and is continuing to expand in markets such as Eastern Europe and East and Southeast Asia intensive negotiations with Asian companies are obvious evidences of that. Another aspect of penetrating new markets is that developing new products, opening new stores and offices, hiring managers, and training stuff requires a lot of funds.

There are two ways of raising these funds internal and external. Internal funds come from Retained Earnings. External funds come from loans, bonds, issuance of common stock and other sources. The merger would increase the amount of money in Retained Earnings that could be used in an expansion program.

Through the pooling of resources, DaimlerChrysler will be excellently placed to develop and introduce new products even more quickly into the markets, thus gaining an edge over competitors.