FAILED MERGERS - DAIMLER CHRYSLER

Presented By:Jose Antony

Sharat Meduri

Shibani Kanchan

Amrit Tandon

What we will talk about ?

• The rationale behind the merger - what was in it for the two companies ?

• Pre/Post Merger dynamics of both entities

• A Merger of Equals ?

• Reasons why the merger promised so much, but still failed !

• Applying our course study on Organizational Design and Implementation.

• Our take on what should have happened to save the merger.

• Did the merger make sense in the first place.

Daim

ler

Be

nz • Strong presence in the

European market

• Luxury car segment

• Superior non-combustion engine technology

• Superior Research Facilities

• Mercedes Benz-most popular

Ch

rys

ler

Co

rp • 23% of North America market share

• Creative styling

• Efficient product development

• Lean Engineering

• Mini-vans, SUV market

• Chrysler, Dodge, Plymouth, Jeep

PRE MERGER MARKET POSITIONS & STRENGTHS

THE RATIONALE

A BRIEF TIMELINE

1998

• May, 7 - Daimler and Chrysler announce deal in London

• Nov, 17 – DCX shares start trading on the NYSE

• July – Robert Lutz retires from the company

1999

• Jan – DCX shares at all time high of 108.65

• Several key board members and top executives on the Chrysler side exit to join Ford, GM, etc

2000

• Mar 31 – Robert Eaton retires

• Apr – Lower profit in Q1, higher revenue

• All is NOT well. Major trust issues, separatism and slandering in public

2001

• German leadership officially takes control – Dieter Zetsche. Exodus continues

• Q1,Q2 - Massive losses, shrinking markets and stiff competition

• Q3,Q4 - DaimlerChrysler cuts 26,000 jobs and idles six plants.

2005 - Chrysler 300 sedan, Dodge Magnum wagon – mini revival

2006 - Chrysler Group reports a net loss of $1.5 billion

2007

• Feb - Daimler Chrysler announces plan to cut 13,000 jobs – 16% of workforce

• May 14 – Announces that Cerberus Capital Management to take 80% stake for $7.4 billion.

Cultural Integration

Lack of Leadership

Mismanagement

THE CORE ISSUES

• HR played a minor role in planning and implementation of the

Daimler Chrysler merger

• Short-term Intercultural training offered by the company limited to

the ‘Do and Don’t ’ in encounters between Germans and Americans

• Culture sensitivity workshops

• German Dining Etiquette

• English/German courses

• Meeting Protocols

• Personal Interaction

• Sexual Harassment in U.S. Workplace

• Employees focused more on the cultural differences rather than

similarities

Two Cultures, One Company

• Different compensation and incentive systems

• Chrysler top executives earned far more than their German

counterparts

• Employees focused more on the cultural differences rather than

similarities

• Bob Eaton’s annual salary amounted to USD 9.7 million, while

Schrempp had to content himself with USD 1.3 million

Disparity in pay structure

Different Working Styles - Freewheeling vs Bureaucratic

• Challenges of integrating the entrepreneurial style of U.S. business

with conservatism of a German company proved more difficult than

expected

• Daimler – Disciplined, Conservative, Process Oriented

• Chrysler – Spontaneous, Informal, Team Oriented

SEPARATIST ATTITUDE – THE ‘WE’ AND ‘THEY’ MENTALITY

• Internally there was a clear separation of both brands and

combined Mercedes-Benz/Chrysler dealerships were prohibited

• Getting the two companies to cooperate and work toward a

common goal was a major challenge

• “ Mercedes [was] universally perceived as the fancy, special brand,

while Chrysler, Dodge, Plymouth, and Jeep [were] the poorer, blue

collar relations” – Robert Lutz, Former Vice Chairman, Chrysler,

February 23, 2001

• “ If we are to produce the M-Class here as well, we will need to create

a separate quality control section and double the number of line

workers. It simply can’t be built to the same specifications as a Jeep” -

Mercedes-Benz division chief Jürgen Hubbert upon visiting the Jeep

Factory in Graz, Austria

MISMANAGEMENT

• ‘Merger of Equals’, Really?

• “How do you pronounce the name of the German-American car

company? It’s Daimler, ‘Chrysler’ is silent”

• Friendly takeover

• Winning over American public and employees.

• Top executives of Chrysler left – demotivated and demoralized

employees – German management took over Chrysler division

• If real intensions of Daimler-Benz were known earlier, this merger

would not have taken place.

MISMANAGEMENT (CONTD .)

