Item 4. Information on the Company.
INTRODUCTION
Organization
The legal and commercial name of our company is DaimlerChrysler AG. It is a
stock corporation organized under the laws of the Federal Republic of Germany
and was incorporated on May 6, 1998. Our registered office is at Epplestrasse
225, 70567 Stuttgart, Germany, telephone +49-711-17-0. Our agent for U.S.
9
federal securities law purposes is DaimlerChrysler North America Holding
Corporation, located at 1000 Chrysler Drive, Auburn Hills, MI 48326-2766.
History
On May 7, 1998, Daimler-Benz Aktiengesellschaft and Chrysler Corporation
entered into an agreement to combine their businesses. The stockholders of each
company approved the agreement on September 18, 1998. Chrysler became a wholly
owned subsidiary of DaimlerChrysler AG through a merger transaction completed on
November 12, 1998. In the merger, Chrysler shareholders received ordinary shares
of DaimlerChrysler AG. The combination also involved a contemporaneous exchange
offer in which Daimler-Benz stockholders exchanged more than 98% of their
Daimler-Benz ordinary shares for DaimlerChrysler AG ordinary shares.
Daimler-Benz was then merged into DaimlerChrysler AG on December 21, 1998.
Accordingly, DaimlerChrysler AG is the successor corporation to Daimler-Benz AG
and we comprise the respective businesses, stockholder groups, managements and
other constituencies of Chrysler and Daimler-Benz.
Business Summary and Developments
DaimlerChrysler AG is the ultimate parent company of the DaimlerChrysler
Group. The Group develops, manufactures, distributes and sells a wide range of
automotive products, mainly passenger cars, light trucks and commercial
vehicles. We also provide financial and other services relating to our
automotive business. We have four primary business segments. Our fifth segment,
Other Activities, comprises all other businesses and investments in businesses
not allocated to one of our primary business segments. Our segments are:
º •
º Mercedes Car Group
º •
º Chrysler Group
º •
º Commercial Vehicles
º •
º Services
º •
º Other Activities
We offer our automotive products and related financial services primarily in
Europe and in the NAFTA region, which consists of the United States, Canada and
Mexico. We have also taken significant steps towards increasing further our
presence in the Asian markets. In 2004, we increased our interest in the
Japanese truck manufacturer Mitsubishi Fuso Truck and Bus Corporation from 43%
to 65% and entered into two joint venture agreements with Chinese partners
relating to the possible production of passenger cars and vans in China. Both
joint venture agreements require further approval by the relevant Chinese
authorities. Approximately 45% of our 2004 revenues derived from sales in the
United States, 16% from sales in Germany and 18% from sales in other countries
of the European Union. In line with our strategy of concentrating on the
automotive business and related services, we disposed of several non-core
business assets and expanded our core automotive activities over the past
several years. These transactions include the following:
MMC. In 2004, we reevaluated our 37% equity investment in Mitsubishi Motors
Corporation (MMC). On April 22, 2004, our board of management and our
supervisory board decided not to provide further financial support to MMC. In
the second quarter of 2004, MMC, together with its other shareholders,
established a restructuring plan, which led to changes in the capital and
shareholder structure of MMC as well as to changes in the composition of MMC's
board of directors and management. In this context, a new investor acquired a
33.3% interest in the voting stock of MMC and received significant -
contractually guaranteed - managerial rights. As a consequence, our interest in
the voting stock of MMC was diluted from 37.0% to 24.7%, our representation on
MMC's board of directors was significantly reduced, and we no longer have the
ability to exercise significant influence over the operating and financial
policies of MMC. These changes were approved at the annual shareholders' meeting
on June 29, 2004, and following that meeting we ceased to account for our
investment in MMC using the equity method of accounting and classified our
investment in MMC as an
10
investment in related companies, accounted for at fair value. Since then our
equity interest has been further diluted. As of December 31, 2004, we held 19.7%
of the share capital of MMC.
MFTBC. In January 2003, MMC spun off its"Fuso Truck and Bus" division,
creating Mitsubishi Fuso Truck and Bus Corporation (MFTBC). In March 2003, we
(DaimlerChrysler AG) acquired from MMC a non-controlling 43% interest in MFTBC
for 764 million in cash plus certain direct acquisition costs. Ten Mitsubishi
Group companies, including Mitsubishi Corporation, Mitsubishi Heavy Industries
and Bank of Tokyo-Mitsubishi, entered into a separate share sale and purchase
agreement with MMC pursuant to which they agreed to purchase from MMC a total of
15% of MFTBC's shares for approximately 266 million in cash. On March 18, 2004,
we (DaimlerChrysler AG) acquired from MMC an additional 22% interest in MFTBC
for 394 million in cash, thereby reducing MMC's interest in MFTBC to a
non-controlling 20% interest. The aggregate amount we paid for the 65%
controlling interest in MFTBC was 1,251 million consisting of consideration paid
plus direct acquisition costs in 2003 and 2004 (770 million and 394 million,
respectively). We also re-allocated a 87 million portion of the initial purchase
price for our interest in MMC and previously included in our investment in MMC
to the acquisition costs of MFTBC. We have included the consolidated results of
MFTBC in our Commercial Vehicles segment since March 31, 2004, with a one-month
time lag. Prior to March 31, 2004, we accounted for our proportionate share in
MFTBC's results in the Commercial Vehicles segment using the equity method of
accounting.
HMC. In June 2001, we (DaimlerChrysler AG) entered into a commercial
vehicle joint venture agreement with Hyundai Motor Company (HMC). In a first
phase, we and HMC established DaimlerHyundai Truck Corporation (DHTC), of which
we and HMC each owned 50%. We formed DHTC to produce and distribute engines and
engine parts and we anticipated starting production in mid-2004. The commercial
vehicle joint venture agreement with HMC also included an option for us to
acquire 50% of the commercial vehicle business of HMC for approximately
400 million. Pursuant to this option, which we exercised in December 2002, we
intended that HMC would contribute its entire commercial vehicle business into a
new legal entity.
In May 2004, as part of the realignment of our strategic alliance with HMC,
we terminated discussions with HMC regarding the formation of the commercial
vehicles joint venture. Also in May 2004, we sold our non-controlling 50%
interest in DHTC to HMC for a total pre-tax gain of 60 million. In August 2004,
we sold our 10.5% stake in HMC for 737 million in cash, resulting in a pre-tax
gain of 252 million that is included in financial income (expense), net.
Beijing Benz-DaimlerChrysler Automotive Co. Ltd. In November 2004, we
(DaimlerChrysler AG and DaimlerChrysler (China) Ltd.), agreed upon an amended
and re-stated joint venture contract with Beijing Automotive Industry Holding
Co. Ltd. (BAIC) to expand the existing joint venture Beijing Jeep
Corporation, Ltd. and to rename the expanded joint venture Beijing
Benz-DaimlerChrysler Automotive Co. Ltd. (BBDCA). As agreed in the joint venture
contract, we intend to make a capital contribution of $105 million to BBDCA and
then to hold a 50% equity interest in this company. This joint venture is still
under review and subject to the approval of the relevant Chinese authorities.
Once the approval is obtained, BBDCA will manufacture and sell under our license
Mercedes-Benz C-Class and E-Class passenger cars. BBDCA continues to produce and
sell passenger cars under license agreements with our subsidiary DaimlerChrysler
Corporation and with Mitsubishi Motors Corporation. We expect production of
Mercedes-Benz C- and E-Class passenger cars to begin in the second half of 2005
with a capacity of 20,000 vehicles per year.
DaimlerChrysler Vans (China) Ltd. In November 2004, DaimlerChrysler Vans
Hong Kong Ltd., a company in which we hold a majority equity interest, and
Fujian Industry Group Corporation agreed upon a joint venture contract to
establish DaimlerChrysler Vans (China) Ltd. (DCVC). As agreed in the joint
venture contract, once the company is established, we intend to make a capital
contribution of 54 million to DCVC and then to hold a 50% equity interest in
this company. This joint venture is still under review and subject to approval
by the relevant Chinese authorities. Once approval is obtained, we plan for DCVC
to manufacture and sell under our license Mercedes-Benz Vito/Viano and Sprinter
vans. We expect production of these vans to commence in the second half of 2006
with a capacity of 40,000 units per year.
11
MTU Aero Engines. On December 31, 2003, we sold MTU Aero Engines GmbH and
its subsidiaries to the investment company Kohlberg, Kravis and Roberts &
Co. Ltd. (KKR) for 1,450 million, consisting of 1,052 million in cash and net
debt of 398 million which KKR assumed. We further agreed to provide a vendor
loan to KKR in the amount of 175 million, reducing our cash proceeds from the
transaction to 877 million. The sale of MTU Aero Engines also triggered a
compensation payment of $250 million to United Technologies Corporation, the
parent company of Pratt & Whitney, which we paid in January 2004. This
compensation payment released us from financial obligations which we had
undertaken in order to facilitate a pre-existing strategic alliance between MTU
Aero Engines and Pratt & Whitney. As required by U.S. GAAP, we classified and
are reporting the results of MTU Aero Engines and the gain on the sale of this
business as discontinued operations in our consolidated statements of income.
Global Engine Alliance. DaimlerChrysler Corporation, HMC, and MMC have
(directly or through wholly owned subsidiaries) formed joint ventures to develop
and engineer through HMC, and jointly manufacture (in the United States) a
family of world-class in-line four cylinder gasoline engines. Each of the three
companies will utilize the same base engine in some of its future vehicles and
will work with the other two to reduce the cost of the engine, improve quality
and maximize production efficiencies. HMC and MMC will manufacture engines in
production facilities in Korea and Japan, respectively, while the joint ventures
will own and operate the production facility in the United States. HMC commenced
manufacture of the engine in 2004. Engine production is scheduled to commence in
the United States for Chrysler in 2005 and MMC in 2006.
Sale of capital services portfolios. In an effort to refocus our financing
and leasing portfolios on the automotive sector, which is our core business, we
disposed of several non-automotive financial assets in 2002, 2003, and 2004.
Most importantly, during 2002 we sold substantial portions of our commercial
real estate and asset-based lending portfolios to GE Capital and other financial
services providers for an aggregate amount of 1.3 billion. In October 2002, we
concluded further agreements to sell additional portions of our capital services
portfolio. We completed these sales in 2003 for proceeds of 0.3 billion. Minor
dispositions occurred in 2004.
Sale of debis Systemhaus. In October 2000, our subsidiary DaimlerChrysler
Services AG combined its information technology activities with those of
Deutsche Telekom AG in a joint venture. As part of the transaction, Deutsche
Telekom contributed 4.6 billion in cash to our information technology subsidiary
debis Systemhaus in exchange for a 50.1% controlling interest in that company.
In 2001, debis Systemhaus was renamed T-Systems ITS. In January 2002, we
exercised our option to sell our 49.9% interest in T-Systems ITS to Deutsche
Telekom for 4.7 billion. We consummated the sale in March 2002.
