The Daimler-Chrysler Merger

The past two decades have been characterized as a merger mania time. A lot of consolidations have occurred. Nevertheless, these mergers have failed to achieve the expected results. In general, the financial track record of recent mergers is, in fact, immeasurable. It appears that the proposed efficiencies of scale often do not materialize, but the merger boom continues and globalization is a contributing factor. However, the cultural, political, psychological and geographical improvements of cross-cultural integration have been tremendous.

The objective of this research is to analyze the full cultural scope of the much-publicized DaimlerChrysler merger and their subsequent experience. DaimlerChrysler AG is a major automobile and truck manufacturer and financial services provider (through DaimlerChrysler Financial Services). The company also owns a major stake in aerospace group EADS. DaimlerChrysler was formed in 1998 by the merger of Daimler-Benz, the manufacturer of Mercedes-Benz (Germany), and the Chrysler Corporation (USA). The transaction was announced on May 7, and took place on November 12.

The Chrysler Group (Chrysler, Jeep and Dodge) also provides its customers with parts and accessories marketed under the Mopar brand name. The cross-border companies are notoriously difficult to get right because, in addition to the standard integration issues, there are also cross-cultural challenges.

At DaimlerChrysler, differences in compensation systems and decision-making processes caused friction between senior management, while lower level employees fought over issues such as dress code, working hours and smoking on the job. Language also became an issue. While most managers on the Daimler side could speak some English, not all were able to do so with the fluency needed for effective working relationships.

Also, only a few Chrysler managers had any knowledge of the German language. I believe there is always going to be cultural barrier between MNC with different cultural backgrounds. However, the cultural and communication challenges are even greater when the merger companies do not deeply study each other’s countries, such as their customs, along with the history of the other company in order to achieve a better understanding of their behavior and the ways they manage a company.

The DaimlerChrysler merger was described as “a merger of equals” in order to avoid cultural disagreements, but actually the Daimler-Benz culture dominated. Daimler-Benz was known as a conservative, slow-moving corporation while Chrysler was known for being fast, flexible, informal, and risk taking. The big difference between cultures meant that operations and management could not be integrated.

The dominating Daimler culture caused deep dissatisfaction among the Chrysler employees leading to performance decline and resulting in the departure of many Chrysler executives and engineers to competitor firms. But the companies’ fusion failed in the phase followed by the merger integration after just two years in late 2000 because Chrysler was run as a separate division. Finally, Juergen E. Schrempp also admitted that the merger of equals was in fact an acquisition by Daimler-Benz. As an effect Chrysler suffered badly from the end of the automotive boom in the USA because of its aging models, and high incentives paid to the fewer customers.

A turnaround plan was installed by the Germans, costing USD 4bn in plant closures and sackings. It implied further that, after two fired American presidents since 1998, the German Dieter Zetsche was appointed to become CEO, who previously turned around Freightliner's truck business, and with him 25 other executives from Germany took over the business in Auburn Hills. More and more American managers left the company in this time so that after two years already two thirds of the management at Chrysler was fired or had resigned. Eaton had already retired as cochairman in March 2000 – one year earlier than expected.

The main challenge that finally led to the merger's fail was related to cultural conflicts, which were completely underestimated by the top management. The approach at Daimler-Benz was very controlling and authoritative and many decisions were taken deliberately. Meanwhile Chrysler's approach was much leaner with decisions and actions taken quickly and more spontaneously. These differences were not only revealed in board meetings but also on the level of the engineers in cross-functional teams, so that the Germans action was perceived as very arrogant because they viewed themselves as the superior partner in what they really believed to be an acquisition.

As a result the management teams resisted to work together and were not willing to compromise so that Daimler and Chrysler had not combined any beyond some administrative departments, such as finance and public relations. Components and platforms were also not shared early enough because Mercedes-Benz executives were concerned about the possibility that their buyers might be feeling cheated if they shared parts with Chrysler's "inferior technology".

The loss of top executives at Chrysler who were responsible for the excellent standing of the company before the merger made it even harder to create a turnaround in the company. New models were introduced too late and no other arrangements were made against the predictable downturn in the US automotive market, so that in the end huge losses were a result that could not be avoided. Germans tried to impose their management and manufacturing style on Chrysler without even thinking about getting benefits from the exchange of best from every company.

The leaving of the American top management was a predictable consequence. Therefore in the end nearly nothing was shared; economies of scale were not realized at all or much too slow. I believe the reason why this merger failed was due to the lack of communication. Companies have to be prepared for the unexpected. In order to do so they must be able to exchange information about the merging companies as well as their home country.

They should have trained all of the managers as well as the rest of the workers of every department. Success depends on knowing the right time to do the right thing. I think this merger was a direct result of decisions being made without being deeply studied. The companies may have just thought of the short-term earnings without thinking that it takes more than efficient production to have a good performance in the market.

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Deresky, H. (2006): International Management. Managing Across Borders and Cultures. Fifth Ed. Retrieve March 3, 2007.

Naughton, Keith (2000): A mess of a merger. Newsweek , Vol. 136, No. 24.

Neubauer, Fred; Steger, Ulrich; Radler, Georg (2001): Daimler and Chrysler's secret wedding. Strategic Direction, Vol. 17, No. 3.

Tully, Kathryn (2001): Merger of unequals. Corporate Finance, No. 194.