Crisler Corporation. Senior thesis

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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.”[i]

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.

Achievements of the New Corporation

“DaimlerChrysler AG today reported a record operating profit of EUR

11.0/$11.1 billion in 1999, the company’s first full year of operations. This is an increase of 28% compared to the 1998 figure of

EUR 8.6/$8.7 billion. Adjusted for one-time effects, principally the sale of debitel shares and restructuring expenses at Adtranz, operating profit grew by 20% to EUR 10.3/$10.4 billion. Operating profit thus outpaced revenues which rose by 14% to a record EUR

150.0/$151.0 billion.”

Recently, the German financial magazine “Capital” conducted a survey on the provision of shareholders’ information on the Internet. The overall winner was DaimlerChrysler, which was recognized as the best provider of company information on the Internet.

Survey of recent stock performance

Immediately after the merger, the stock price of the new company went up very drastically. The reason for this is that investors strongly believe in the future success of DaimlerChrysler.

Currently, the stock price is down. This fact can be explained by the general performance of the market, which is experiencing very sudden slumps. Many huge companies do not trade at all out of fear of prices drop. Below is the chart of stock price performance of the DaimlerChrysler since the merger.

Below is a valuation of DaimlerChrysler by analysts at Standard &
Poor’s.

“DCX has fallen sharply from its early 1999 peak. The automotive sector has been out of investor favor for some time, with

DaimlerChrysler contributing to the negative sentiment with its much lower than expected earnings in the second quarter. Despite DCX’s attempt to portray the divergence from expectations as mostly accounting and temporary items, the honeymoon for investors and

DaimlerChrysler is clearly over. DaimlerChrysler has a strong balance sheet, with significant cash reserves available for the next industry downturn, as well as for strategic investments and alliances. With strong sales through September, we expect 1999 domestic automotive volume, led by minivans and sport utility vehicles, DCX strengths, to reach a record. Still, given negative investor sentiment and uncertainty in the company’s ability to meet financial objectives, despite a strong third quarter, we would not add to positions.”[ii]

Comments on some of the Financial Ratios of the New Corporation

As the ratios reveals new corporation by some of the ratios overcome industry average. Valuation ratios show us DaimlerChrysler is in better standing in comparison with the industry. Dividends payout ratio proves that the company pays more dividends than average, but I think it is not what investors expected and this lead to a drop in price of the stock.

Financial strength of the company in terms of LT Debt to Equity and
Total Debt to Equity ratios is almost twice stronger than the average in the industry. Low return on Equity ratio might be explained by the fact that the company keeps a lot of cash for the purpose of new investment. In general, the company shows strong figures and this view is supported by
Standards & Poor’s specialists’ statement. “DaimlerChrysler has a strong balance sheet, with significant cash reserves available for the next industry downturn, as well as for strategic investments and alliances.”[iii]

Government Concerned that...

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