Sale of Temic. In April 2001, we sold a 60% interest in TEMIC TELEFUNKEN
microelectronic GmbH (now known as Conti Temic microelectronic GmbH) and its
subsidiaries to Continental AG for proceeds of 398 million. The sale agreement
provided Continental with the option to purchase our 40% interest, and gave us
the option to sell our 40% interest to Continental. On April 1, 2002, we
exercised our option and sold our 40% interest to Continental for 215 million.
For additional information on these transactions and a discussion of changes
in revenues, please refer to "Operating Results" in "Item 5. Operating and
Financial Review and Prospects." For additional information on acquisitions and
dispositions of businesses during the last three years, please refer to Notes 3
and 4 to our Consolidated Financial Statements.
Net income from continuing operations was 2.5 billion in 2004 compared to a
net loss from continuing operations of 0.4 billion in 2003. Basic and diluted
earnings per ordinary share (from continuing operations) were 2.43 in 2004,
compared to basic and diluted loss per ordinary share of 0.41 in 2003.
Total net income was 2.5 billion in 2004 compared to total net income of
0.4 billion in 2003. Basic and diluted earnings per ordinary share were 2.43 in
2004, while in 2003 basic and diluted earnings per ordinary share were 0.44.
12
For additional information on our financial performance, please refer to
"Item 3. Key Information" and "Item 5. Operating and Financial Review and
Prospects."
Our aggregate capital expenditures for property, plant and equipment were
6.4 billion in 2004, 6.6 billion in 2003 and 7.1 billion in 2002. In 2004, the
United States and Germany accounted for 40% and 37% of these capital
expenditures, respectively. Expenditures on operating leases were 17.7 billion
in 2004, higher than in the prior year (2003: 15.6 billion; 2002: 17.7 billion).
For information on our capital expenditures by business segment, please refer to
"Description of Business Segments" below.
As of December 31, 2004, we had 1,012,824,191 ordinary shares outstanding
and approximately 1.7 million stockholders. Our ordinary shares trade on various
stock exchanges throughout the world, including the Frankfurt Stock Exchange and
the New York Stock Exchange.
Significant Subsidiaries
The following table shows the significant subsidiaries DaimlerChrysler AG
owned, directly or indirectly, as of December 31, 2004:
Percentage
Name of Company Owned
DaimlerChrysler North America Holding Corporation, Auburn Hills, MI,
a Delaware corporation 100.0
DaimlerChrysler North America Finance Corporation, Newark, DE, a
Delaware corporation 100.0
DaimlerChrysler Motors Company LLC, Auburn Hills, MI, a Delaware
limited liability company 100.0
DaimlerChrysler Corporation, Auburn Hills, MI, a Delaware
corporation 100.0
DaimlerChrysler Services North America LLC, Farmington
Hills, MI, a Michigan limited liability company 100.0
DaimlerChrysler Services AG, registered in Berlin, Germany 100.0
smart gmbh, registered in Bblingen, Germany 100.0
DaimlerChrysler AG owns 100% of DaimlerChrysler North America Holding
Corporation, DaimlerChrysler Services AG and smart gmbh. DaimlerChrysler North
America Holding Corporation owns 100% of DaimlerChrysler North America Finance
Corporation and 100% of DaimlerChrysler Motors Company LLC. DaimlerChrysler
Motors Company LLC owns 100% of DaimlerChrysler Corporation. DaimlerChrysler
Corporation owns 100% of DaimlerChrysler Services North America LLC.
DESCRIPTION OF BUSINESS SEGMENTS
Mercedes Car Group
The Mercedes Car Group designs, produces and sells Mercedes-Benz passenger
cars, Maybach high-end luxury sedans and smart compact passenger cars. In 2004,
the Mercedes Car Group contributed approximately 33% of our revenues. In 2004,
Mercedes Car Group began a broad quality offensive. In early February 2005, we
announced a comprehensive program designed to improve efficiency and increase
earnings.
Mercedes-Benz. Our Mercedes-Benz passenger cars are world-renowned for
innovative technology, highest levels of comfort, quality, safety, and
pioneering design. The availability of individual models differs by geographic
market. The Mercedes-Benz passenger car product range consists of the following
classes:
S-Class. S-Class full-size luxury sedans range from the S 350 to the S 600.
In addition to various gasoline-powered models, two diesel engine versions with
common-rail technology - the S 320 CDI and the S 400 CDI - and three models with
permanent all-wheel drive - the S 350 4MATIC, the S 430 4MATIC and the S 500
4MATIC - are currently available. A sportier version, the S 55 AMG completes the
line-up. We expect to launch the successor model of the current S-Class in the
second half of 2005.
13
The CL-Class is a top-of-the-line two-door coupe derived from the S-Class
platform. The CL coupes combine superior driving performance, comfort and
state-of-the-art technology. Customers can choose among three models - the CL
500, the CL 600, and the CL 55 AMG.
Our renowned SL convertible models are available in four variants - the SL
350, the SL 500, the SL 600 and the SL 55 AMG. They all feature a retractable
hard top, an electronic braking system, and an active suspension system.
In the first half of 2004, we launched a new high performance Mercedes-Benz
sports car, the SLR. McLaren Cars Ltd., a subsidiary of McLaren Group Ltd. in
which we hold a 40% interest, produces the SLR.
E-Class. The E-Class is a line of luxury sedans and station wagons. E-Class
sedans are available in five gasoline engine versions ranging from the E 200 to
the E 55 AMG and six common-rail diesel engine versions. Three models are
available with permanent all-wheel drive - the E 240 4MATIC, the E 320 4MATIC
and the E 500 4MATIC. E-Class station wagons are available in five gasoline
engine versions, ranging from the E 200 Compressor to the E 55 AMG, and in four
common-rail diesel engine versions.
In October 2004, we introduced a new four-door coupe, the CLS. The CLS is an
innovative vehicle concept with a highly emotive design and leading-edge
technology. It is based on the E-Class platform and is available as a CLS 350
and a CLS 500. A more powerful AMG version and a diesel version are expected to
be available in 2005.
C-Class. The C-Class is a line of compact luxury sedans and station wagons.
We offer seven gasoline engine versions and four common-rail diesel engine
versions. Two models are available with permanent all-wheel drive. The C-Class
sports coupe, the SLK-Class (a two-seat roadster), the CLK coupe, and the CLK
convertible complement the C-Class product family. In the spring of 2004, the
C-Class sedans and station wagons underwent an extensive facelift. The new SLK
convertible was launched in 2004.
A-Class. The A-Class is a front-wheel drive four-door hatchback. Customers
can choose from three gasoline engines of varying displacements and three diesel
engines with common-rail technology. In the third quarter of 2004, we introduced
the successor of the four-door A-Class, followed by the launch of a new 2-door
variant in November 2004. Together with the introduction of the all-new Compact
Sports Tourer CST (the new B-Class) in 2005, we will be able to offer new
choices and a wider selection in this segment to our customers. We do not offer
the A-Class in the United States.
M-Class. The M-Class is a line of sport-utility vehicles with permanent
all-wheel-drive. We currently offer two diesel and three gasoline engine
versions. In mid-2005, we plan to launch the successor generation of the M-Class
and an all-new Grand Sports Tourer GST (the new R-Class), first in the United
States and then in Europe.
G-Class. The G-Class is a four-wheel drive cross-country vehicle that comes
in a short and a long wheelbase version and is also available as a convertible.
We currently offer three gasoline engine models and two common-rail diesel
engine models. The long wheelbase version of the G 500 is also available in the
United States. We expect to launch a remodeled version in 2006.
Maybach. The prestigious Maybach brand represents a line of exclusive
high-end luxury sedans with unsurpassed luxury, comfort, and individuality.
We introduced the first Maybach sedans in the summer of 2002. Two models are
currently available, the Maybach 57 and the Maybach 62, which has a 50 cm (19.7
inches) longer wheelbase than the Maybach 57. Customers can customize their
vehicles by choosing from an extensive selection of the finest interior
furnishings and materials.
smart. The smart brand was originally synonymous for a micro-compact car
specifically designed for urban mobility and the optimal use of resources.
Beginning in 2003, we transformed smart into a multi-product brand. In addition
to the original fortwo, we introduced a roadster version in 2003 and launched a
four-seat, four-door model, the smart forfour, in April 2004.
14
Markets, Sales and Competition
Markets. In 2004, the main markets for our Mercedes Car Group were Germany
(32% of unit sales), the remainder of Western Europe (35% of unit sales), the
United States (18% of unit sales) and Japan (3% of unit sales). In Germany, new
passenger car registrations for all manufacturers reached 3.3 million units, 1%
more than in the previous year. In Western Europe (excluding Germany), new
registrations of passenger cars increased 14% to 13.8 million units.
Sales. The following table shows the distribution of revenues and unit
sales for our Mercedes Car Group segment by geographic market since 2002:
Revenues and Unit Sales
Year Ended December 31,
2004 % change 2003 % change 2002
Revenues1
Western Europe 30,452 -4 31,558 +2 30,940
Germany 15,760 -7 16,875 -1 16,975
Other 14,692 0 14,683 +5 13,965
NAFTA region 11,381 -4 11,848 -3 12,173
United States 10,477 -4 10,932 -3 11,257
Canada and Mexico 904 -1 916 0 916
Asia 4,778 -6 5,100 +9 4,694
Japan 1,996 -17 2,399 -2 2,438
Other 2,782 +3 2,701 +20 2,256
Other markets 3,019 +3 2,940 +24 2,363
World 49,630 -4 51,446 +3 50,170
Units
Western Europe 820,700 +1 812,900 -3 835,900
Germany 386,900 -1 390,100 -6 417,000
Other 433,800 +3 422,800 +1 418,900
NAFTA region 239,900 +2 235,400 +2 231,800
United States 222,500 +2 218,400 +2 213,700
Canada and Mexico 17,400 +2 17,000 -6 18,100
Asia 93,300 -3 96,000 +2 94,100
Japan 41,400 -10 45,800 -3 47,100
Other 51,900 +3 50,200 +7 47,000
Other markets 72,900 0 72,600 +3 70,500
World 1,226,800 +1 1,216,900 -1 1,232,300
º 1
º in millions.
In 2004, worldwide unit sales of the Mercedes Car Group were 1% higher than
in 2003, while revenues decreased 4% compared to the prior year. Unit sales
reached 1,226,800 units compared to 1,216,900 in the previous year. Sales of the
renewed C-Class sedan were particularly strong at 228,500 units while the entire
C-Class family achieved sales of 474,800 units. The E-Class maintained its
worldwide segment leadership with sales of 294,200 units in 2004, a slight
decline compared to 2003. Despite continued strong performance in its market
segment, unit sales of the S-Class family, which is reaching the end of its
lifecycle, declined 21% to 85,900 units.
