By William Boston 

BERLIN-- Daimler AG has decided that less is more.

After months of study, the automotive company that owns the Mercedes-Benz car brand said Monday it is taking preparatory steps to reorganize, consolidating its five business divisions into three separate registered companies. The company said the move would give the units greater entrepreneurial freedom and "better utilize the potential for growth and earnings" in their respective markets.

The reorganization, which still requires approval from the supervisory board and shareholders, comes amid a wave of industrial spinoffs and internal consolidation in industry, including the recent announcement by Volkswagen AG, the world's largest car maker by sales, that it would group its sprawling auto components activities into a single operation within the company.

In the face of sweeping changes, the automotive industry has to ramp up production of electric vehicles and face off Silicon Valley over the development of self-driving car technology, Daimler Chief Executive Dieter Zetsche said, if it is to quickly adapt to a fast-changing environment.

"Whoever aims for sustainable competitiveness and profitability must continuously evolve and adapt to rapidly changing surroundings--technologically, culturally and also structurally," he said in a statement.

Daimler now has five separate businesses that generated EUR153 billion ($180.81 billion) in revenue last year and EUR8.8 billion in net income. The reorganization plan calls for creating three independent companies that would be wholly-owned subsidiaries of the parent, Daimler AG.

Daimler would merge Mercedes-Benz Cars and Mercedes-Benz Vans into one company. It would group Daimler Trucks, one of the largest truck makers in the world and owner of Freightliner in the U.S., and Daimler Buses into a second company.

The third company, Daimler Financial Services, already exists. The unit consists of Daimler's bank that is used to finance car-leasing and loans; as well as the company's growing stable of new mobility services such as the Car2Go car-sharing service, the largest in Europe.

"We are creating the conditions for greater customer and market focus and therefore more growth opportunities," Bodo Uebber, the company's chief finance officer, said in a statement.

Investors applaud such moves as they tend to create more focused companies that move faster in their individual markets, offer strong potential for alliances and acquisitions, and have management that isn't distracted by unrelated businesses in larger conglomerates.

Arndt Ellinhorst, automotive analyst at Evercore ISI in London, said the announcement by Daimler's management "underlines the commitment for a more contemporary, decentralized and value enhancing group structure."

Amid growing speculation by investors, Daimler made clear in its announcement that it had no plans to spin off any of the businesses.

Mr. Ellinghorst didn't think Daimler's rejection of an eventual spin off was written in stone.

"We do not believe that this rules out selling (IPO) or carving-out parts of the newly created legal entities. We would even ask, why go through all this work and spend the money if there is no intention to lift material hidden value?" he said in a note to clients.

The reorganization still faces substantial hurdles, especially from the workforce. To sweeten the deal, Daimler said it wasn't planning job cuts in connection with the restructuring and that it would contribute an additional EUR3 billion to the company's German pension fund in the fourth quarter of 2017.

A final decision on the reorganization would require a vote by shareholders, which couldn't take place until the already scheduled annual general meeting in 2019, the company said.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

October 16, 2017 10:23 ET (14:23 GMT)