The Case of DaimslerChrysler

8/3/2019 The Case of DaimslerChrysler

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Mergers and Acquisitions:Mergers and Acquisitions:Failure Case of Daimler ChryslerFailure Case of Daimler Chrysler

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Origins of the MergerOrigins of the Merger

y In 1926 the merger of two German automobile

manufactures Benz & Co. and Daimler Motor

company formed , German company Daimler-

Benz. Its Mercedes cars were the best example

of German quality and engineering.

y In 1998, Daimler-Benz and U.S. based Chrysler

Corporation, two leading global carmanufacturers, agreed to combine their

businesses in what was perceived to be a

merger of equals.

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Daimler BenzDaimler Benz

y Characterized by structured, hierarchical

management, and German engineering

excellence.

y Emphasized luxury markets within a

highly diversified corporate structure.

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DaimlerDaimler--BenzBenz (Strengths)(Strengths)

y Being sold in more than 200 countries

y Mercedes is one of the strongest global

brands

y Regarded as the best engineered cars in

luxury cars sector

y Lean Manufacturing Systems

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DaimlerDaimler--BenzBenz ((weakenessweakeness))

y Diversification process into a technology

concern didnt produce anticipated

synergy.

y European truck division produced heavy

losses.

y Due to small production volume of

Mercedes-Benz, suppliers transferinnovations to competing brands

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DaimlerDaimler--BenzBenz (opportunities)(opportunities)

y Except for niche players, luxury car

brands are not independent.

y It covered a much broader range than its

competitors although it remains as a kind

of transportation company

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DaimlerDaimler--BenzBenz (threats)(threats)

y Japanese rivals producing similar quality &

technology with lower costs

y Number of brands increasing in luxury

segment

y Over capacity in world economy

y Unsuccessful attempt of Mercedes with

Smart brand trying to expand outsideits traditional target segment

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ChryslerChrysler

y Grounded in market driven American

entrepreneurship and forged in the near

bankruptcy of the 1980s

y Emphasized innovation and flexibility,

within a highly focused business strategy.

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ChryslerChrysler (strengths(strengths))

y Chrysler has been fighting for survival,

thus is a strong competitor.

y It has the best cost effectiveness time-

to-market design & development times

set world standards.

y Successful in market due to trendy and

fashionable designy Mostly bought technology from suppliers

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ChryslerChrysler (weaknesses)(weaknesses)

y It had been to the edge of bankruptcy

twice.

y Its position in car segment is weakening.

y It lacks of management depth & products

suited to non- NAFTA markets thus

cannot expand beyond North American Free

Trade Area

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ChryslerChrysler (opportunities)(opportunities)

y Chrysler is focused only on cars & light

trucks.

y Market leader in mini-vans and sport

utility devices.

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ChryslerChrysler (threats)(threats)

y Target of a hostile takeover battle by its

largest shareholder.

y Emerging distribution systems in US car

industry like mega dealers, e-commerce,

car management companies.

y Any decline in US economy could hit

Chrysler harder than the larger Big Threerivals and the Japanese competitors.

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Communicating the mergerCommunicating the merger

y Daimler-Benz proposed the merger

y The merger was announced on May 7, 1998

y Merger of equals, not an acquisition

y

Merger for growthy With revenues of $132 billion

y Approximately 440,000 employees

y An international union of this size was without

precedenty Integration phase was expected to last 3 years

y Difficult to achieve cost saving due to lack ofoverlapping products

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Reason and Goals of the MergerReason and Goals of the Merger

y Daimler-Benz luxury vehicles had captured lessthan 1% of the American markets.

y Chrysler's primary reason for teaming withDaimler-Benz is to extend its international reach

y Expected huge savings by combining purchasingand other operations

y Reduce total research and development costs


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Why the Merger FailedWhy the Merger Failed

y To the principals involved in the deal, there was

no clash of cultures. There was a remarkablemeeting of the minds at the senior managementlevel.

y Cultural sensitivity workshops were provided foremployees.

y However the larger rifts in business practice andmanagement sentiment remain unchanged

Culture Clash


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Why the Merger FailedWhy the Merger Failed

y Analyst felt that though strategically, the mergermade good business sense, the contrastingcultures and management styles hindered therealization of synergies.

Daimler-Benz attempted to run Chrysler USAoperations in the same way as it would run itsGerman operations.

Daimler-Benz was Characterized by methodicaldecision-making, while the US based Chryslerencouraged creativity.

Chrysler represented American adaptability andvalued efficiency and equal empowerment, whileDaimler-Benz valued a more traditional respect forhierarchy and centralized decision-making.

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OR

GANIZATIONALOR

GANIZATIONALDIFFERENCESDIFFERENCES

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Daimler AGDaimler AG

Culture:

- Formal

- Straight-forward

- Traditional

- Mannerly

- Bureaucratic

- International

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Structure:

- High authorities

- Strong hierachy- Little payment disparity

Products:

- High quality- High price

- Luxurious

- Smaller sized cars


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Chrysler CorporationChrysler Corporation

y Products:

- Attractive

- Eye-catching

- Very competitive price

- Comfortable driving

- Moderate speed

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Structure:

- Top down management

- Lean staff

Culture:

- Relaxed

- Informal- Flexible

- Risk Taking

- Cowboy aura

- Free formdiscussion


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Why the Merger FailedWhy the Merger Failed contdcontd

y

DaimlerChryslers CEO was reported to have said that hehad always intended Chrysler Group to be a mere subsidiaryof DaimlerChrysler. "The Merger of Equals statement wasnecessary in order to earn the support of Chrysler'sworkers and the American public, but it was never a reality.

y Also,Jrgen Schrempp and Bob Eaton did not follow a coordinatedcourse of action in determining Chrysler's fate. During 1998-2001,Chrysler was neither taken over nor granted equal status. Itfloated in a no man's land in between.

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Dishonesty & Mismanagement


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Why the Merger FailedWhy the Merger Failed contdcontd

y As a result, Chrysler sat in apathy, waiting forDaimler's next move - a move which cametoo late -- when Schrempp installed aGerman management team on November

17, 2000. During that interval, Chrysler bledcash.

y Owing to culture clash and a poorly

integrated management structure,DaimlerChrysler was unable to accomplishwhat its forbears took for granted threeyears ago: profitable automotive production.

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ConclusionConclusion

y There should have been no announcement ofmerger of equals as this was not true.

y Beware of national differences which can effectthe business culture.

y

Observing business cultures better anddeciding on leadership decision rights, fromthe beginning.

y Hiring outside help (consultants) to aid in theacquisition process.

y

If more attention had been paid to the softissues then real intensions would have cometo light during the discussion phase and themerger probably would not have happened atall.

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THANK YOU

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The Case of DaimslerChrysler

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