In Germany, unit sales of our Mercedes Car Group were 386,900 in 2004, 1%
less than in 2003, while unit sales in Western Europe (excluding Germany)
increased 3% to 433,800 units. In the United States, the
15
most important non-European market for Mercedes-Benz passenger cars, we sold
222,500 units in 2004, a 2% increase over the previous year. The continued
strong sales performance of the successful C-Class family, certain S-Class
models, the E-Class station wagon and the CLK convertible supported this
increase. Unit sales in Japan fell 10% to 41,400 units in a very difficult
market. In the rest of Asia (excluding Japan), we were able to surpass last
year's sales level by 3% at 51,900 units. Sales performance in emerging markets
such as China was especially encouraging with an increase of more than 5%. For a
discussion of changes in revenues, please refer to "Operating Results" in "Item
5. Operating and Financial Review and Prospects."
The following table shows, by vehicle line, the number of units sold since
2002:
Year Ended December 31,
2004 2003 2002
Units
S-Class (including CL-Class, SL-Class,
Maybach, and SLR) 85,900 108,800 107,100
E-Class (including CLS-Class) 294,200 305,300 242,300
C-Class (including CLK-Class and SLK-Class) 474,800 442,100 478,300
A-Class 142,500 147,400 171,500
M-Class 70,900 81,200 102,000
G-Class 6,400 7,400 8,800
smart 152,100 124,700 122,300
Total 1,226,800 1,216,900 1,232,300
Competition. In Western Europe, our Mercedes-Benz passenger cars
principally compete with products of BMW Group (BMW and, since January 2003,
Rolls Royce), Volkswagen (Audi, Bentley, VW) and, depending on the market
segment, Fiat (Lancia, Alfa Romeo, Ferrari, Maserati), Ford (Jaguar, Aston
Martin, Land Rover, Volvo), General Motors (Opel, Saab, Vauxhall), Porsche, PSA
(Peugeot/Citroen), Renault and Toyota (Lexus). In the United States, our
principal competitors include BMW (BMW, Rolls Royce), Ford (Jaguar, Aston
Martin, Land Rover, Lincoln, Volvo), Honda (Acura), Nissan (Infiniti), Porsche,
Toyota (Lexus), Volkswagen (Audi, Bentley, VW) and, depending on the market
segment, Nissan, Toyota and certain models produced by General Motors (Cadillac,
Saab). Competitors of Maybach are Rolls Royce and Bentley sedans. Principal
competitors of smart are Fiat, Ford, PSA (Peugeot/Citroen), Renault, Suzuki,
Toyota (Daihatsu), BMW (new Mini) and Volkswagen (Seat, Skoda, VW).
Distribution
We distribute Mercedes-Benz passenger cars through a worldwide distribution
system covering 200 countries and customs areas. The sales organization differs
by geographic market depending on local needs and requirements. At the wholesale
level, we distribute Mercedes-Benz passenger cars through affiliated or
independent general distributors or through wholly owned subsidiaries. In the
United States, in Canada and in major European markets we operate our own
wholesale subsidiaries which we call market performance centers. In Europe and
Canada, we also operate an increasing number of retail outlets, and are in the
process of establishing our own retail locations in select major European
metropolitan areas. A network of approximately 900 smart centers in 36 countries
provides sales and repair services for our smart vehicles.
We distribute our Maybach luxury vehicles through exclusive Maybach centers
in Europe and Asia and selected Mercedes-Benz dealers in the United States. The
Maybach centers are outposts of our Center of Excellence at our largest
passenger car production plant in Sindelfingen, Germany. We entrust the
responsibility of caring for our Maybach customers only to specially trained
personal liaison managers. These managers are not only knowledgeable in all
technical details relating to Maybach vehicles, but are also intimately familiar
with the demanding lifestyles of our customers which enables them to provide a
maximum level of support.
16
Effective October 2002, the European Commission adopted revised legislation
concerning automotive retailing and services in the European Union. The new
legislation no longer permits territorial and brand exclusivity in automotive
distribution agreements. Under the new law, independent repair shops may become
authorized service partners if they meet the qualitative criteria established by
the manufacturer. Beginning in October 2005, authorized automotive retailers
have the right to establish additional sales outlets anywhere in the European
Union. In light of the new legislation, we concluded new contracts with our
retail partners. The new contracts establish binding qualitative standards,
which we intend to enforce through audits at regular intervals.
Capital Expenditures; Research and Development
Our Mercedes Car Group spent 2.3 billion on capital expenditures for fixed
assets in 2004. Principal areas of investment were the preparation for
production of the successor models of the S-Class, the new four-door coupe CLS,
the new A-Class and the new Compact Sports Tourer CST (the new B-Class), the new
M-Class and the new cross-over model Grand Sports Tourer GST (the new R-Class).
Capital expenditures also included production equipment for manufacturing new
engines and transmissions. In 2004, research and development activities of the
Mercedes Car Group related primarily to the development of new car models and
new engines and transmissions. The new car models under development included the
successor models of the S-Class and the A-Class, the new Compact Sports Tourer
CST (the new B-Class), the successor models of the C-Class and M-Class, the
Grand Sports Tourer GST (the new R-Class) and two smart models. The following
table shows the capital expenditures for fixed assets and the research and
development expenditures of the Mercedes Car Group segment in the last three
years:
Year Ended December 31,
2004 2003 2002
( in millions)
Capital expenditures for fixed assets 2,343 2,939 2,495
Research and development 2,634 2,687 2,794
Chrysler Group
Our Chrysler Group segment consists of DaimlerChrysler Motors Company LLC
and its subsidiaries DaimlerChrysler Corporation, DaimlerChrysler Canada Inc.,
and DaimlerChrysler de Mexico S.A. de C.V., as well as other international
automotive affiliates. These companies manufacture, assemble and sell cars and
trucks under the brand names Chrysler, Jeep and Dodge. The Chrysler Group
segment contributed approximately 35% of our revenues in 2004.
Products
The Chrysler Group designs, manufactures and sells vehicles under the
Chrysler, Jeep and Dodge brand names. The Chrysler and Dodge brands offer
full-size, mid-size and compact cars and standard and extended wheelbase
minivans. Additionally, the Chrysler brand offers the Pacifica in the sports
tourer segment and the PT Cruiser. The Dodge brand also includes full-size and
mid-size pick-up trucks, a sport-utility vehicle, full-size vans and the Dodge
Magnum in the sports tourer segment. Under the Jeep brand, the Chrysler Group
sells full-size, mid-size and compact sport utility vehicles. These vehicles are
sold in the NAFTA region and some vehicles are also sold in markets outside of
NAFTA.
In addition to producing and selling cars, trucks, and minivans, the
Chrysler Group also provides its customers with parts and accessories marketed
under the MOPAR brand name.
2004 Product Introductions. In 2004, the Chrysler Group introduced the
following nine products:
º •
º 2004 Dodge Ram SRT10 Pick-up
17
º •
º 2005 Chrysler Town & Country and Dodge Caravan Minivans
º •
º 2005 Chrysler PT Cruiser Convertible
º •
º 2005 Chrysler 300 Series
º •
º 2005 Chrysler Crossfire Roadster
º •
º 2004 Jeep Wrangler Unlimited
º •
º 2005 Dodge Magnum
º •
º 2005 Dodge Dakota
º •
º 2005 Jeep Grand Cherokee
The 2005 Chrysler 300 Series, the Chrysler Group's newest four-door sedan,
and the 2005 Dodge Magnum sports tourer are a return to rear-wheel drive. These
vehicles are offered with an optional 5.7-liter HEMI Magnum V-8, all-speed
traction control, an electronic stability program and anti-lock brakes.
With the 2005 Chrysler Crossfire Roadster and the 2005 Chrysler PT Cruiser
Convertible, the Chrysler Group added two new convertible models in 2004.
Chrysler Group's new 2005 Chrysler Town & Country and 2005 Dodge Caravan
minivans offer more than fifteen new features and safety enhancements. Among the
available options is the Stow'n Go™ seating and storage system which gives
customers the ability to easily fold their second- and third-row seats into the
floor and conveniently stow items.
The 2005 Dodge Dakota pick-up offers the only V-8 engine in the mid-size
pick-up truck market. The new 2004 Dodge Ram SRT10 is powered by the Viper V-10
engine with 500 horsepower and 525 lb.-ft. of torque.
The 2005 Jeep Grand Cherokee, a full-sized sport utility vehicle, continues
the tradition of Jeep innovation with new technologies, sophisticated all-new
Jeep design and a new dimension in on-road refinement and off-road capability.
The new 2004 Jeep Wrangler Unlimited delivers 13 inches more cargo space and 2
inches more second row leg-room. Wrangler Unlimited also features towing
capacity of 3,500 lbs. due to its 10-inch longer wheel base.
2005 Product Introductions. In 2005, the Chrysler Group plans to introduce
the following products:
º •
º 2006 Chrysler 300C SRT8
º •
º 2006 Dodge Viper SRT10 Coupe
º •
º 2006 Dodge Magnum SRT8
º •
º 2006 Dodge Charger
º •
º 2006 Dodge Ram Mega Cab
º •
º 2006 Jeep Commander
The Chrysler 300C SRT8 offers a 6.1-liter SRT HEMI V-8 engine producing 425
horsepower and 420 lb.-ft. of torque.
The 2006 Dodge Viper SRT10 Coupe generates 500 horsepower and 525 lb.-ft. of
torque from its 505-cubic-inch V-10 engine and features a traditional
front-engine, rear-wheel-drive layout with six-speed transmission and a fully
independent four-wheel suspension.
The 2006 Dodge Magnum SRT8 offers key SRT attributes including an
SRT-engineered, 425-horsepower 6.1-liter SRT HEMI V-8 engine.
The Dodge Charger returns to create a new era for the Dodge legend with one
of the biggest names in muscle car history. The Dodge Charger offers modern
coupe styling with four-door functionality and pays homage to muscle cars of the
"60s", while adding 21st century performance, safety and technology.
The all-new 2006 Dodge Ram Mega Cab effectively expands the Dodge Truck
product line, delivering a crew cab derivative model that complements the Dodge
Ram Regular and Quad Cab in the full-size pick-up
18
market. It also offers customers the choice of the standard 345-horsepower HEMI
engine, or the Cummins Turbo Diesel with 610 lb.-ft of torque.
The 2006 Jeep Commander is a three-row sports utility vehicle and represents
an all-new addition to the Jeep brand. It is the ideal complement to the Jeep
Grand Cherokee, which was introduced in the fall of 2004.
Markets, Sales and Competition
The following table shows the distribution of revenues and unit sales for
the Chrysler Group segment by geographic market:
Revenues and Unit Sales
Year Ended December 31,
2004 % change 2003 % change 2002
Revenues1
NAFTA region 45,183 0 45,044 -19 55,304
United States 39,943 0 39,863 -19 48,958
Canada 3,947 0 3,949 -14 4,595
Mexico 1,293 +5 1,232 -30 1,751
European Union 2,834 +1 2,807 -10 3,122
Other markets 1,481 +1 1,470 -16 1,755
World 49,498 0 49,321 -18 60,181
Units2
NAFTA region 2,609,700 +6 2,457,800 -7 2,650,700
United States 2,287,000 +7 2,128,600 -7 2,277,100
Canada 212,300 -7 229,000 -10 253,800
Mexico 110,400 +10 100,200 -16 119,800
European Union 91,600 -8 99,900 +19 84,100
Other markets 78,600 -2 80,200 -9 87,900
World 2,779,900 +5 2,637,900 -7 2,822,700
º 1
º in millions.
