Daimler Chrysler Merger Failure

Abstract

This paper discusses about the reasons of merger failure between two big auto manufacturing organizations Daimler Benz AG and Chrysler Corporation. One of the main areas of discussions would be the organizational cultural issues between the two companies as they are from two different countries United States of America and Germany.

The two organizations merged with intent to enter into the top three ranking in the industry in terms of revenue, market capitalization and earnings.” (Daimler-Benz, 1998). The merger did not last long and it turned out to be big failure. The positive side of the merger would people from different countries could have brought different ideas which could have lead to a better auto products in the market but the inflexibility of both the organizations have made the merger a failure..

Background

Chrysler before merger: Chrysler is a US based automaker founded by Walter Chrysler in the year 1925. Its headquarters was located in Detroit, MI, USA. Chrysler focus was on Cars, Minivans, Sport-utility vehicles and Trucks.

Some of the signature cars produced by Chrysler were Chrysler K-310 and Chrysler six. “Within a decade of its founding, Chrysler Corporation's leadership in innovation had earned for it the label of Detroit's "engineering company." Chrysler's list of early automotive "firsts" included Floating Power (a new method of mounting engines to isolate vibration), replaceable oil filters, downdraft carburetors and one-piece curved windshields.

Chrysler entered a higher level of competition with its richly appointed Imperial series. With a custom-built body from LeBaron or Briggs, a 145-inch-wheelbase chassis, a 125-horsepower engine and a price tag of $3,145, a typical Imperial of the early 1930s rivaled a Duesenberg in style, but cost only about a third as much!” (Chrysler History, n.d.) “Known in the years after World War II for its well-engineered cars, it has spent the last three decades bouncing between highs and lows. It had been to the edge of bankruptcy twice.

The company encountered financial turbulence in the late 1970s that prompted it to seek a Congressional bailout.” (Maynard, 2009). “In 1979, Congress and President Carter rescued Chrysler from bankruptcy. In 1980, Carter signed a Chrysler Loan Guarantee act, providing $1.5 billion in loan guarantees. Sales improve dramatically with the debut of the well-received K-car platform and the introduction of the Dodge Caravan and Plymouth Voyager, the first modern minivans. Chrysler pays off government loans seven years early.”(Wilson, 2009).

“In 1987, Chrysler bought the No. 4 automaker, American Motors, but the subsequent consolidation prompted another financial crisis that led to a restructuring of the company. In the 1990s, Chrysler came back again, with vehicles like the powerful Dodge Viper sports car and its Jeep lineup.” (Maynard, 2009).

Daimler-Benz before merger: “The United Kingdom-based Daimler Motor Company traveled a complicated path in its 112-year history. It was once the Royal automobile for all British Royal family members, but was ultimately rejected in favor of the Rolls-Royce.” (Wagner, n.d.). Daimler and Benz were two different companies. Daimler motor company was founded by Gottlieb Daimler and Benz was founded by Carl Benz.

“The invention in the 1880s of the high-speed engine and the automobile enabled Gottlieb Daimler and Carl Benz – independently of one another – to lay the foundations for the motorization of road transport. With the help of financial backers and partners, they both invested their private developments in their own enterprises – in Mannheim, Benz founded the firm Benz & Cie. in October 1883, and Daimler-Motoren-Gesellschaft (DMG) was formed in November 1890”. (The three pointed star, 2008).

In the year 1926, Daimler and Benz together formed Daimler-Benz AG. “Innovation, performance, quality, awareness of tradition: the Mercedes-Benz trademark, one of the world's most familiar and esteemed brand symbols, has stood for these and other values ever since.” (The history behind the Mercedes-Benz brand, n.d.).

The Headquarters of Daimler-Benz is in Stuttgart, Germany. “Daimler-Benz is Europe's largest industrial company and in 1997 generated turnover of DM 124 billion and an Operating Profit of 4.3 billion. 23 business units, housed in the divisions Passenger Cars, Commercial Vehicles, Aerospace, Services and the Directly Managed Businesses (Rail, Automotive Electronics and Diesel Engines), employ almost 300,000 people worldwide.

The prime mission of Daimler-Benz is to increase corporate value in the interests of both employees and shareholders, to develop innovative products for our customers and to continue the internationalization of the Group.” (Daimler-Benz, 1998). “Although Daimler-Benz is best known for its Mercedes-Benz automobile brand, during World War II it also created a notable series of aircraft, tank, and submarine engines.” (DaimlerChrysler Post-Merger, n.d.).

