DETROIT - From the very beginning, DaimlerChrysler will centralize purchasing using the Chrysler model and leadership.
Chrysler's chief financial officer Gary Valade will be in charge of global purchasing.
'Purchasing is an area we need to focus on,' Valade said in London. 'It will be fully integrated.'
During the transition, the purchasing departments of Chrysler and Daimler-Benz will both report to a joint organization led by Valade.
Thomas Sidlik, Chrysler's executive vice president for procurement and supply, will remain in that role. Daimler-Benz purchasing will remain under Heinz Rudnitski.
Valade and Sidlik, both executive vice presidents at Chrysler, will have seats on DaimlerChrysler's board, and Tom Stallkamp, the creator of Chrysler's purchasing philosophy, will be in charge of integration at DaimlerChrysler.
In 1999, the first full year of the merger, DaimlerChrysler expects to save $300 million to $500 million on purchasing costs. Daimler-Benz's annual automotive purchasing budget is $20 billion. Chrysler's is $40 billion.
Suppliers expect DaimlerChrysler to seek volume discounts in return for larger global orders. The big winners are most likely to be suppliers that already do business with both companies.
'Those of us who have manufacturing and engineering facilities on both sides of the pond will have an advantage,' said Frank Macher, CEO of ITT Automotive. The Michigan company sells antilock brakes and other parts to both automakers. Chrysler accounts for about 8 percent of ITT's automotive business, and Daimler-Benz about 6 percent.
Another possible winner is TRW Inc., a major supplier of airbags and seat belts. 'We consider ourselves very fortunate,' said Ron Cutler, vice president of marketing.
Others may not be lucky.
'If you are a regional North American supplier to Chrysler, I would be concerned,' said James McElya, president of Siebe Automotive, which makes tubing, sensors and other products. 'Suppliers to Chrysler will quickly run out and try to partner with a supplier to Mercedes.'
Although details on the new purchasing operation are sketchy, the recent histories of both automakers offer some clues.
Both companies have set up cooperative cost-cutting programs that let suppliers pocket some of the savings.
In North America, Chrysler's SCORE program requires suppliers to propose cost-cutting ideas totaling 5 percent of annual sales.
Suppliers keep up to half of any savings over that amount. Many suppliers to the big US carmakers consider SCORE, also known as the Supplier Cost Reduction Effort, to be the industry's best system.
A few years ago, Daimler-Benz launched a similar program called Tandem.
Both companies have also created experimental assembly plants that give suppliers major responsibilities.
In Alabama, 18 suppliers deliver ready-built modules for the Mercedes-Benz ML320 sport-utility.
Several suppliers provide and install major modules for Micro Compact Car's Smart car at its assembly plant in Hambach, France. For example, Magna is stamping and assembling the bodies.
In Brazil, Chrysler has asked Dana Corp. of Toledo, Ohio, to produce a complete rolling chassis for the Dodge Dakota pickup.
ZF Friedrichshafen assembles axles, hubs, brake rotors, calipers and differential, constant-velocity shafts for the ML320. George Telenko, ZF's vice president of axle systems, says the Alabama plant is a laboratory for Daimler-Benz suppliers.
Recently, ZF proposed to assemble a built-up axle for the next-generation Jeep Grand Cherokee, paralleling its work with Daimler-Benz.
After some initial interest, Chrysler rejected the proposal, Telenko said.
TRW's Cutler predicts Chrysler will give suppliers more authority to design entire component systems in future generations of vehicles.
'We know already that Chrysler is starting to move in that direction,' Cutler said. 'I don't know how long it will take, but they are moving step by step.'