º 2
º Unit sales represent factory unit sales by the Chrysler Group.
In 2004, our most important markets for Chrysler, Jeep and Dodge vehicles
were the United States with 82% of factory unit sales, Canada with 8% of factory
unit sales and Mexico with 4% of factory unit sales. In the United States and
Canada, we sold 2,416,900 vehicles in the retail market in 2004, an increase of
3% from 2,340,400 vehicles in 2003. For 2004, this represents a 12.8% share of
the United States and Canada car and truck market, compared to 12.6% in 2003.
Industry retail sales in the United States and Canada for 2004 were 18.9 million
units, an increase of 2% from 2003.
In 2004, revenues of our Chrysler Group segment increased, primarily as a
result of higher worldwide factory unit sales, a lower average sales incentive
expense per vehicle and a shift in product mix to higher priced vehicles,
largely offset by the appreciation of the euro against the dollar. Total factory
unit sales increased by 5% to 2,779,900 primarily as a result of the successful
launch of new products. For additional information regarding Chrysler Group's
revenues, please refer to "Operating Results" in "Item 5. Operating and
Financial Review and Prospects."
19
In the NAFTA region, principal competitors of our Chrysler, Jeep and Dodge
passenger cars and trucks are products of General Motors, Ford, Toyota, Honda
and Nissan. Competition is likely to intensify as new products and capacity in
NAFTA are added by Asian and European manufacturers.
The following table shows, by vehicle line, the number of units sold:
Year Ended December 31,
2004 2003 2002
Units1
Cars
Neon 141,700 153,600 171,600
Sebring and Stratus Sedan, Convertible and Coupe 240,900 233,600 279,200
Intrepid, Concorde and 300M2 1,200 140,900 202,200
300/300C 141,000 - -
Crossfire 28,300 14,700 -
PT Cruiser Convertible 34,200 - -
Other 36,900 24,900 30,800
Minivans 499,900 476,800 558,800
Sports Tourers
Pacifica 92,200 82,000 -
Magnum 64,700 - -
PT Cruiser 123,000 136,400 191,200
Trucks
Ram Pick-up 517,800 508,300 466,500
Dakota 127,700 122,500 161,700
Durango 160,100 113,300 122,200
Ram Van 3,300 20,100 42,000
Sprinter 17,400 9,300 -
Other 1,800 5,300 900
Jeep
Grand Cherokee 218,700 255,100 289,000
Liberty/Cherokee 232,100 256,700 230,100
Wrangler 97,000 84,400 76,500
Total 2,779,900 2,637,900 2,822,700
º 1
º Unit sales represent factory shipments by the Chrysler Group.
º 2
º Replaced by 300/300C and Magnum.
Distribution
Dealers in the NAFTA region, who have sales and service agreements with
DaimlerChrysler Motors Company LLC, sell Chrysler, Jeep and Dodge vehicles and
MOPAR parts and accessories at retail. The dealers purchase vehicles, MOPAR
parts and accessories from DaimlerChrysler Motors Company LLC for sale to retail
customers. In 2004, the Chrysler Group continued "Project Alpha," a program to
develop a new style of dealership in key markets that combines in one modern
facility the display, sale and servicing of all three brands of Chrysler Group
vehicles (Chrysler, Jeep and Dodge). Approximately 200 Alpha dealerships have
been created under this program.
In the United States, we distribute our Chrysler, Jeep and Dodge products
through 3,997 dealers at December 31, 2004, compared to 4,115 dealers at
December 31, 2003. In Canada, the dealer network
20
comprised 489 dealers at December 31, 2004, compared to 502 dealers at
December 31, 2003. In Mexico, the dealer network comprised 123 dealers at
December 31, 2004, compared to 122 dealers at December 31, 2003.
Chrysler International Corporation, a wholly owned subsidiary of
DaimlerChrysler Corporation which in turn is a wholly owned subsidiary of
DaimlerChrysler Motors Company LLC, sells vehicles in various other countries
through wholly-owned, affiliated and independent distributors and dealers.
Capital Expenditures; Research and Development
In 2004, our Chrysler Group segment invested 2.6 billion in fixed assets.
These capital expenditures related primarily to new product programs. In
addition, Chrysler Group made capital expenditures to upgrade powertrains,
enhance flexible manufacturing capabilities and maintain existing facilities.
Research and development expenditures in 2004 were primarily for product
development for vehicles launched in 2004 and for vehicles to be launched in
future years. They also included development costs for improving the quality,
cost and performance of existing products. These expenditures included
compliance costs associated with regulations promulgated by various governmental
agencies worldwide.
The following table shows the capital expenditures for fixed assets and the
research and development expenditures of the Chrysler Group segment during the
last three years:
Year Ended December 31,
2004 2003 2002
( in millions)
Capital expenditures for fixed assets 2,647 2,487 3,155
Research and development 1,570 1,689 2,062
The increase of capital expenditures for fixed assets from 2003 to 2004 is
mainly attributable to increased spending to support the launch of product
programs scheduled over the next several calendar years. The decrease of
research and development expenditures is attributable to the appreciation of the
euro against the dollar. Measured in U.S. dollars, the principal functional
currency of the Chrysler Group, research and development expenditures increased
slightly in 2004 compared with 2003.
International Operations/Cooperations/Alliances
The Chrysler Group's international operations in South America include a
manufacturing facility in Venezuela, where it assembles the Chrysler Neon, Jeep
Cherokee and Jeep Grand Cherokee.
International cooperations in Austria include the production of Jeep Grand
Cherokees and the production of Chrysler Voyagers under an assembly contract
with Magna Steyr Fahrzeugtechnik AG & Co KG. In 2005, production in Austria will
expand to include the 300C models. In Brazil, the segment participates in a
joint venture with Bayerische Motoren Werke AG to manufacture a 1.6-liter
gasoline engine for use in both Chrysler Group and BMW vehicles. DaimlerChrysler
Corporation also has a minority interest in a company that assembles Jeep
Cherokees and long wheelbase Jeep Wranglers in Egypt.
The segment's automotive affiliations in the Asia-Pacific region include the
assembly and distribution of Jeep Cherokees and Jeep Grand Cherokees in China by
Beijing Jeep Corporation, Ltd., a minority-owned joint venture. Beijing Jeep
also assembles the Mitsubishi Pajero and Outlander for sale in China. Also in
January 2005, the Chrysler Group signed a contract with Taiwan-based China Motor
Corporation (CMC) to manufacture Chrysler Town & Country minivans beginning in
2006 at CMC's facility in Yang Mei, Taiwan, for the Taiwanese market.
Production of the Chrysler Crossfire two-seat coupe, the Chrysler Crossfire
SRT-6, a derivative of the Chrysler Crossfire, and the Chrysler Crossfire
convertible occurs in Germany under an assembly contract with Wilhelm Karmann
GmbH, one of our long-time business partners.
DaimlerChrysler Corporation (DCC) and Mitsubishi Motors Corporation (MMC)
have agreed to work together on several projects to share research and
development costs and to combine purchasing volumes, where possible.
21
DCC, Hyundai Motor Company (HMC), and MMC have (directly or through wholly
owned subsidiaries) formed joint ventures to develop and engineer through
Hyundai, and jointly manufacture (in the United States) a family of world-class
in-line four cylinder gasoline engines. Please refer to the discussion above
under the heading "Business Summary and Developments" in "Introduction" for
further information.
In 2005, DCC will produce mid-size pickups for MMC for sale in the U.S.
market.
Commercial Vehicles
We manufacture and sell commercial vehicles under the brand names
Mercedes-Benz, Freightliner, Sterling, Mitsubishi, Fuso, Setra, Thomas Built
Buses, American LaFrance, Western Star and Orion. Our worldwide facilities
provide us with a strong production and assembly network for commercial vehicles
and core components. We distribute our commercial vehicles through a worldwide
distribution and service network. In 2004, our Commercial Vehicles segment
contributed approximately 23% of our total revenues.
Important Changes in the Commercial Vehicles Segment
MFTBC. On March 18, 2004, we (DaimlerChrysler AG) acquired from MMC an
additional 22% interest in MFTBC, thereby reducing MMC's interest in MFTBC to a
non-controlling 20% interest. MFTBC develops, designs, manufactures, assembles
and sells small, mid-size and heavy-duty trucks and buses, primarily in Japan
and other Asian countries. We have included the revenues, unit sales and
consolidated results of MFTBC in our Commercial Vehicles segment since March 31,
2004 with a one-month time lag. Prior to March 31, 2004, we accounted for our
proportionate share in MFTBC's results in the Commercial Vehicles segment using
the equity method of accounting. Please refer to the discussion above under the
heading "Business Summary and Developments" in "Introduction" for further
information.
In 2004, we discovered a number of quality issues in products manufactured
and sold by MFTBC before we invested in the company in March 2003. Following the
initial discovery of some of these issues, MFTBC implemented a new quality
management system and conducted several detailed internal investigations, which
resulted in several publicly announced field campaigns. MFTBC has also
systematically disclosed its past quality issues and is in the process of
rectifying them. MFTBC expects to complete most of these field actions by the
end of 2005, with the remainder to be completed in 2006. For a discussion of the
impact of these past quality issues on the Commercial Vehicles segment's
operating profit, please refer to the discussion under the heading "Operating
Results" in "Item 5. Operating and Financial Review and Prospects." Early in
2005, MMC agreed in principle to compensate us for financial damages deriving
from these quality issues with cash and the remaining 20% of the shares of MFTBC
owned by MMC. In addition, MMC agreed in principle to continue to maintain 100%
ownership interest in NedCar, a company that produces the smart forfour for us,
and to cooperate with MFTBC in various other areas.
Off-Highway. As of January 1, 2004, we allocated the Off-Highway business
which we previously included in the Commercial Vehicles segment to the Other
Activities segment. We have adjusted prior period amounts accordingly.
HMC. In May 2004, we terminated discussions with Hyundai Motor Company
(HMC) regarding the formation of a commercial vehicles joint venture as part of
the realignment of our strategic alliance with HMC. Also in May 2004, we sold
our non-controlling 50% interest in DaimlerHyundai Truck Corporation (DHTC) to
HMC and recorded a total pre-tax gain of 60 million as a result.
Products
Vans. Worldwide, we currently offer four lines of Mercedes-Benz vans
between 1.9 metric tons (t) and 7.5t gross vehicle weight (GVW): the Sprinter,
the Vito/Viano, the Vario and the compact multi-purpose vehicle Vaneo. We
produce our Mercedes-Benz vans primarily in Germany and Spain. We also
manufacture the Mercedes-Benz Sprinter in Argentina for the South American,
South African, Australian and several Asian
22
markets and assemble it in the United States for the U.S. and Canadian markets
where we currently sell it under the Freightliner and Dodge brand names.
