DaimlerChrysler missed the boat in Poland

WROCLAW, Poland - This capital town of Poland's southwestern province of Lower Silesia is one of the reasons the troubled nine-year relationship between America's Chrysler Group and Germany's Daimler-Benz , known as DaimlerChrysler during the years of merger, eventually fell apart.

It seems an improbable claim to make on a sunny spring weekend with crowds ambling through the picturesque Market Square in the old commercial district of Wroclaw (pronounced "vross-lav").

But on a weekday, when the province's 26 institutions of higher learning, many of them dedicated to the study of science and technology, are buzzing with 131,000 students, something becomes alarmingly clear to Western eyes: Lower Silesia and other communities like it in Central and Eastern Europe are enormously attractive to global manufacturing companies as sources of well-educated, highly motivated, inexpensive production and technical talent.

As a result, many global automotive companies and their suppliers, such as Volvo Group, Saab Scania, General Motors, Siemens and Hyundai, are setting up factories, research-and-development centers, retail operations and other businesses in the region.

It is a short-term strategy to take advantage of low-cost labor and innovation and a long-term plan to develop profitable markets outside of the slow-growth markets of North America and Western Europe.

What global company in need of top technical talent wouldn't want to exploit an available labor source in which 7.1 percent of the population has a college degree or higher education and 55 percent hold secondary-school graduate diplomas that are equal to degrees from many four-year colleges in the United States?

What company doesn't understand the math of personal survival? For example, according to the latest figures provided by Lower Silesian authorities, the province had a whopping 18.5 percent unemployment rate in 2006; and the people who are lucky enough to have jobs aren't making anywhere near the money the average automotive assembly line worker is earning in North America or Western Europe. For example, per-capita income in Lower Silesia amounts to $7,589.

Many highly qualified people here are eager to work for companies such as the Volvo Group, and are quite willing to work for less than the money paid to comparably qualified employees in North America and in the more developed parts of Europe.

What does that have to do with the situation at Chrysler? Almost everything.

When Robert Eaton, then chairman of what was Chrysler of America, sold the company to Juergen Schrempp, then chairman of what was Daimler-Benz, for $36 billion in 1998, neither party gave much credence to the possibility of an industrial emergence in Central and Eastern Europe.

Instead, both men had a limited and not terribly honest vision of the deal they were entering. Eaton wanted to offload a company that had flirted with bankruptcy several times before finally regaining something of a financial footing and success through sales of its then-popular minivans and big trucks.

Schrempp, with grand visions of solidifying Daimler-Benz's position in the lucrative U.S. market and possibly extending his company's reach into Asia with more acquisitions, was on a buying spree. Daimler-Benz was rich and powerful. Chrysler's purchase price was no big deal. And Schrempp and Eaton agreed to allay American concerns about a German takeover of Chrysler by dressing up the transaction and parading it before the public as "a merger of equals."

The United Auto Workers and Canadian Auto Workers unions were equally shortsighted. All they required were job security and relatively high production wages in a rapidly changing global automotive industry that could offer neither.

Meanwhile, many of DaimlerChrysler's rivals had found Central and Eastern Europe - good talent for little money, the perfect recipe for developing highly competitive, very desirable products to take market share from DaimlerChrysler and its Chrysler Group in North America and everywhere else in the world.

It's a brutal business.

But sitting here in the capital seat of Lower Silesia, I get the impression that neither the UAW nor the CAW nor the Chrysler executives left in place by Chrysler's prospective new owner, private-equity firm Cerberus Capital Management, fully appreciate the reality of their situation.

For example, there is Chrysler chief executive Thomas LaSorda telling journalists in Auburn Hills, Mich., that all of Chrysler's brands - Jeep, Dodge and Chrysler - "are staying together ... and will not be broken up under any circumstances."

There are the leaders of the UAW and CAW telling their well-paid members that they will not lose jobs in a fire-sale corporate sellout - a relatively paltry $7.45 billion - engineered by a private-equity firm known for cutting jobs and breaking up and selling off the most lucrative pieces of the companies it acquires.

LaSorda and the union chiefs have the temerity to say these things in a world where the rest of the auto industry is taking advantage of what is being offered by Central and Eastern Europe to help do them in.

Their expressed optimism is as believable as the "merger of equals" nonsense put forth by Eaton and Schrempp nine years ago. It's baloney.