• “Leadership” mismanagement

• Daimler-Benz tried to administer Chrysler division as a German

company – disregarded Chrysler’s core operational values

• Top leaders of both the companies ‘showering’ ill-comments at

each others products - “would never drive a Chrysler”

• “My mother drove a Plymouth and it barely ran for two-and-a-half

years”

• Brand bias – Dodge Neon and Jeep Grand were sidelined for less

cost effective and troubled Mercedes A-class and M-class

Lack of

Trust

Inaction

Ineffective

Planning

No

Focused

Vision

Poor

Guiding

Coalition

LEADING CHANGE

Lack of Communication

LEADERSHIP

• Robert Eaton

• Core member in making Chrysler what it was during the 90’s

• An enthusiast for the merger but suddenly fell away – Self

alienation – “Act like a co-chairman and step up the podium”

• Untimely retirement announcement – At the beginning of the

merger – left employees in lurch

• Lack of proactiveness – Failed leadership - Chrysler needed him

the most he detached – Appeared Daimler was dictating terms

• “He had really checked out a year earlier before he left”

LEADERSHIP (CONTD .)

• Jürgen Schremmp

• Arrogant

• Failed to get employees (German and American) work together

• Failed collaboration attempts with Asian automobile markets

RECOMMENDATIONS & CONCLUSION

Did the merger really make sense.

Was this transcontinental merger feasible in the first place.

- 2 companies with different identities

- 442,000 employees with two different cultures

- An unprecedented merger – too ambitious ?

While gigantic mergers are mundane in the global marketplace, this merger,

between a German company and a U.S. company, involved touchy issues of

national identity, evident when a CNBC reporter pointed out,

"Chrysler produced tanks for General Patton and Mercedes was producing war

armaments for Adolf Hitler.”

(WHEELS ON FIRE: The Amazing Inside Story of the Daimler-Chrysler Merger, Davis

Waller)

In autumn 2000, DaimlerChrysler CEO Jürgen Schrempp let it be known to the

world – via the German financial daily Handelsblatt - that he had always intended

Chrysler Group to be a mere subsidiary of DaimlerChrysler. "The Merger of Equals

statement was necessary in order to earn the support of Chrysler's workers and the

American public, but it was never reality”. This statement was relayed to the

English-speaking world by the Financial Times the day after the original news

broke in Germany.

Major top-level exits on the Chrysler side

• Robert Lutz – Vice Chairman – July 1998

• Dennis Pawley – Executive vice president – January 1999

• Jurgen Stallkamp- President – December 1999

• Chris Theodore – senior VP for platform engineering – Ford

• Shamel Rushwin – senior VP for international manufacturing

Cultural

• Chrysler employee base could have been more pragmatic and less

worried about being swamped by German influence in the

conglomerate.

• The Daimler leadership could have made more of an effort to bridge

the cultural gap and made an effort to avoid public acrimony.

Leadership

• The Chrysler leadership’s abdication of its leadership responsibilities

post merger gave the impression that Chrysler’s leadership was

taking a back seat , giving the appearance that Daimler was running

the show .

• Chrysler’s leadership should not have been so detached and aloof, as

this created a sense of doubt and uncertainty in their employee base.

The Daimler leadership could have made an effort to dispel the

impression that American dynamism faltered under steady German

Pressure.

RECOMMENDATIONS

Communication

• The communication style in Chrysler was known to be less-structured and non-hierarchical which was opposite to that at Daimler.

• There should have been a serious effort at training people on bridging the cultural differences and on the new communication styles that were going to be used going forward.

• The new culture and strategy must be owned by everyone. Whether to adopt a German, American or a mixed culture should have been decided mutually.

Retention

• Changing of the German employee’s compensation to a more performance and bonus driven paradigm went against European culture and would have caused a lot of negativity.

• Serious effort should have been made to address the yawning gap between the compensation levels of the German and American employees, keeping in mind the cultural sensitivities.

• The compensation normalization should have been carried out for all the employees. Instead, it was done only for the senior leadership.

A happy, transcontinental marriage !

REFERENCES

•http://www.economist.com/node/341352

•http://money.cnn.com/2007/05/14/news/companies/chrysler_sale/?postversion=200705

1408

•http://www.businessweek.com/lifestyle/content/may2009/bw2009055_922626.htm

• Book ‘Taken for a Ride: How Daimler-Benz Drove Off With Chrysler’

• Book - International Human Resource Management: Managing People in a

Multinational Context, Authors Peter J. Dowling, Marion Festing, Allen Engle

• Ward’s Auto World, September 1998

• Book -Mergers and Acquisitions: Managing Culture and Human Resources, By

Günter K. Stahl, Mark E. Mendenhall

• http://mba.tuck.dartmouth.edu/pdf/2002-1-0071.pdf

• Merger Brief, “The DaimlerChrysler Emulsion,” The Economist, July 29, 2000

• http://cnnfn.cnn.com/1999/09/24/worldbiz/daimler_a/

• http://lnu.diva-portal.org/smash/get/diva2:537256/FULLTEXT01.pdf

• http://www.economist.com/node/393076

REFERENCES

• http://articles.chicagotribune.com/2007-05-15/news/0705141000_1_daimler-benz-

cerberus-capital-management-carmakers

• http://abcnews.go.com/WNT/story?id=131280

• http://www.referenceforbusiness.com/history2/87/DaimlerChrysler-AG.html