Trucks. Our current European Mercedes-Benz truck lines consist of the
Actros and the Axor in the heavy weight category, the Atego in the medium weight
category, and the Econic. The Axor is positioned between the Actros and the
Atego in terms of price and function. The Econic is a specialty vehicle that
customers can adapt for a variety of applications. Complementing our line-up is
the Unimog, a four-wheel drive vehicle designed for special purpose
applications, such as street maintenance, some construction industry uses,
fire-fighting, forestry and agriculture. We sell trucks manufactured in our
European factories also in Africa, Asia and Australia. In 2005, we plan to
launch additional variants of the Axor and offer trucks that meet the emission
regulations EURO 4 and 5, starting with long-haul applications.
In Turkey, we manufacture medium and heavy duty trucks, mainly for the local
market, but also for export sales. Our subsidiary DaimlerChrysler do Brasil
develops and produces Mercedes-Benz trucks in the medium and heavy duty
segments, especially for the South American markets. We will launch the Axor in
South America in 2005.
Our U.S. subsidiary Freightliner manufactures trucks and buses (based on
truck chassis) in Classes 5 through 8 (from 16,000 lbs. GVW to 33,000 lbs. GVW
and over) and sells them under the Freightliner, Sterling, Western Star, and
Thomas Built Buses brand names, primarily in the NAFTA-region. Through American
LaFrance, Freightliner is active in the custom fire truck chassis market.
Freightliner also manufactures chassis for trucks, buses and motorhomes in
Classes 3 through 7 (from 10,000 lbs. GVW to 33,000 lbs. GVW). In 2004,
Freightliner launched a new integrated school bus, the C2 Safe T-Liner.
Our Japanese subsidiary MFTBC manufactures three lines of trucks and
tractors, primarily for the Japanese and other Asian markets: the Canter trucks
(from 3.5 to 7.5t GVW), the Fighter trucks (from 8.0 to 15.1t GVW), and the
Supergreat trucks (from 15.1 to 24.8t GVW). MFTBC also sells trucks in Western
Europe and the United States.
Buses. We are a full-line supplier in the worldwide bus and coach market.
Our product portfolio includes city-buses, coaches, interurban buses, midi buses
and bus chassis. We utilize our global production facilities in France, Germany,
Turkey, Canada, Mexico, the United States and Japan to tailor our product range
to local market requirements and preferences. We also produce bus chassis that
we sell under the Mercedes-Benz brand name in various countries. We sell
completely built-up buses under the Mercedes-Benz and Setra brands in Europe and
under the Setra and Orion brand names in the United States and Canada. In 2004,
Setra launched the final variant of its new ComfortClass 400 line of buses. We
also manufacture heavy, medium and small coaches, buses and bus chassis at MFTBC
in Japan.
For our commercial vehicles, we produce diesel engines, axles and
transmissions under the Mercedes-Benz, Mitsubishi Fuso and Detroit Diesel brand
names for on-highway use.
Markets, Sales and Competition
Markets. The market for commercial vehicles depends significantly on the
prevailing general economic conditions since they directly influence
transportation needs and the availability of funds for capital investment.
Our most important commercial vehicle markets are Western Europe, North
America, South America and Asia. Economic conditions in all these regions
improved in 2004, particularly in North America.
Total commercial vehicle registrations for trucks, vans and buses in Western
Europe increased significantly by 8% to 1,370,200 units. This increase was
mainly driven by the medium and heavy-duty truck segments. Additionally, the
mid-size and large van segments in Western Europe showed strong registration
increases from 940,000 to 1,043,000 units due to strong market demand.
Registrations of heavy (over 8t GVW) buses in that market improved slightly from
7,000 units in 2003 to 7,200 units in 2004.
23
Commercial vehicle registrations in Germany increased 10% to 306,400 units.
Registrations in the medium and heavy-duty truck segment increased 14% to 32,200
units, in line with overall market growth.
In the NAFTA region, retail sales for all manufacturers of trucks in Classes
5 through 8 reached 452,600 units, 31% more than in 2003. In the United States,
retail sales of all manufacturers in Classes 5 through 8 increased 33% from
288,800 units in 2003 to 384,600 units in 2004. Retail sales in the Class 5-7
truck segment rose from 146,800 units in 2003 to 181,400 units in 2004, while
retail sales for all manufacturers in the Class 8 heavy duty truck category
showed a strong increase of 43% from 142,000 units in 2003 to 203,200 units in
2004. This increase reflects the recovery of the U.S. economy and the need to
make new truck purchases deferred in prior years.
In South America, demand went up in the Brazilian market, particularly in
the medium- and heavy-duty truck segments, resulting in a 25% increase in
commercial vehicle sales.
In Japan, sales of trucks and busses (3.5t GVW and above) decreased 10% to
272,100 units. This decrease was the result of accelerated vehicle purchases
during 2003 triggered by new engine emission standards which became effective in
October 2003.
Sales. The following table shows the distribution of revenues and unit
sales of our Commercial Vehicles segment by geographic market since 2002:
Revenues and Unit Sales
Year Ended December 31,
20042 % change 2003 % change 2002
Revenues ( in millions)1
Western Europe 14,455 +10 13,169 +2 12,962
Germany 7,013 +7 6,531 +3 6,367
Other 7,442 +12 6,638 +1 6,595
NAFTA region 10,471 +17 8,918 -8 9,685
United States 8,888 +17 7,629 -7 8,215
Canada 1,049 +25 839 -9 926
Mexico 534 +19 450 -17 545
South America 1,462 +49 981 -2 1,000
Brazil 917 +26 725 -2 743
Other 545 +113 256 0 257
Asia (including Australia) 5,134 +243 1,497 +17 1,281
Japan 178 +105 87 -19 108
Other 4,956 +251 1,410 +20 1,173
Other markets 3,242 +45 2,241 +22 1,838
World 34,764 +30 26,806 0 26,766
24
Year Ended December 31,
20042 % change 2003 % change 2002
Units
Western Europe 274,400 +10 249,500 -6 265,200
Germany 110,600 +9 101,700 -2 103,300
Other 163,800 +11 147,800 -9 161,900
NAFTA region 177,100 +32 134,200 +14 118,000
United States 150,700 +32 114,600 +15 99,800
Canada 14,600 +45 10,100 +5 9,600
Mexico 11,800 +24 9,500 +10 8,600
South America 55,800 +43 39,000 +9 35,800
Brazil 36,000 +17 30,800 +4 29,600
Other 19,800 +141 8,200 +32 6,200
Asia (including Australia) 130,100 +343 29,400 +25 23,500
Japan 43,000 +2,767 1,500 -21 1,900
Other 87,100 +212 27,900 +29 21,600
Other markets 74,800 +53 48,900 +14 42,900
World 712,200 +42 501,000 +3 485,400
º 1
º Beginning in 2004, revenues of our Off-Highway business have been included
in our Other Activities segment. Prior year amounts have been adjusted
accordingly.
º 2
º Due to the consolidation of MFTBC, the 2004 figures include incremental
increases to revenue and unit sales of 3.6 billion and 114,800 units. Most
of MFTBC's revenues and unit sales relate to sales in Asia.
Worldwide unit sales of our Commercial Vehicles segment increased 42% from
501,000 vehicles in 2003 to 712,200 units in 2004. Unit sales in 2004 include an
additional 114,800 units sold by MFTBC. Excluding these incremental MFTBC sales,
our Commercial Vehicles segment increased unit sales by 19%.
The overall 10% increase of commercial vehicle unit sales in Western Europe
is primarily due to higher sales of Mercedes-Benz trucks and vans. In Germany,
the most important market for our Mercedes-Benz and Setra commercial vehicles,
we sold 110,600 units in 2004, an increase of 9% compared to the previous year.
Unit sales in Germany represented 15%, and the remaining Western European market
23% of our total 2004 commercial vehicle sales.
In the NAFTA region, sales of our commercial vehicles increased
significantly to 177,100 units in 2004. This increase was achieved through
higher sales of Freightliner trucks (mainly Class 8), commercial vehicle chassis
manufactured by a Freightliner subsidiary, and fire trucks and other specialty
vehicles produced by the Freightliner subsidiary American LaFrance. In addition,
sales of the Sprinter van in the NAFTA region rose from 11,800 units to 18,900
units.
In South America, sales continued their upward trend with an increase of 43%
from 39,000 units in 2003 to 55,800 units in 2004.
Our unit sales in Japan were significantly higher at approximately 45,000
units following the integration of MFTBC. We have included MFTBC's revenues and
unit sales in our figures since March 31, 2004, with a one-month lag. MFTBC's
2004 unit sales in Japan decreased in comparison to 2003. This was partially due
to new engine emission standards, which became effective in 2003 and resulted in
accelerated purchases in that year and partially to the negative impact of past
quality issues which resulted in several field campaigns and homologation
delays.
25
The following table shows, by vehicle category, the unit sales of our
Commercial Vehicles segment since 2002:
Year Ended December 31,
20042 2003 2002
Units
Vans 260,700 230,900 236,600
Trucks 403,300 232,400 214,000
Buses 37,400 28,300 25,300
Other Products1 10,800 9,400 9,500
Total 712,200 501,000 485,400
º 1
º This category reflects sales of Mitsubishi pickup trucks (L 200) and
Mitsubishi Pajero vehicles sold by our subsidiary DaimlerChrysler South
Africa. These numbers were previously reported within the vans category.
º 2
º The 2004 sales reported in the categories "Trucks" and "Buses" include
113,500 and 4,600 unit sales, respectively, of MFTBC.
For a discussion of changes in revenues, see "Operating Results" in "Item 5.
Operating and Financial Review and Prospects."
Competition. In Western Europe, the primary sales market for Mercedes-Benz
vans, our principal competitors are Fiat (Fiat, Iveco), Ford, Volkswagen and
Renault.
In the truck segment, competitors vary in each geographic region. In Western
Europe, our main competitors are MAN, Iveco, Volvo, Scania, DAF and Renault. In
the NAFTA markets, our main competitors in the Class 5 through 8 truck
categories are Navistar, Paccar (Kenworth/Peterbuilt), Volvo/Renault (Mack),
General Motors and Ford. In Japan and the South East Asian markets, our main
competitors (including busses) are Hino, Isuzu and Nissan Diesel.
Our main competitor in the bus sector (over 8t GVW) on a global scale is
Volvo. Other major competitors are Neoman (MAN, Neoplan), Scania and Irisbus
(Renault, Iveco). Their primary markets are in Western Europe. In South America,
Volkswagen and Agrale are our main competitors. Volvo and Scania are also
represented in this region. In Asia, our main competitors are Toyota, Hino and
Isuzu.
Distribution
In Germany, we sell our commercial vehicles through our own wholesale
network. We also own several retail outlets. In some minor cases, we also sell
our commercial vehicles through independent dealers.
In other major European markets, local DaimlerChrysler subsidiaries provide
wholesale services to a network of independent dealers and, in some cases, to
our own retail outlets.
Outside Europe, we sell our commercial vehicles through independent
distributors or, if we have a local production company, through the sales
organization of the production company. In Japan, MFTBC sells its commercial
vehicles through its own wholesale network and owns most of the retail outlets.
