By John Tagilabue
New York Times
May 9, 1998


The marriage of Daimler-Benz AG and Chrysler Corp. has
been greeted here in Daimler's headquarters city not so much with joy as
with resignation.

"There's no euphoria here, but a healthy skepticism," said Richard Roos, a
union leader who represents about 11,000 employees at Daimler's corporate
headquarters.

On the positive side, there is a sense that Daimler needs to expand beyond
German borders. For Germans, the central issue is by now familiar if
paradoxical: To stay competitive in the evolving global market, whose
emergence was reflected just last week in the decision by the European Union
to proceed with a single European currency, they know they must seek their
fortune increasingly outside Germany.

Daimler, said Professor Michael Stuermer, a leading German historian, "is
pushing very consciously into globalization, and in that sense, Daimler-Benz
is no longer a German company."

The trend shows little sign of abating. Even as Daimler chairman Juergen
Schrempp and Chrysler chairman Robert Eaton announced their plans Thursday,
the country's largest automaker, Volkswagen, and BMW AG, a rival, were
locked in a bitter bidding war for control of Rolls-Royce, the prestigious
British luxury automaker.

Nor is the momentum limited to automobiles. German chemical and
pharmaceutical companies are shopping increasingly abroad. And in the
banking industry, which was once closed and parochial, the drive to conquer
foreign markets through acquisitions is evident. Now, London investment
banks with long histories in finance are the affiliates of Frankfurt banks,
with Anglo-Teutonic names like Deutsche Morgan Grenfell and Dresdner
Kleinwort Benson.

But Germans are also well aware of the costs. In 1997, German companies
invested about 10 times as much money outside Germany as non-German
corporations invested within Germany. Moreover, as huge German corporations
shift their investment overseas, jobs in Germany melt away, leaving 13
percent of the workforce, or about 5 million Germans, unable to find work,
the highest number since the social turmoil of the 1930s that paved the way
for the rise of Nazism.

Considerable nervousness is perceptible in cities like Stuttgart, where
Daimler-Benz was founded about 110 years ago and where about 35,000 people
work for the company. In recent years, Daimler cut its workforce worldwide
by about 70,000 employees, to 300,000, and though strong demand for the
company's products led to a modest wave of hiring last year and this, the
unemployment rate in Stuttgart hovers at 8 percent, well below the national
average but troubling nonetheless.

Union officials like Roos have been told that the merger will benefit their
members, but they are reserving judgment. In meetings with Daimler
executives Thursday, even as Schrempp and Eaton were explaining their
alliance at a London news conference, union representatives were told that
over the long-term the merger would create jobs.

"On the one hand, jobs may be cut because of efficiency and streamlining and
synergy effects," said Lutz Hoffmann, director of the German Institute for
Economic Research in Berlin. But he said the expansion process set in motion
by the merger should at least mitigate those losses in the long run.

German political leaders uniformly applauded the move. Guenter Rexrodt,
economics minister in the conservative government of Chancellor Helmut Kohl,
called it a "wise step" and an "enormously important deal." The economics
spokesman for the opposition Social Democrats, Ernst Schwanhold, said it was
"proof of the strength of German business."

But while German business may be strong, the same cannot necessarily be said
about the German economy. With labor costs averaging $29 an hour, roughly
double rates in the United States, any expansion is likely to take place
outside Germany.

Indeed, even as Rexrodt spoke, his ministry was announcing that in 1997
German corporations invested 51.5 billion marks, or $29.2 billion, more
outside the country than they hauled in from overseas. The gap was 9 billion
marks wider than it was in 1996, the ministry said.

Competition for investment, moreover, will only accelerate with the arrival
of the euro, experts say, as comparative costs within Europe become
immediately evident and corporations shift investment to countries like
Spain or Portugal where wages and benefits are lower. Germany's political
leaders, Stuermer said, "don't realize the kind of pain the euro will
bring."

In the case of Daimler, labor leaders like Roos can only hope the the merger
will translate into enough growth to support its base in Germany. At
Daimler's big competitor, Volkswagen, labor leaders say the pain caused by
adapting to global competition has paid off.

Hans-Juergen Uhl, deputy chairman of the labor management council at VW from
the union side, cites the example of VW's New Beetle, one of the
hottest-selling cars this season on the North American market. The car is
built in Mexico and was designed in California, but was developed at
Volkswagen in Germany.

"We're protecting 20,000 jobs in Germany," he said by phone, describing a
kind of new vocation for the company, "because for America, we are
suppliers, engineers, know-how providers."