Introduction

“In May 1998, Daimler-Benz and Chrysler Corporation, two of the world’s leading car manufacturers, agreed to combine their businesses in what they claimed to be a “merger of equals.” (DaimlerChrysler dawns, 1998) The DaimlerChrysler (DCX) merger took approximately one year to finalize.” (DaimlerChrysler Post-Merger, n.d.).

“The purpose was to be a global provider of automotive and transportation products and services, generating superior value for the customers, employees and the shareholders. Their mission was to integrate two great companies to become a world enterprise that by 2001 it would be the most successful and respected automotive and transportation products and services provider.

And that could be accomplished by constantly delighting the customers with the quality and innovation of their products and services, resulting from the excellence of their processes, the people and the unique portfolio of strong brands.” (Merger of Growth, 1998).

It was a great start in the beginning. “The people of DaimlerChrysler have made a great start in turning this potential into performance.

In 1998:

• Revenues grew to € 131.8 billion (US $146.5 billion), up 12 % compared to combined 1997 results.

• Operating profits increased to € 8.6 billion (US $9.6 billion), up 38 %.

• Net income, excluding extraordinary one-time costs related to the merger, grew to € 5.2 billion (US $6.1 billion), up 29 %.

• Earnings per share grew by 30 % to € 5.58 (US $6.55), again excluding extraordinary onetime costs related to the merger.

• Sales were more than 4.4 million cars, light trucks and commercial vehicles, and gained market share in virtually every market in which they operated – despite intense competition.

• DaimlerChrysler Services (debis) achieved record results and further strengthened its competitive position.

• DaimlerChrysler Aerospace (Dasa) had its best year ever.

• As a result of the strong performance, DaimlerChrysler created 19,000 new jobs.” (Merger of Growth, 1998).

But as the time passed by the problems aroused. The first reason was the foundation wasn’t good. It was built on a lie. It was said to be the “merger of equals” (DaimlerChrysler dawns, 1998) but the truth was Daimler wanted acquire Chrysler as division. Daimler wanted to merge with Chrysler to get entry into the American market.

Secondly, Cultural Integration was one big problem. “Operations and management were not successfully integrated as “equals” because of the very different ways in which the Germans and Americans operated: while Daimler-Benz’s culture stressed a more formal and structured management style.

Chrysler favored a more relaxed, freewheeling style. In addition, the two units traditionally held entirely different views on important things such as pay scales and travel expenses. As a result of these differences and the German unit’s increasing dominance, employee satisfaction and performance at Chrysler took a steep downturn.” (DaimlerChrysler Post-Merger, n.d.).

Thirdly, Leadership effectiveness was another problem. “Obviously effective leadership is extremely critical before, during, and after a merger. For this reason alone, you have to wonder why Bob Eaton the CO-CEO suddenly fell short in this area and allowed his German counter-part, Jurgen Schrempp, to essentially assume full control.

As a result of the CO-CEO issue and the loss of other legacy Chrysler leadership the remaining employees were left without hope or a clear since of direction. Their creative spirits were crushed and they could only assume and expect the worst. Their fears were soon realized.” (DaimlerChrysler Post-Merger, n.d.).

“Without significant American representation, the legacy Chrysler employees were left at the mercy of the new dominant German regime, with whom they could not identify. No one was left that could be trusted to reinforce that the decision to merge was right, or that they were now on the correct path. This also meant that no one was left to pave the way for the employees or help them understand their place in the new company.

Without any effective leadership, as you would expect, the flock began to thin. The Daimler CEO failed to enact his leadership, because he did not want to be seen as the bad guy. This worsened the already volatile situation.” (DaimlerChrysler Post-Merger, n.d.).

Recommendations

My recommendation is pay attention to Human due diligence. “Human due diligence is understanding the culture of an organization and the roles, capabilities, and attitudes of its people” (Harding, 2007).

There should also be an analysis to understand what the employees from both the organizations think about the deal because it is them who would together come out of their comfort zone and work with each other. It would be very hard for the employees to work under a different management altogether. Though the two companies merged but in the end everything was handled by Daimler and Chrysler hardly had any say in the decision making after the merger.

Conclusion

We see in this paper two organizations of different locations merged and failed miserably. The deal was signed in 1998 and it was off in 2007. The conflict here was the unwillingness to cooperate on both sides. Co-operation and distinct ideas from both the companies could have brought new invention that could have profited both the countries. Before merging it is important to analyze issues associated with the merger and find a way to solve the issues.

And also trust each other and let the true intents of mergers be made known to either group. Conflicts could have been positive if it was worked with open minds and here it worked otherwise.

References

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