Daimler-Chrysler Merger A Cultural

Mismatch

About Chrysler Corporation The company was founded by Walter Chrysler (1875–1940) on June 6,

1925.

The Chrysler was a 6-cylinder automobile, designed to provide customers with an advanced, well-engineered car, but at a more affordable price than they might expect.

The advanced engineering and testing that went into Chrysler Corporation cars helped to push the company to the second-place position in U.S. sales by 1936.

About Daimler - Benz In 1885 Daimler, together with Maybach began work on the first

engines that were designed specifically for use in motor vehicles.

This German firm, initially operating at Cannstatt near Stuttgart, was the origin of the business variously known as Daimler Motoren Gesellschaft from 1890 to 1926, and then Daimler-Benz from 1926 to 1998.

Daimler Benz was founded in 1926. An Agreement of Mutual Interest - was signed on 1 May 1924 between Karl Benz's Benz & Cie., and Daimler Motoren Gesellschaft.

Daimler-Benz and Chrysler Corporation’s strengths in 1998

Daimler-Benz

Mercedes is the most popular luxury brand

A strong dealer network

Ranked #17 globally

Chrysler Corporation

Low-end/sub-compact cars and trucks

Big auto manufacturer in North America

Mini-vans, Jeep and Dodge trucks

Ranked #25 globally

The Merger 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.”

The process began when Jurgen Schrempp and Robert Eaton met to discuss the possible merger on January 18, 1998.

The merger was completed on November 12, 1998.

The merger resulted in a large automobile company, ranked third in the world in terms of revenues, market capitalization and earnings, and fifth in the number of units sold.

German and American styles of management differed sharply.

To minimize this clash of cultures, Schrempp decided to allow both groups to maintain their existing cultures.

Troubled Times When Chrysler performed badly in 2000, its American president, James P

Holden, was replaced with Dieter Zetsche from Germany.

A few senior Chrysler executives had already left and more German executives were joining Chrysler at senior positions.

In an interview to the Financial Times in early 1999, Schrempp admitted that the “DCX deal was never really intended to be a merger of equals” and claimed that “Daimler-Benz had acquired Chrysler.”

By the end of 2000, there were only 128,000 Chrysler employees still working in the US operations.

Chrysler reported a third quarter loss of $512 million for the period ending September 30, 2000; and its share value slipped below $40 from a high of $108 in January 1999.

The expected and wished for synergy effects stayed out. Instead of gaining competitive advantage over their competitors, the merger rushed the two car producers ever deeper into the crisis and did not provide the companies with the necessary tools to overcome the recession.

Clash of Cultures

Mergers and acquisitions take place to realize the synergies between the two or

more companies.

‘Daimler-Chrysler merger failed to realize the synergies that were expected from

the merger’

Opposing Cultures

Chrysler Daimler-Benz

Encouraged creativity Methodical decision-making

Egalitarian relations among staff Respect for authority, bureaucratic precision, and centralized decision-making

American CEOs were rewarded handsomely

Disliked huge pay disparities

Performed little paperwork and liked to keep their meetings short

Used to lengthy reports and extended discussions

Favoured fast-paced trial-and-error experimentation

Detailed plans and precise implementation

Flat structure Top-down management approach

Imposing One’s Culture At first, the German management granted Chrysler the freedom to do

what they had always done.

Daimler-Benz wanted to simply take advantage of Chrysler’s efficiency.

But a number of Chrysler’s key players had left the corporation and remaining employees were demoralized and demotivated.

Within 19 months two American CEOs were dismissed and German management took over.

Daimler-Benz tried to administer the Chrysler division as if it was a German company.

From Chrysler’s point of view, instead making use of new synergy effects, and instead of gaining competitive advantages over the competitors, the merger with Daimler-Benz drove Chrysler into chaos.

In September, 2001, Business Week wrote, “…Daimler-Chrysler have combined nothing beyond some

administrative departments, such as finance and public relations.”

Daimler Chrysler is a cross-cultural merger. But it was a

failure. What culture differences were there?

What issues should be addressed to make a cross-cultural merger a success?

An unlikely “MARRIAGE”

Transnational Corporation- Distinct corporate cultures

We are not the same!

Power Distance-Germany(70),U.S.A(50) Fewer women in higher positions-Germany Individualism-U.S.A(91),Germany(67) Masculinity Vs feminity- Germany

(69),U.S.A(62) Uncertainty Index-Germany (7),U.S.A(87) Long term orientation-U.S.A(56),Germany(23)

Sorry ! I can’t be you, I cannot change

Corporate structure Corporate culture Customer proposition Value chain Leadership Practical experience Pragmatic and goal oriented Laid off from work

Daimler- conservative, rigid Chrysler—informal, outward oriented Future planning, supervisory boards,

expatriate management, executive salaries,labour relation

Consensus building, seniority Headquarters moving to Germany Use of German in meetings More members from Germany in supervisory

Boards

Selection of corporate spouse

Lets make the marriage work!

Daimler finally divorces Chrysler-How to avoid it

Stereotypes need to be unlearned Recognize the differences in corporate context Channels of communication must be open Cross cultural training Strategies to harness the intercultural differences Development of cultural intelligence Respect all workers-equal representation Use of a common language Hire a mediator Partnership and trust vs. power and domination

Today you can eliminate that hyphen because we are taking steps to make Daimler Chrysler truly one company

everywhere in the world:No Hyphens ;No spaces;

-Dieter Zesche,CEO,Daimler ChryslerJanuary 25 ,2006

Daimler Chrysler

Very often companies involved in a merger claim it to be a merger of equals

but this is not the case always.

'The Daimler-Chrysler deal was never expected to be a merger of equals.'

AIM-COMBINE CULTURE AND GENERATE SHARED CORPORATE CULTURE.

POST-MERGER-IMPLEMENTATION.

Neither acquired by Daimler-Benz nor guaranteed equal status.

Freedom to Chrysler based on past success.

Eaton successors Holden and Stallkamp dismissed within 19 months.

German manager Zetsche and Bernard.

Chaos in Chrysler.

Conclusion When it comes to cross-border or cross-cultural M&As, you

must not disregard the cultural differences inherent. One corporate culture cannot simply suppress and replace the other one. A consensus has to be reached and the foundation for a new culture, based on elements of both cultures involved, has to be laid.

In the case of DaimlerChrysler, both parties were never truly willing to cooperate wholeheartedly and to accept changes and to enter compromises in order to make this merger of the two companies a success.