We expect to continue to establish our own retail outlets in major European
metropolitan centers in an effort to strengthen our retail activities.
Capital Expenditures; Research and Development
In 2004, our Commercial Vehicles segment had capital expenditures for fixed
assets of 1.2 billion. These expenditures primarily related to a future
successor model of the Sprinter and new low-emission engines.
26
Research and development projects in the commercial vehicles area focused on
new products, especially the Sprinter successor, lifecycle management for the
Atego/Axor line and engines meeting new low-emission regulations. In 2004, our
expenses for research and development amounted to 1.2 billion.
The table below shows capital expenditures for fixed assets and research and
development expenditures of our Commercial Vehicles segment during each of the
last three years:
Year Ended December 31,
2004 2003 2002
( in millions)
Capital expenditures for fixed assets 1,184 958 1,186
Research and development 1,226 946 883
Services
Our services activities, which contributed approximately 8% of our revenues
in 2004, consist almost exclusively of financial services supporting our
automotive businesses.
The revenues of our services segment amounted to 13.9 billion in 2004,
14.0 billion in 2003 and 15.7 billion in 2002 and were almost exclusively
attributable to financial services.
The financial services we offer consist mainly of customized financing and
leasing packages for our retail and wholesale customers in the automotive
sector. We also provide financing to our dealers for property, plant and
equipment purchases and vehicle inventory. Since 2002, we have operated a fully
licensed bank, the DaimlerChrysler Bank, in Germany. The DaimlerChrysler Bank
offers financial services in Germany, which include leasing and sales-financing
services and car savings plans to our customers and employees, as well as credit
cards and demand-deposit accounts. In addition, we offer insurance and
reinsurance brokerage and fleet management services, including dealer property
and casualty insurance.
In an effort to refocus our financing and leasing portfolios on the
automotive sector, which is our core business, we disposed of several
non-automotive financial assets in 2002, 2003 and 2004. Most importantly, during
2002 we sold substantial portions of our commercial real estate and asset-based
lending portfolios to GE Capital and other financial services providers for an
aggregate amount of 1.3 billion. We sold additional portions of our capital
services portfolio in 2003 for proceeds of 0.3 billion and made minor
dispositions in 2004.
We also have an ownerhip interest in Toll Collect, for which we account
using the equity method of accounting. In September 2002, our subsidiary
DaimlerChrysler Services AG, Deutsche Telekom AG and Compagnie Financiere et
Industrielle des Autoroutes S.A. (Cofiroute) contracted with the Federal
Republic of Germany to develop, install and operate a system for electronic
collection of tolls from all commercial vehicles over 12t GVW using German
highways. Toll Collect GmbH, a German limited liability company in which we and
Deutsche Telekom each hold a 45% interest and Cofiroute holds the remaining 10%,
is the principal builder and operator of the system. You can find additional
information about Toll Collect under the heading "Off-Balance Sheet
Arrangements" in "Item 5. Operating and Financial Review and Prospects," under
the heading "Legal Proceedings" in "Item 8. Financial Information" and in Note 3
to our Consolidated Financial Statements.
In October 2000, Deutsche Telekom AG acquired a 50.1% controlling interest
in our information technology activities. In March 2002, we exercised our option
to sell to Deutsche Telekom our remaining 49.9% interest in these activities.
You can find additional information about these transactions under the heading
"Business Summary and Developments" in "Introduction" above, under the heading
"Operating Results -
27
Overview of Business Segments Revenues and Operating Profits (Loss)" in "Item 5.
Operating and Financial Review and Prospects," and in Note 4 to our Consolidated
Financial Statements.
Markets, Sales and Competition
The following table shows the distribution of revenues derived from our
services activities by geographic market since 2002:
Year Ended December 31,
2004 2003 2002
( in millions)
European Union 5,695 5,460 5,048
Germany 4,057 3,759 3,497
Other 1,638 1,701 1,551
NAFTA region 7,581 7,917 9,994
United States 6,412 6,680 8,578
Canada and Mexico 1,169 1,237 1,416
Other markets 663 660 657
World 13,939 14,037 15,699
In 2004, we generated approximately 54% of our total financial services
business in the NAFTA region, 29% in Germany and 12% in other European Union
countries. We discuss period-to-period changes in revenues under the heading
"Operating Results" in "Item 5. Operating and Financial Review and Prospects."
In 2004, the Services segment processed new leasing and finance contracts
covering approximately 2,329,000 units with a total value of 50.9 billion. In
the prior year, we processed new leasing and finance contracts covering
1,944,000 units with a total value of 47.5 billion. The total value of leasing
and finance contracts at December 31, 2004, was 102.4 billion compared to
98.2 billion at December 31, 2003, a 4% increase in total contract value.
Excluding currency translation effects, our total contract value increased 9%
compared to 2003. The average monthly payment for new vehicle installment sale
contracts in 2004 was 469. The average new contract balance amounted to 21,806
and the average original term was 49 months.
The following table shows the number of units and the value covered by new
leasing and finance contracts as well as the number of units and the value
covered by all our outstanding leasing and finance contracts at December 31,
2004 (in each case by geographic area and in total):
Units Units
Covered by Covered by
New Value all Value
Contracts ( in millions) Contracts ( in millions)
United States1 1,495,383 30,602 4,351,901 59,833
Germany1 325,027 8,201 702,502 14,531
Canada1 149,982 3,291 590,606 8,096
United Kingdom1 61,532 1,793 133,500 3,095
Mexico 61,957 731 151,886 1,249
Italy 43,376 919 152,022 2,416
France 33,069 804 80,597 1,537
Japan1 24,121 786 79,685 1,447
Australia1 15,199 500 53,685 1,327
Netherlands 14,564 398 47,752 987
Other Countries1 104,517 2,832 256,040 7,881
Total 2,328,727 50,857 6,600,176 102,399
º 1
º These figures include contracts which we included in several asset-backed
receivables transactions in these countries.
28
In the leasing and financial services area, our competitors include leasing
and finance subsidiaries of banks and financial institutions. We also compete
with the financial services businesses of other automobile manufacturers to the
extent they do not limit their activities to their own automobile brands.
Capital Expenditures
The table below shows capital expenditures for fixed assets, which related
largely to the acquisition of data processing equipment, and additions to
equipment under operating leases during each of the last three years:
Year Ended December 31,
2004 2003 2002
( in millions)
Capital expenditures for fixed assets 91 76 95
Equipment on operating leases 14,016 11,649 12,862
Other Activities
Our Other Activities segment comprises our businesses, operations and
investments not allocated to one of our other business segments. The segment
includes our Off-Highway business, our holdings in EADS and Mitsubishi Motors
Corporation (MMC), our real estate and corporate research activities, our
holding companies and our finance subsidiaries through which we refinance the
capital needs of our operating businesses in the capital markets.
EADS. We account for the minority interest we hold in EADS using the equity
method of accounting and we report our share of the operating results of EADS as
part of the operating results of our Other Activities segment. EADS is a global
supplier in the aerospace sector, the defense business and of related services.
The EADS Group includes the aircraft manufacturer Airbus, the helicopter
supplier Eurocopter and the joint venture MBDA, a guided missile producer. In
addition, EADS is a partner in the Eurofighter consortium and a prime contractor
for the Ariane launcher. The company is developing the A400M military transport
aircraft and is the industrial partner for the European satellite navigation
system Galileo.
Off-Highway. As of January 1, 2004, we allocated our Off-Highway business,
which was previously included in Commercial Vehicles, to our Other Activities
segment. We have adjusted prior figures to reflect this new presentation. Our
Off-Highway business includes the MTU Friedrichshafen Group, the Off-Highway
businesses of Detroit Diesel Corporation and DaimlerChrysler AG as well as our
minority investment in VM Motori S.P.A. The Off-Highway business focuses on
engine applications for rail and marine products, military and industrial
vehicles as well as stationary industrial and commercial applications (e.g.
back-up generators). We sell our Off-Highway-products under the brand names
Mercedes-Benz, Detroit Diesel and MTU.
MMC. Following a corporate restructuring at MMC, our interest in the voting
stock of MMC was diluted from 37.0% to 24.7% and we no longer have the ability
to exercise significant influence over the operating and financial policies of
MMC. As a result, on June 29, 2004, we ceased to account for our investment in
MMC using the equity method of accounting and classified our investment in MMC
as an investment in related companies, accounted for at fair value. Since then
our equity interest has been further diluted. As of December 31, 2004, we held
19.69% of the share capital of MMC. Please refer to the discussion above under
the heading "Business Summary and Developments" in "Introduction" for further
information.
MTU Aero Engines. On December 31, 2003, we sold MTU Aero Engines GmbH and
its subsidiaries to the investment company Kohlberg Kravis and Roberts &
Co. Ltd. (KKR). As required by U.S. GAAP, we reclassified the results of MTU
Aero Engines and the gain on the sale of this business as discontinued
operations in our consolidated statements of income and report them accordingly.
We have adjusted our consolidated statements of income (loss) for all periods
presented to reflect this presentation. For further information regarding the
effects on our operating profit in 2003, please refer to "Operating Results" in
"Item 5. Operating and Financial Review and Prospects."
29
Temic. In April 2001, we sold a controlling interest in our TEMIC
automotive electronics business for
398 million. We sold our remaining 40% minority interest in that business for
215 million in April 2002.
Revenues from continuing operations of this segment originate mainly from
our DaimlerChrysler Off-Highway business unit and our real estate business. The
following table shows the revenues generated by our Other Activities segment
since 2002:
Year Ended December 31,
20041 % change 20031,2 % change 20021,2
( in millions)
DC Off-Highway 1,749 2 1,711 5 1,635
Real Estate and other businesses 451 2 440 -13 508
Total revenues from continuing operations 2,200 2 2,151 0 2,143
Revenues from discontinued operations (MTU Aero 0 -100 1,933 -13 2,215
Engines)
Total revenues from continuing and 2,200 -46 4,084 -6 4,358
discontinued operations
º 1
º As of January 1, 2004, we allocated the Off-Highway business previously
included in our Commercial Vehicles segment to the Other Activities
segment. We have adjusted prior year amounts accordingly.
º 2
º On December 31, 2003, we sold MTU Aero Engines. As a result, we report the
2003 and 2002 revenues of MTU Aero Engines as discontinued operations and
all other businesses as continuing operations. We have adjusted the figures
for prior reporting periods accordingly.
For a discussion of changes in revenues, see "Operating Results" in "Item 5.
Operating and Financial Review and Prospects."
Markets, Sales and Competition
The following table sets forth the distribution of revenues from continuing
operations of Other Activities by geographic market since 2002:
Year Ended December 31,
20041 % change 20031,2 % change 20021,2
( in millions)
European Union 1,227 -33 1,842 -1 1,854
Germany 798 -35 1,230 -2 1,257
Other 429 -30 612 +3 597
NAFTA region 351 -76 1,444 -17 1,736
United States 320 -76 1,331 -14 1,551
Canada and Mexico 31 -73 113 -39 185
Asia 333 -30 473 -5 500
Other markets 289 -11 325 +21 268
World 2,200 -46 4,084 -6 4,358
º 1
º As of January 1, 2004, we allocated the Off-Highway business previously
included in our Commercial Vehicles segment to the Other Activities
segment. We have adjusted prior year amounts accordingly.
