Daimler-Benz: European giant. Off Mercedes-Benz base to aerospace, high-tech ventures

One hundred two years ago, Stuttgart engineer Gottlieb Daimler tried out a ``four-wheeled automobile, suitable for country roads, and driven by a petrol engine.'' Mannheim inventor Karl Benz tested a three-wheeled ``gas-engined vehicle'' at the same time. The companies that Daimler and Benz founded joined forces in 1926. They never went in for mass production, however. Their business was to be precisely engineered cars and trucks. Their motto: ``The best or nothing.''

But the Stuttgart-based maker of the Mercedes-Benz is no longer the simple automotive engineering company it was when it began. In the past three years, Daimler-Benz has blasted away from the terrestrial confines of automobiles and trucks and into the daring world of aerospace, high-tech, and corporate conglomeration.

Enriched by its car and truck sales and backed by West Germany's top bank, Daimler has rapidly bought up major blocs of German heavy industry. At $37 billion in sales last year, it is by far the biggest industrial company in West Germany and is emerging as Europe's premier aerospace, electronics, high-tech, automotive group.

Daimler is on the verge of taking a big stake in Messerschmitt-B"olkow-Blohm (MBB), the Hamburg-based aircraftmaker. It already owns Dornier, MBB's chief rival, and controls Allgemeine Elektrict"ats-Gesellschaft (AEG), a sprawling electronics concern, and Motoren & Turbinen Union (MTU), a big engine manufacturer.

All this positions Daimler strongly in European aerospace and electronics. MBB has just over one-third of Airbus Industrie; it's an unprofitable stake, but the West German government has promised to shield Daimler against Airbus-related losses. Daimler also has a small but significant interest in Matra, the French defense and electronics giant. And through AEG and Dornier, Daimler is participating in Europe's Hermes spaceplane project, the Ariane rocket, and the Columbus space station program.

Chairman Edzard Reuter has frequently acknowledged interest in making an acquisition in the United States, especially in aerospace. (Daimler already owns US-based Freightliner, the No. 2 maker of 15-ton trucks after Navistar. Worldwide, Daimler is the biggest producer of trucks over six tons.)

``As long as the cash flow continues,'' Mr. Reuter told shareholders in mid-May, ``we should not let ourselves be held up.''

His aim is a world-size West German corporation capable of competing against the corporate behemoths of Japan and North America. With major parts of this nation's industry now under the Mercedes star, it is no exaggeration to say that what's good for Daimler-Benz is increasingly good for West Germany.

The company is being backed in its acquisition spree by Deutsche Bank, West Germany's No. 1 bank and Daimler's biggest shareholder. Such an alliance is normal for Germany, but its US equivalent would be Citicorp controlling General Motors, which in turn would control General Electric, McDonnell Douglas, and Lockheed.

Company officials use the vague word ``synergy'' to describe what their acquisitions are all about. Somehow, they say, the electronics of AEG, the factory-automation systems of Dornier, combined with the know-how of Daimler-Benz, will add up to new opportunities, new products, and a more profitable company overall. To compete globally, says a Daimler report explaining its recent expansion, ``energies must be harnessed, resources rationalized, and knowledge pooled.''

This is a common enough strategy in the automotive industry. General Motors made a similar move with its acquisitions of Hughes and Electronic Data Systems; Volvo and Saab have aerospace lines; British Aerospace is taking over Rover Group.

But the industrial landscape is also littered with ill-considered conglomerates - ITT is an example - that have failed to make synergy work. And gigantism is a bold break with West Germany's tradition of industrial specialization, acknowledges a Daimler strategic planner, Rolf Scharw"achter. So exactly how all the pieces will fit together is undetermined.

``There is a limit to synergy,'' Dr. Scharw"achter notes.

None of Daimler's newly acquired companies are particularly strong at the moment. But Scharw"achter says the aim is to make each one competitive, producing products for Daimler's automotive needs and for the wider marketplace. This will enable Daimler to hedge against the possibility of slower car and truck orders, to build the electronically advanced ``automobile of the future,'' and to develop new products such as factory-automation systems, robots, and software.

This change is necessary, chairman Reuter told Daimler shareholders, because it is impossible for West German automakers to continue running huge trade surpluses ($38 billion last year). In the long run, he said, ``We are well prepared for the eventuality that the era of unhindered growth of the automotive industry should someday come to an end once and for all.''

So Daimler's approach is fewer but better automobiles, holding production to just under 600,000 units a each year. As Josef Gorgels, head of Daimler-Benz overseas sales, puts it: ``We neither want to become Toyota nor General Motors. We do not want mass production.''

Carmakers in the United States, Japan, and South Korea will continue to outproduce and underprice the German auto industry, Daimler officials say, so the Germans must concentrate on the precisely engineered automobiles they have always been known for.

``Innovation will be the major buying argument with automobiles in the future,'' notes spokesman Hans-Georg Kloos.

Daimler was an early user of antilock brakes, air bags, and on-board microprocessors in its vehicles. It aims to continue such innovation, having just launched a five-year, $13 million research and development program and put $3 billion into new plant and equipment - ``not to build more cars but to build them better,'' says Dr. Kloos.

Along with 13 other European vehicle manufacturers, Daimler is part of the European Community's Prometheus automotive research effort. Among other things, Prometheus plans to develop ``electronic vision'' for cars, satellite location and mapping capability, electronic traffic management, and transponder signaling to avoid dangerous situations.

``Fifteen years ago,'' says Kloos, ``there were only 200 meters of electrical cable in our cars. Now we put in 1.8 kilometers [1.1 miles]. That shows you how complex the electronic systems are becoming.''

By the turn of the century, according to Business Week magazine, 30 percent of the cost of a car will be electronics.

But Martin Anderson, who specializes in international manufacturing at the MAC Group in Cambridge, Mass., points out that ``you don't have to buy a company to get the technology,'' as Daimler has done. ``It's usually cheaper simply to buy a product from the vendor.''

Kathleen Heaney, an automotive analyst with Nikko Securities in New York, concurs that ``there's not much evidence of [technology] crossover yet.''

So is it a fuzzy notion of ``synergy'' that is driving Daimler or something else?

``There are some synergies, but what is really happening is a global consolidation of German assets,'' says Mr. Anderson. ``They are putting together German capital, technical know-how, and physical assets as a defense against Japan, North America, and low-cost manufacturers in the third world.''

All eyes are on 1992, the year the European market becomes internally borderless. When that happens, national quotas on automobile imports are likely to be eased throughout Europe. That will make the European market much more attractive to the foreign carmakers - especially the Japanese.

Separately, Europe's major automakers are overshadowed by Japan and the US. Together, they produce more cars than either Japan or the US.

Europeans are an increasingly important group of customers for Daimler. West Germany has the biggest number of Mercedes buyers, followed by the US. Then come Italy, Britain, and France. European sales are up significantly in the past five years.

``In most European markets,'' says Dr. Gorgels, ``purchasing power is increasing across the population, and the desire for a better or the best product - to separate yourself, to be individualistic - is growing in Europe.''

That's the market Daimler-Benz knows. It is seen best at the Sindlefingen factory outside Stuttgart, where Mercedes buyers - like proud parents peering through maternity-ward glass - watch their new sedans glide to a halt before them. Each car is polished to a glassy brilliance. White-smocked technicians tick off important points on their clipboards.

A trip to Sindlefingen to pick up a Mercedes nets enough of a cost saving to finance a European vacation. Even so, these buyers pay what to most people is well over a year's salary - from $27,000 to $70,000 - for a 1988 version of Daimler's four-wheeled automobile, suitable for country roads, driven by a petrol engine.

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