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Daimler and Chrysler Have a Baby


Barely a year ago, Chrysler designers wowed the folks at the Detroit auto show with a sensuous new concept car called the Crossfire. Although the reception was gratifying, many at Chrysler thought there was little chance the two-seat roadster would ever be built. After years of record sales and profits, Chrysler was suddenly in a tailspin. Six weeks earlier, with costs out of control, parent DaimlerChrysler (DCX) had sent two of its best German managers to Detroit to untangle the mess. Their assignment: Slash spending.

But to the surprise of many, a struggling Chrysler announced on Jan. 3 that it will expand its lineup to include the Crossfire, beginning in 2003. The decision comes even as Chrysler is chopping some $10 billion, or 25%, out of its five-year product plan. And the market for two-seat coupes is small, so analysts don't expect Chrysler to sell more than 20,000 units or so. Even so, for symbolic and financial reasons, the Crossfire may be the most important vehicle Chrysler has introduced in years.

The Crossfire is the first concrete evidence that Chrysler and Daimler Benz, which merged in 1998, are starting to mesh. It has a sleek Chrysler look, while many of the components under the hood are borrowed from Mercedes. That makes the Crossfire "the first true child of the merger," says Chrysler President Wolfgang Bernhard.

The 41-year old German, who arrived at Chrysler's Auburn Hills (Mich.) headquarters in November, 2000, along with new CEO Dieter Zetsche, gets credit for turning the Crossfire into reality in record time--18 months. To do so, he tapped engineering contacts back home to pry loose Mercedes components Chrysler could also use. He also pushed American engineers to squeeze development costs on other vehicles by as much as 30% to come up with the money for Crossfire.

DaimlerChrysler promises even more component-sharing in the future. Chrysler's next-generation family sedans will use a version of Mercedes' rear-wheel-drive transmission, as will its redesigned Dakota pickup and Durango sport utility vehicle. The sharing will go even further with Mitsubishi Motors Corp., which is also controlled by DaimlerChrysler. The Japanese carmaker is working closely with Chrysler engineers to develop joint platforms for future small and midsize cars. By adapting parts that have already been engineered elsewhere, DaimlerChrysler can save hundreds of millions in development costs. Cloning Mercedes' gearbox for its family sedans may save Chrysler as much as $100 million, execs say.

That would be a huge step toward realizing the global efficiency at the core of Daimler's strategy. After a loss at Chrysler approaching $2.5 billion in 2001, DaimlerChrysler needs to start making good on long-promised synergies. Just breaking even at Chrysler in 2002 would be a relief after three years of post-merger tussling over management issues and relentless cost-cutting.

Getting the two sides to work together, however, was no mean trick. DaimlerChrysler jealously guards its Mercedes brand image; the last thing it wants is for consumers to perceive the luxury marque as just a more expensive Chrysler. "The engineers would have loved to take a bit more [of Mercedes for the Crossfire]. But they didn't come up with those proposals because they knew we'd say no," says DaimlerChrysler CEO Jurgen E. Schrempp.

But with DaimlerChrysler under increasing pressure from investors to deliver on the merger's economies, including parts-sharing, they had to give some ground. The result is a stylish Chrysler whose guts are all Mercedes, from its most popular engine in the U.S., the 3.2-liter V-6, to its transmission, axles, seat frames, and radio controls. In all, nearly 40% of the Crossfire's content is from Mercedes. The sticker price? Chrysler isn't saying, but analysts predict $35,000. If it helps get the merger in gear, it may well be priceless. By Joann Muller in Auburn Hills, Mich., with Christine Tierney in Frankfurt


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