º 2
º Revenues for the years 2003 and 2002 include the revenues of MTU Aero
Engines which we sold on December 31, 2003.
30
SUPPLIES AND RAW MATERIALS
In 2004, we purchased goods and services from suppliers around the world
with a total value of approximately 101.4 billion compared to 99.7 billion in
2003. Mercedes Car Group accounted for 38% of our total purchase volume,
Chrysler Group for 32%, Commercial Vehicles for 26%, Services for 3%, and Other
Activities for 1%. We purchase various commodities used in vehicle
manufacturing, such as steel, through annual and long-term supply agreements.
From time to time, we also purchase commodities on the spot market.
We operate our worldwide procurement and supply activities through a single
global procurement and supply function. We aim to maximize the efficiency of our
supply networks by working not only with the first tier supplier but also with
sub-suppliers, raw material suppliers, and transportation carriers.
E-procurement is one of several standard processes we use in purchasing supplier
products and managing logistics.
We strive to avoid material shortages in supplies and raw materials and
substantial price increases by carefully managing our current and future
requirements and delivery needs in close cooperation with our suppliers and
sub-suppliers.
In 2004, steel prices increased significantly due to increased worldwide
demand. Annual and long-term supply agreements based on regional supply needs
and pricing helped minimize the impact of higher steel prices in 2004. Although
we will continue to benefit from similar supply arrangements, continued high
steel prices may have a more significant impact on us and our suppliers in 2005.
Oil prices increased significantly throughout the year but declined in the
fourth quarter from their record high levels. Fuel and resin (plastic) prices
increased as a result of higher oil prices. Precious metals, including platinum,
palladium and rhodium, which we primarily use in catalytic converters, are
subject to price volatility. We use derivative commodity instruments to hedge
against this volatility to the extent we deem appropriate. We also continue to
research alternative materials and processes for use in these components. In
addition, we have established a corporate commodity risk management committee to
provide enhanced control and oversight over our commodity price exposure.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The automotive industry is subject to extensive government regulation. Laws
in various countries regulate the emission levels, fuel economy, noise, and
safety of vehicles, as well as the levels of pollutants generated by the plants
that produce them. These regulations often impose differing standards and
substantial testing and certification requirements. The cost of complying with
these varying regulations can be significant, and we expect to incur significant
compliance costs in the future. We recognize, however, that leadership in
environmental protection and safety is an increasingly important competitive
factor in the marketplace.
Vehicle Emissions
U.S. Standards. Federal. Under the Federal Clean Air Act, the Environmental
Protection Agency, or EPA, has imposed tailpipe emission control standards on
passenger cars and light trucks, including minivans, sport utility vehicles, and
pickup trucks. The standards in effect for model year 1994 - 2003 passenger cars
and light trucks are known as Tier 1 standards. Manufacturers may be obligated
to recall vehicles that fail to meet those standards for ten years or 100,000
miles, whichever occurs first.
The EPA also adopted Tier 2 standards that establish identical and stringent
tailpipe emission requirements for passenger cars and light trucks. Tier 2
standards, which will be phased in over model years 2004-2009, can obligate
manufacturers to recall vehicles that fail to meet the standards for ten years
or 120,000 miles, whichever occurs first. The Tier 2 standards present a
significant technological challenge to the
31
automobile industry, particularly with respect to diesel engines. Beginning with
2004 model year vehicles, manufacturers are no longer permitted to sell vehicles
in the United States that do not meet the new standards. Further research and
development achievements on the part of the automotive industry will be required
if the industry is to continue to comply with these new standards as applied to
later model years.
Separate standards are in effect for heavy light-duty trucks (those in
excess of 8,500 pound gross vehicle weight) and heavy-duty commercial vehicles.
Stringent standards apply to model year 2004 - 2006 vehicles, and even more
stringent standards will be phased in over model years 2007 - 2010.
California Standards. The State of California sets its own stringent
emission control standards for passenger cars and trucks. Its low emission
vehicle program establishes more restrictive standards over model years
2004-2007 than those in effect for model years 1993 - 2003. Meeting these new
standards in later years will require significant progress in the development of
engine, exhaust after treatment, and fuel control technologies.
An important part of California's program is the introduction of
zero-emission vehicles (ZEVs). The California Air Resources Board (CARB) issued
a series of regulations in the 1990s that required an increasing number of the
passenger cars and light trucks sold in California each year by large-volume
manufacturers to be certified as ZEVs (up to 10% by model year 2003). In 2004,
in connection with the settlement of litigation brought by vehicle manufacturers
(including our subsidiary, DaimlerChrysler Corporation) and dealers, CARB
adopted amended regulations to allow manufacturers to satisfy the ZEV mandate
with vehicles that use various technologies (electric batteries, hydrogen fuel
cells, compressed natural gas, gasoline/electric hybrids) to produce limited or
no emissions. The amended regulations take effect beginning with model year
2005.
Other states may either adopt the California standards or participate in the
EPA's national low emission vehicle program requiring manufacturers to sell low
emission vehicles nationwide beginning with the 2001 model year. To date, the
states of Connecticut, Massachusetts, Maine, New Jersey, New York, Rhode Island
and Vermont have adopted the California standards. Maine has not yet adopted the
requirement for zero-emission vehicles. Other states have expressed interest in
adopting California's zero-emission standards when they become final. We expect
to continue to incur significant costs in developing these low or zero-emission
technologies.
We participate with other vehicle manufacturers and the U.S. Department of
Energy in Freedom CAR, a research project formed to develop fuel cell technology
to power vehicles. Development of a commercially viable fuel cell vehicle will
require further intensive research. Without new technology, we and other
manufacturers may be forced to take costly actions such as reducing the number
of non-zero-emission vehicles offered for sale in California or selling
battery-powered electric vehicles below cost. In December 2004, we signed a
non-binding memorandum of understanding with General Motors Corporation
regarding a cooperative effort to develop a two-mode full hybrid propulsion
system for applications in Chrysler Group, Mercedes Car Group, and GM vehicles
that would improve fuel economy significantly.
Our subsidiary DaimlerChrysler Corporation has held discussions with CARB
and the EPA about the performance of the catalytic converters in some of its
1991 - 1999 model year vehicles, and the on-board diagnostic systems used to
monitor catalytic converter function in certain of its 1996 - 2001 model year
vehicles. DaimlerChrysler Corporation would incur significant costs if it were
required to repair or replace these emission control devices.
European Standards. Current vehicle emission control standards in the
European Union (EU) are generally no more restrictive than U.S. standards.
However, the EU Commission and the EU Parliament have adopted a directive that
establishes increasingly stringent emission standards for passenger and light
commercial vehicles for model years 2005 and thereafter (EURO 4). Under the
directive, manufacturers will be obligated to recall vehicles that fail to meet
those standards for five years or 80,000 kilometers, whichever
32
occurs first. Standards for heavy commercial vehicles have been adopted by the
EU Commission and the EU Parliament for model years 2005 (EURO 4) and 2008 and
thereafter (EURO 5).
Vehicle Fuel Economy
U.S. Standards. Under the federal Motor Vehicle Information and Cost
Savings Act, a manufacturer is subject to significant penalties for each model
year its vehicles do not meet Corporate Average Fuel Economy standards, commonly
referred to as the CAFE standards. CAFE standards for passenger cars and
light-duty trucks are currently 27.5 miles per gallon and 20.7 miles per gallon,
respectively. A manufacturer earns credits by exceeding CAFE standards. Credits
earned for the three preceding model years and credits projected to be earned
for the next three model years can be used to meet CAFE standards in the current
model year, except that credits earned in respect of cars may not be used for
trucks. In 2003, the National Highway Traffic Safety Administration (NHTSA)
adopted new CAFE standards for light-duty trucks, including minivans and sport
utility vehicles, of 21.0 miles per gallon for 2005 model year vehicles, 21.6
miles per gallon for 2006 model year vehicles, and 22.2 miles per gallon for
2007 model year vehicles.
We expect to meet the current and proposed U.S. domestic fleet CAFE
standards for both passenger cars and light-duty trucks, although we will likely
use credits to meet the standard for light-duty trucks. However, increased
demand for larger light-duty trucks could jeopardize our ability to comply with
those standards and require us to take additional costly steps, including the
sale of ethanol flexible fuel vehicles. We may not be able to meet the current
and proposed U.S. import fleet CAFE standards for passenger cars and light-duty
trucks, and may incur fines as a result.
The United States and other countries may adopt more stringent CAFE
standards as a way of reducing carbon dioxide emissions by increasing fuel
economy. These emissions are said to contribute to global warming, which has
become a matter of international concern. In 2001, the United States withdrew
from the Kyoto Protocol to the United Nations Framework Convention on Climate
Change, which called for the United States to reduce substantially its fossil
energy use during years 2008 - 2012. Nevertheless, the United States is
considering ways to achieve reductions in fossil energy use, including more
stringent CAFE standards, higher fuel costs and restrictions on fuel usage.
California is also attempting to limit such emissions through regulation of
fuel economy standards. In July 2002, California passed a law that requires CARB
to develop regulations that would require automakers to reduce significantly
greenhouse gas emissions from their vehicles starting with 2009 models. The
California Air Resources Board is in the process of submitting adopted
regulations to the California legislature for its review. Several other states
have stated that they will enact similar measures. The Alliance of Automobile
Manufacturers, of which our subsidiary DaimlerChrysler Corporation is a member,
has filed a lawsuit in federal court in Fresno, California challenging these
regulations. DaimlerChrysler Corporation, General Motors Corporation and several
local car dealers have filed a lawsuit challenging these regulations in state
court in Fresno, California. State regulation in this area, if upheld, could be
costly to us and could significantly restrict the products we are able to offer
in the United States.
In addition to conventional gasoline powered vehicles, we manufacture
vehicles that operate on diesel, and flexible fuel vehicles capable of operating
on both gasoline and ethanol blend fuels.
European Standards. The European Union (EU) signed and ratified the Kyoto
Protocol, pursuant to which it is required to substantially reduce carbon
dioxide emissions during years 2008 to 2012. In 1999, the EU entered into a
voluntary agreement with the European automotive manufacturers association
(ACEA) which establishes an emission target of 140 grams of carbon dioxide per
kilometer for the average of new passenger cars sold in the European Union in
2008. That target represents an average reduction in passenger vehicle fuel
usage of 25 percent, measured from 1995 levels. The EU has reaffirmed its goal
of reducing carbon dioxide
33
emissions from new passenger cars to an average of 120 grams per kilometer by
2010. At the end of 2003, the ACEA started a consultation round with the EU
Commission on further reduction potentials for the time after 2008. This
consultation was requested by the EU Commission and we, as a member of ACEA, are
actively involved in this consultation process. The consultations will continue
in 2005. Should the EU Commission's target to reduce carbon dioxide emissions
from new passenger cars to an average of 120 grams per kilometer become a
mandatory standard, this would require us to incur significant costs to improve
engine and overall efficiency and reduce vehicle weight significantly.
