In 1998, German Daimler-Benz and American Chrysler Corporation merged into what was referred to (by Business Week) as “a marriage made in automotive heaven… (that) is set to transform the way the auto industry operates worldwide.”. The two companies announced it as a “merger of equals”.
This fusion of two of the world’s most profitable auto manufacturers was the largest industrial merger in history. The new behemoth’s worth was estimated at $40 Billion and was expected to generate $130 Billion in annual revenue and employ over 400,000 people.
Jurgen Schrempp Bob Eaton
German Engineers American Marketing professionals
Renowned as the planet’s premium luxury car maker World’s most profitable and cost efficient car maker
Class / luxury Mass / volume
What went wrong?
o Transatlantic culture clash.
o Chrysler dream team left the company. Bob Lutz (the man behind trendy designs and aggressive cost cutting) was not given a role in DiamlerChrysler by Eaton; thus Lutz left, and a dozen key executives left with him. As a result, Chrysler lost its discipline and production costs increased.
o CEO Jim Holden and his team failed to anticipate the flagging popularity of its aging minivan line and the enormous demand for the PT Cruiser.
o Low cash reserves; reserves would go as low as US$ 2billion.
o Post merger integration committee did not materialize.
o Lost US$512M, its first in nine years
o Stock price dropped by half.
The original plans for a top-to-bottom merger of all Daimler and Chrysler operations were never realized. Post merger integration committees were formed to work out details but this came to an abrupt halt after top sales executives argued that a complete merger would dilute the brand image of both Chrysler and Mercedes.
At first glance, it would really seem that the merger was perfect. The strategic international alliance formed by Daimler and Chrysler was expected to succeed because of the perfect fit of product lines, regional penetration, and technical & operational strengths. Uncalculated savings were anticipated in warehousing and logistics for spare parts. Economists predict that global competition will compel other mega mergers in the auto industry.
In the case material, it said that “DaimlerChrysler shows it is one thing to assemble an empire, another to run one.”. The Germans and the Americans have differences in opinion on how to run the new corporation. This was further exacerbated by the lack of communication right from the start. German Schrempp declined an invitation to meet with the Chrysler board before the merger. This was seen by the Americans as arrogance. The culture clash seems to have been expected, however, nothing was done about it.
A Chrysler chief engineer who resigned prior to the merger commented that the merger was not going to work because they don’t expect a German engineer to learn something from an American. Even towards the end when Schrempp, in an attempt to improve Chrysler’s situation, pushed for integration of equipment and parts, he was determined “to make the Chrysler marriage work, the German way”. The Germans’ superiority complex could be the biggest hindrance to DaimlerChrysler’s success as a “merger of equals”.
In this case, one plus one did equal two instead of one. Daimler and Chrysler, both successful corporations on their own, failed to make the marriage work because they forgot that with international alliances comes an understanding of the culture of the new partners. We think that the crucial point here was when the Chrysler board requested to meet with Schrempp before the merger to “be more comfortable with the merger and ask questions”. Had Schrempp taken this opportunity to talk with the Americans, the chain of events could have taken a more positive turn.