The merger came into consideration when Daimler-Benz was looking to advance its technology but was not able to do so because of low volume and Chrysler was looking for a help while struggling in the US market. Daimler also saw it as an opportunity to enter the US market in big way. Both companies were merged to form Daimler Chrysler and they expected to share their product parts and product lines to create an estimated synergy of US$1.4 billion. But they overestimated the power of synergy.
Originally, the plan was for Chrysler to use Daimler parts, components and even vehicle architecture to sharply reduce the cost for the production of future vehicles. But problems surfaced when Daimler's Mercedes-Benz luxury division, whose components Chrysler would use, was averse to contribute to Chrysler. Eventually, all Chrysler got were some steering and suspension components, a transmission and a diesel engine and few packages.
Chrysler has gone from being one of the most profitable automakers to being a strong drain on Daimler, with $1.2 billion in operating losses in the first quarter. DaimlerChrysler stock has lost half its value since an initial run-up after the merger. Chrysler's losses have partly reflected the entry of more Japanese models in the markets for minivans, sport utility vehicles and pickup trucks. But the company also badly handled the introduction of a generation of minivans last summer. Another reason for the failure of this merger was a lack of cultural due diligence.
They never took into account the possible effect on stakeholders of Chrysler after the Chrysler executives went out of their way in news conferences in 1998 to portray the deal as a friendly merger in which American and German executives would share power equally, although Robert J.
Eaton, Chrysler's chairman, agreed to retire after three years as co-chairman, leaving Jürgen E. Schrempp in sole charge. But virtually all of Chrysler's top executives have left since the merger, including Mr. Eaton. Since Nov. 15, the unit has been run by two former executives of Daimler's Mercedes division -- Dieter Zetsche, as Chrysler chief executive, and Wolfgang Bernhard, the chief operating officer.