Daimler-Chrysler Merger Case

Rationale of a failure


Research Paper (undergraduate), 2008

20 Pages, Grade: A-


Excerpt

TABLE OF CONTENT

Introduction

The rational for a merger, the failure

Pre - Merger Situation: Daimler

Pre - Merger Situation: Chrysler

The Meeting of Minds

A Spectacular Failure

Analysis

The rationale for the failure, issues related to cultural di ff erences

Cultural Issues Introduction

Cultural Aspects of the Corporate Structure

Cultural Aspects of the Leadership Style

Cultural Aspects of the Company Values

Conclusion & Recommendations

Conclusion of the case study, recommended course of action

Conclusion

Recommendations

References

INTRODUCTION

The rational for a merger, the failure

Pre-Merger Situation: Daimler

In 1926 was founded in Stuttgart, Germany Daimler-Benz AG, a manufacturer of automobiles, motor vehicles, and engines. It is already the result of a merger between Benz & Cie (founded by Karl Benz) and Daimler Motoren Gesellschaft (founded by Gottlieb Daimler and Wilhlem Maybach). Both companies agreed that, from the actual date of the merger on, each and every car produces in Daimler-Benz factory would use the brand name “Mercedes-Benz”, which was until then only the name of a series of cars from Daimler Motoren Gesellschaft. “Daimler-Benz” was not use as a brand name for the very simple reason that the name of Daimler as a brand name of automobiles had been sold by Daimler Motoren Gesellschaft in 1900 (when its co-founder, Gottlieb Daimler, died) for use by other companies.[1]

The new entity rapidly made its name in motor sports as its cars were regarded as high end race automobiles.

During World War II, the company dramatically improved its technology by creating a series of aircraft, tank, and submarine engines.

Mercedes became then synonymous with high quality and luxury and the company Daimler-Benz got successful with the European upper-class.

Pre-Merger Situation: Chrysler

The roots of Chrysler Corporation goes back to 1925, when the American car manufacturer Maxwell Motor Company is reorganized into Chrysler Corporation by Walter P. Chrysler (“A brief look at Walter P. Chrysler”, WPC News). Walter Chrysler launched its first car with the name “Chrysler” tagged on it by designing it as a well-engineered automobile but at a fairly af­fordable price. Manufacturing well-engineered cars while keeping on cutting prices became Chrysler’s bottom line.

With brands like Dodge, Jeep, Plymouth, and - of course - Chrysler, the company was viewed as the one of the main cars provider for the American working and middle class, along with General Motors (GM) and Ford. With these two other American car manufacturer, Chrysler Corporation made up the “Big three” group: the three biggest automobile manufacturer in the United States (U.S.).

Headquartered in Auburn Hills, Michigan, the Corporation was - back in the mid-1990s - nothing less than the most profitable car producer in the world (“The DaimlerChrysler Merger”, Tuck School of Business at Dartmouth, 2002, no. 1-0071). This number one position was then maintained by the increasing sales of trucks, vans, and large sedan cars in the United States. In 1997, the company even reached a peak in terms of market shares in the U.S., at an impressive figure of 23%.

Having said that, business has not exactly been a bed of roses for the Chrysler Corporation. Somewhere along the line, it had faced four times bankruptcy between World War II and 1990, and its boom-bust revenue flow pattern had earned it a “come-back kid” reputation (“The DaimlerChrysler Merger”, Tuck School of Business at Dartmouth, 2002, no. 1-0071).

The Meeting of Minds

From the outlines of each company’s situation stated above, what could have made them merged together? At first sight, not much. But if you get closer to each situation during the few years prior to the merger, all of a sudden, a merger makes sense.

In 1997, Chrysler was at the top of the car industry in the U.S., with a full range of best-seller cars within its products range. However, the same year, Chrysler CEO Bob Eaton foresaw some obstacles coming up on the company’s development in America. "I think, Eaton said, there may be a perfect storm brewing around the industry today. I see a cold front, a nor'easter, and a hurricane converging on us all at once (“Taken for a Ride: How Daimler-Benz Drove off with Chrysler”, Vlasic, Bill and Bradley Stertz, New York: Harper Collins, 2001, p. 174)”. “The cold front was chronic overcapacity, the nor'easter was a retail revolution that empowered buyers, and the hurricane was a wave of environmental concerns that threatened the very exis­tence of the internal combustion engine (“The DaimlerChrysler Merger”, Tuck School of Busi­ness at Dartmouth, 2002, no. 1-0071).

Even though the company from Auburn Hills was doing pretty good within its main market (the United Sates), owning almost one fourth of the whole American market thanks to its Sport Utility Vehicles (SUV), trucks, and minivans, it lacked a real presence in foreign markets. And with the rather pessimistic forecasts of CEO Eaton for the U.S. market, it was clear that Chrysler had to extent its international reach.

In the meantime, in Germany, Daimler-Benz faced the reverse problem: while the manufac­turer from Stuttgart was then the world’s most profitable car maker (“The DaimlerChrysler Merger - One Company, Two Cultures”. Tobias Wolf. Northeastern University Boston, 2005), and despite an internationally well-known brand - Mercedes -, its luxury vehicles had captured less than one percent of the American market in 1997 ("Daimler-Benz AG" Standard & Poors Stock Reports. New York: Standard & Poors, Inc., July 21, 1997).

Besides, “automobile analysts were expecting that only ten out of the 30 car makers could sur­vive in the increasing competitive global market and that companies either had to seek for a merger partner or would become an acquisition target in the long run. According to analysts, sales of at least four million cars would be necessary to become one of the future top players in the automobile business (“The DaimlerChrysler Merger - One Company, Two Cultures”. To­bias Wolf. Northeastern University Boston, 2005)”.

With, on one hand, a company (Chrysler Corporation) willing to tackle the European market, and, on the other hand, Daimler-Benz eager to sell more cars in the U.S., a merger between the two companies had some sense. Moreover, besides the “simple” geographical match, was also a good product match as Chrysler produced SUV, trucks, minivans, and large sedan cars, while Daimler-Benz focused on luxury vehicles. Eventually, the extremely competitive situation of the industry, would make it difficult for a company to survive on its own in the long run. In other words, it seemed to be a logical fit.

[...]


[1] Data retrieved from Daimler.com, “Videocast” and Wikipedia.org “Daimler-Benz”.

Excerpt out of 20 pages

Details

Title
Daimler-Chrysler Merger Case
Subtitle
Rationale of a failure
College
International School of Management Dortmund
Grade
A-
Author
Year
2008
Pages
20
Catalog Number
V132855
ISBN (eBook)
9783640415397
ISBN (Book)
9783640411832
File size
440 KB
Language
English
Tags
Daimler-Chrysler, Merger, Case, Rationale
Quote paper
Nicolas Martelin (Author), 2008, Daimler-Chrysler Merger Case, Munich, GRIN Verlag, https://www.grin.com/document/132855

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