WILMINGTON, DEL. -- DaimlerChrysler AG's chief executive officer acknowledged yesterday that he avoided calling Chrysler a "division" of the company formed by the 1998 Daimler-Chrysler merger because it would have played badly in the United States.

It was the first time since a now infamous newspaper interview in 2000 that CEO Juergen Schrempp has publicly acknowledged avoiding the term.

"When you go out and loosely say that Chrysler would become a division of DaimlerChrysler we would have had tremendous problems with our people," Mr. Schrempp said in U.S. district court.

By "our people" the head of Germany's largest industrial company said he was referring to employees of Chrysler.

"I believe it was right the way we did it," Mr. Schrempp added, conceding that plans to make Chrysler a division of the newly formed company were withheld while one of the biggest deals in automotive history was still being negotiated.

Mr. Schrempp, mastermind of the $36-billion (U.S.) deal, is accused of fraud by billionaire investor Kirk Kerkorian, who claims Germany's Daimler-Benz dishonestly characterized a takeover of the No. 3 U.S. auto maker as a merger.

The distinction is key because shareholders are entitled to a "change of control" premium in takeovers as opposed to mergers.

Mr. Kerkorian, who owned nearly 14 per cent of Chrysler and is seeking more than $1-billion in damages, contends that Mr. Schrempp and other Daimler executives lied about their intentions in order to lower the transaction price.

Mr. Kerkorian's case rests largely on a Financial Times interview in which Mr. Schrempp suggested the deal was only billed a merger of equals for "psychological reasons" and said he always intended to make Chrysler a "division" of the combined company.

Mr. Schrempp defended the remarks he made to the newspaper, saying he sought to stress that DaimlerChrysler, the world's fifth-largest auto maker, was "an international, integrated automotive company" with two distinct operating divisions.

"We were worried that a misconception would appear," said Mr. Schrempp when asked why "divisions" had never been mentioned at the time of the merger.

"When we just say Chrysler would be a division the misconception is that the whole of Chrysler would be a division," he added.

Repeating comments made during his first day of testimony on Tuesday, Mr. Schrempp contended that from a corporate standpoint a merger of equals was exactly what took place five years ago. Operationally speaking, however, he said DaimlerChrysler is comprised of separate U.S. and German units.

"I never, ever intended to do anything else other than what we negotiated and is contained in the business combination agreement," Mr. Schrempp said, rejecting claims of any wrongdoing.

Numerous Americans have been replaced by German executives on DaimlerChrysler's top management team since 1998 -- a move that Mr. Kerkorian contends has underscored a creeping German "takeover" of Chrysler.

But Mr. Schrempp, who admitted the management team no longer reflects a merger of equals, said it was permissible to adjust "corporate governance provisions" after the merger.

Mr. Schrempp is to return to the witness stand today.