In addition, in 2003 the EU and the ACEA discussed a voluntary agreement for
emission standards for light commercial vehicles not registered as passenger
cars. So far no emission standards for light commercial vehicles have been
agreed upon since the ACEA convinced the EU Commission to first establish a
standardized test cycle like the New European Driving Cycle for passenger cars
(NEDC) for measuring fuel consumption and carbon dioxide emission, respectively,
for light commercial vehicles in a standardized manner as a basis for future
possible emission standards. As a result, the EU Commission adopted a directive,
which requires us, as of 2005, to measure carbon dioxide emissions of light
commercial vehicles with a gross vehicle weight of up to 1.305 metric tons
(class 1) as a condition for selling such vehicles within the EU. Similar rules
are effective as of 2007 for light commercial vehicles with a gross vehicle
weight of 1.306 to 1.760 metric tons (class 2) and 1.761 to 3.5 metric tons
(class 3). There are discussions in the EU Commission about applying the above
mentioned passenger cars rules also to light commercial vehicles, covering
classes 1 to 3. Currently, we cannot assess the potential implications on our
business if the passenger car rules were to come into effect also for light
commercial vehicles. Nevertheless, the inclusion of light commercial vehicles
into the above mentioned passenger car category would make it even more
difficult to achieve the 120 grams per kilometer target.
Vehicle Safety
U.S. Standards. The U.S. National Traffic and Motor Vehicle Safety Act of
1966, or the Safety Act, requires new vehicles and original equipment sold in
the United States to meet various safety standards established by NHTSA. The
Safety Act also requires manufacturers to recall vehicles found to have safety
related defects and to repair them without charge. The cost of such recalls can
be substantial depending on the nature of the repair and the number of vehicles
affected.
NHTSA's Interim Final Rule relating to advanced airbag systems imposes a
regimen of tests with stringent injury criteria, and sets forth a compliance
phase-in schedule mandating that 35% of all vehicles produced by a manufacturer
for the 2004 model year, 65% for the 2005 model year, and 100% for the 2006 and
2007 model years, meet the rule's safety standard. In January 2003, NHTSA
reduced the first-year percentage requirement to 20%, but retained the original
percentage requirements for the later model years. These standards add to the
cost and complexity of designing and producing new motor vehicles and original
motor vehicle equipment.
The U.S. Transportation Recall Enhancement, Accountability and Documentation
Act, or the TREAD Act requires, among other things:
º •
º a tire pressure warning system;
º •
º a program to inform consumers of a vehicle's rollover propensity as
established in a dynamic rollover test;
º •
º upgraded tire safety standards; and
º •
º the development of a system of collecting from manufacturers
information relating to vehicle performance and customer complaints to
assist in the early identification of potential vehicle defects.
34
These requirements impose additional cost and complexity to the vehicle
development process. The TREAD Act also increases NHTSA's authority to impose
civil penalties for non-compliance and specifies possible criminal penalties.
In general, vehicle safety regulations in Canada are similar to those in the
United States. Countries in South America and Asia have also established vehicle
safety regulations.
European Standards. Vehicles sold in Europe are subject to comparable
vehicle safety regulations established by the European Union (EU) or by
individual countries. In addition, during the last three years the ACEA, of
which we are a member, negotiated a voluntary self commitment on pedestrian
safety with the EU Commission. The self commitment comprises of two phases.
Phase one criteria, which cover, among other things, the ban of rigid bull bars
by original manufacturers, compliance with specific head injury criteria and the
introduction of antilock brake systems (ABS), have been embedded into a
framework directive by the EU and, as a consequence, are already legally
binding. Phase one criteria are effective from October 2005, after which
original manufacturers have to be in full compliance with the criteria through
2012. Phase two criteria, which the ACEA and the EU Commission are still
discussing, are intended to amplify standards established in phase one. The goal
of ACEA in its discussions with the EU Commission is to convince the Commission
to open phase two for more active safety measures, such as the mandatory
introduction of electronic stability programs or other accident avoidance
measures, instead of imposing more passive requirements, such as specific rules
regarding the deformation of the crash zone of a car. Should these more
restrictive phase two standards become mandatory, this would have a major impact
on the design freedom of our future passenger cars.
Stationary Source Regulation
Our assembly, manufacturing and other operations in the United States must
meet a substantial number of regulatory requirements under various federal laws,
including the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, the Pollution Prevention Act of 1990 and the Toxic Substances
Control Act. State laws parallel and, in some cases, impose more stringent
requirements than federal law. Together these laws impose severe restrictions on
airborne and waterborne emissions and discharges of pollutants, the handling of
hazardous materials, and the disposal of wastes. Similar requirements apply to
our operations in Europe, Canada and Mexico.
Our subsidiary DaimlerChrysler Corporation is participating in a voluntary
program established by the U.S. Department of Energy to reduce the greenhouse
gas emissions from our manufacturing facilities. Under this program,
DaimlerChrysler Corporation has pledged to reduce these emissions by 10% per
vehicle produced between 2002 and 2012.
Other Environmental Matters
In the United States, the EPA and various state agencies have notified our
subsidiary DaimlerChrysler Corporation that it may be a potentially responsible
party for the cost of cleaning up hazardous waste storage or disposal facilities
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act and other federal and state environmental laws. A number of lawsuits allege
that DaimlerChrysler Corporation violated environmental laws and seek to recover
costs associated with remedial action. DaimlerChrysler Corporation is only one
of a number of potentially responsible parties who may be found to be jointly
and severally liable for remediation costs. As of December 31, 2004,
DaimlerChrysler Corporation may incur remediation costs at 133 sites in
connection with the foregoing matters and other remediation issues at its active
or deactivated facilities.
35
Pollution remediation is also a potentially significant issue in Germany at
some of our older sites, including manufacturing plants and some of our own
service outlets. These remediation issues involve 11 principal sites.
Estimates of future costs of these environmental matters are inevitably
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the development and application of new technologies, the
identification of new sites for which we may have remediation responsibility and
the apportionment and collectibility of remediation costs among responsible
parties. We establish reserves for these environmental matters when the loss is
probable and reasonably estimable. It is possible that final resolution of some
of these matters may require us to make expenditures in excess of established
reserves, over an extended period of time and in a range of amounts that we
cannot reasonably estimate. Although final resolution of any such matters could
have a material effect on our consolidated operating results for the particular
reporting period in which an adjustment of the estimated reserve is recorded, we
believe that any resulting adjustment should not materially affect our
consolidated financial position.
In 2000, the EU Commission issued a directive that requires automobile
manufacturers to take back all end-of-life passenger cars (up to 9 seats) and
light trucks (up to 3.5t total weight) sold after July 1, 2002, and, beginning
in January 1, 2007, all end-of-life passenger cars including those sold before
July 1, 2002. This directive stipulates that automotive manufacturers incur all,
or a significant part of, the costs of recycling these vehicles. The directive
affects all end-of-life-vehicles in the European Union and imposes additional
costs on automobile manufacturers which could be significant. Currently,
manufacturers already take back vehicles sold before July 1, 2002, and batteries
for disposal or recycling, but are allowed to charge their costs in these
circumstances. In addition, German manufacturing facilities are subject to
enhanced noise restrictions.
We are committed to reducing the environmental impact of our operations and
products beyond currently applicable regulatory requirements where this is
technically and financially feasible. Our policy is environmental protection in
pursuit of sustainable development. This policy is set forth in our
environmental guidelines and designed to minimize further the environmental
effects generally associated with the type of manufacturing operations we
conduct. We have installed environmental management systems in both our plant
operations and our development departments to consider environmental effects at
the planning stage of a new manufacturing process or product. We publish
environmental reports summarizing our use of resources and measures we have
undertaken to minimize further the environmental impact of our products and
operations.
Design Protection
On September 14, 2004, the European Union (EU) Commission adopted a proposal
for an amendment of the design protection directive Nr. 98/71/EC. The proposed
amendment intends to abolish the design protection for visible and styled
automotive parts within the EU. The proposal would allow parts manufacturers
independent from the original equipment manufacturers to copy and sell
throughout the EU visible and styled replacement parts such as hoods, bumpers,
fenders, doors, lights and windshields. If this proposed amendment becomes
effective, it may negatively affect our future sales of visible and styled
replacement parts and may increase our allocated costs per unit accordingly.
36
DESCRIPTION OF PROPERTY
At December 31, 2004, we had 101 manufacturing facilities worldwide, of
which 20 are located in Germany and 38 in the United States. Most of the
remaining facilities are in Brazil, Canada, Japan, Mexico, South Africa, Spain
and Turkey. We also have other properties, including office buildings, spare
parts centers, retail outlets, research laboratories, test tracks and
warehouses, mainly in Germany and in the United States. We own most of these
manufacturing facilities and other properties.
The following table shows a list of our principal production and other
facilities worldwide:
Production Facilities
Mercedes Car Group
Germany
• Berlin Manufacturing plant for engines and
components
• Bremen Bodywork and assembly plant
• Hamburg Manufacturing plant for axles and
components
• Rastatt Bodywork and assembly plant
• Sindelfingen Bodywork and assembly plant
• Stuttgart-Untertrkheim Manufacturing plant for engines, axles
and gearboxes
United States
• Tuscaloosa, Alabama Bodywork and assembly plant
Brazil
• Juiz de Fora Bodywork and assembly plant
France
• Hambach Bodywork and assembly plant
South Africa
• East London Bodywork and assembly plant
Chrysler Group
United States
• Belvidere, Illinois Bodywork, assembly and stamping plant
• Detroit, Michigan Bodywork and assembly plants,
manufacturing plants for engines and
axles
• Fenton, Missouri Bodywork and assembly plants
• Indianapolis, Indiana Foundry for engine blocks
• Kenosha, Wisconsin Manufacturing plant for engines
• Kokomo, Indiana Transmission plants, aluminum die
castings plant
• Newark, Delaware Bodywork and assembly plant
• Sterling Heights, Michigan Bodywork and assembly plant, stamping
and subassembly plant
• Toledo, Ohio Bodywork and assembly plants, machining
plant for components
• Trenton, Michigan Manufacturing plant for engines
• Twinsburg, Ohio Stamping and subassembly plant
• Warren, Michigan Bodywork and assembly plant, stamping
and subassembly plant
Canada
• Brampton Bodywork, assembly and stamping plant
• Toronto Aluminum die casting plant
• Windsor Bodywork and assembly plants
Mexico
• Saltillo Bodywork and assembly plant,
manufacturing plant for engines
• Toluca Bodywork and assembly plant
37
Venezuela
• Valencia Bodywork and assembly plant
Commercial Vehicles
Germany
• Dsseldorf Bodywork and assembly plant,
manufacturing plant for steering
systems
• Gaggenau Bodywork and assembly plant,
manuf |