Honda website
Honda website

NOVEMBER 29, 1999

DaimlerChrysler on the prowl - F1 holds breath

DAIMLERCHRYSLER AG continues to insist that it is not shopping for new partners at the moment but that has not stopped a variety of rumors about the company in recent days. At the start of the week a German radio station reported that DaimlerChrysler was in discussions with Fiat about a possibility of acquiring a shareholding in the Italian firm following the collapse of talks with the French car company PSA Peugeot Citroen. These talks had focussed on the need for the company to diversify into the compact car market. To date DaimlerChrysler has always built big cars but the European Union has agreed on new legislation which will require car companies to reduce fuel consumption. This will come into force in 2008 and at the moment there is no technology that will allow big cars to reach the required limits and so the only option is to go into the smaller car sector. Eight years may seem a long time but in the automotive manufacturing business it is very close indeed and so a move by DaimlerChrysler has been expected.

DaimlerChrysler boss Jurgen Schrempp is believed to want to do a deal with the Honda Motor Company rather than with one of the smaller European car makers - as it makes sense not only from a small-car perspective but also geographically. Honda would be a good fit. Towards the end of the week a well-respected German newspaper ran a story suggesting that talks were underway with the Japanese company and Honda shares leapt 11 percent in the course of a morning. They later fell back when Honda denied any discussions and reiterated its desire to remain independent.

The problem for DaimlerChrysler is that, unlike some Japanese manufacturers, Honda does not need money and the Japanese are worried that the German company's corporate culture is completely different to that of Honda. In order to overcome the problem, DaimlerChrysler would need to buy at least 30% of the company to get control and then there would be months of restructuring to overcome the differences. DaimlerChrysler is in the process of going through the same process with Chrysler and this has led to large number of American staff quitting the company and a sharp drop in the share price. Another big takeover might, of course, be a good way to hike up the price of the company's shares.

All this may not seem to be very important to Grand Prix racing but several teams could be affected by the deals. Honda is supplying British American Racing (and effectively Jordan Grand Prix as well). Peugeot is giving its engines to ProstÊGrandÊPrix and Fiat is the parent body of Ferrari. McLaren is also part-owned by the DaimlerChrysler empire. There would, incidentally, be similar clashes of interest in CART racing where Honda and DaimlerChrysler are in competition.