Back in the 1980s and 1990s, we were bombarded with books on Japanese management techniques. Well, it's 2006, and DaimlerChrysler (NYSE:DCX) is announcing that it's implementing a new management model. OK, we know about German engineering. But is German management destined to become a legend too? Probably not, but the result should please investors if the annual 1.5 billion euro in benefits are realized.
The press release reads like Japanese Business Management 101. The company wants to "enhance competitiveness and promote further profitable growth" while it "further integrates the company's functions" and "reduces redundancies and remove management layers." Yawn. You kinda have to wonder why this wasn't done years ago.
But the company is trying to build a future that mirrors 2005 -- a year when 17 new products were launched. If you, like me, enjoy the fresh look that DaimlerChrysler is bringing to its automobile lines, you'll be pleased to learn that the company plans to continue the aggressive investments that have produced fresh automobile products.
To control costs, the company will centralize functions like finance, human resources, and strategy. This is what many expected when Daimler merged with Chrysler in 1998. But if you read the 1998 press releases now, the goals stated then look much the same as the ones announced today -- sharing know-how in engineering and manufacturing.
The company also plans to work outside its own organizational structure to achieve its goals. For example, Mercedes-Benz and Chrysler engineers are working side by side with General Motors (NYSE:GM) and BMW (BAMXF.PK) specialists to develop hybrids -- a technology already perfected and available from Japanese auto heavyweights Toyota (NYSE:TM) and Honda (NYSE:HMC). The organizational change, in this case, might have a stronger ring if the companies involved weren't playing catch-up.
A big dollar savings will come from a 20% reduction in the general and administrative (G&A) staff over the next three years. Like General Motors and Ford (NYSE:F), staffing diets are the fad among the Big Three. More interesting, though, is the relocation of the headquarters to the facility housing its engineering and car-making operations. It certainly shows a realization that being close won't hurt decision making.
DaimlerChrysler trades for 12.3 times expected 2006 earnings and pays a healthy 3.8% dividend. That's a realistic valuation, given that analysts expect the company to grow earnings by 6.1% annually for the next five years. It seems investors like the moves; the company's stock is up 4.8% today and is within a dollar of its 52-week high.
Bayerische Motorenwerke, better known as BMW, is a Motley Fool Stock Advisor recommendation.
Are you looking for the best investments on Wall Street? Motley Fool founders David and Tom Garner recommend two for your consideration every month in the Motley Fool Stock Advisor newsletter. Try a satisfaction guaranteed subscription today.
Fool contributor W.D. Crotty does not own any shares in the companies mentioned, but does own GM and Ford vehicles. Click here to see the Motley Fool's disclosure policy.
