DaimlerChrysler: Merger or Acquisition?

In 1998 Daimler-Benz and the Chrysler Corporation tied the knot. The newly created DaimlerChrysler [DCX] conglomerate was touted in the business world as a merger of equals with both companies retaining their unique and distinct identities. Soon after the merger the honeymoon period abruptly ended and the rancor began. Diametrically opposite management and cultural differences contributed to deep divisions which nearly scuttled the new relationship. Today, things are much different than they were in 1998; however it remains to be seen whether the long term partnership between the German and American automakers will outlast the deep, mutual distrust that prevailed for so many years.

A changing global automobile market during the final decade of the 20th century signaled the end of small, independent automakers. Although fairly large in size, the Chrysler Corporation, which nearly vanished in the early 1980s, was once again nearing a crisis point: a rapidly changing market meant that large amounts of cash would be needed to keep their product line up to date as well as to take their product to emerging and lucrative new markets. Unlike in the early 1980s when the US federal government stepped in with much needed cash, no government suitor was expected this time around. For Chrysler, the long term strategy strongly suggested that the automaker would have to be acquired in order to survive. In stepped Daimler-Benz.

At first, the merger was hailed as the deal of the century. The combined automakers, roughly the same size, quickly became the fifth largest automaker in the world. Combining German engineering – Mercedes being the principle business – and North American marketing – the Jeep line and the Chrysler minivans being the biggest draw – many envisioned that the new company would quickly capture a bigger slice of the global market. Unfortunately, the dream was nearly scuttled and for the following reasons:

An American president of the Chrysler Group, Jim Holden, was replaced by a German appointee, Dieter Zetsche. This change occurred as Chrysler was experiencing difficulty in the marketplace; additional senior American personnel had also left and were replaced by German executives too. Some felt that the Germans were imposing their will on the Americans.

Billionaire shareholder Kirk Kerkorian who owned 36 million shares of Chrysler before the merger and now held significant number of shares of DCX stock, filed suit in 2000 alleging that certain Daimler-Benz officials has committed “fraud and deceit” in orchestrating the merger.

Adding fuel to the fire was the closing out of the Plymouth brand. Already suspicious of German intentions and knowing full well that the “merger of equals” was, in fact, an acquisition of Chrysler by Daimler-Benz, the ending of the Plymouth brand escalated fears that the Chrysler Group would fade into the background.

Fortunately, time has eased some of the friction and the Chrysler Group [defined as the part of DaimlerChrysler that was at one time the Chrysler Corporation] has benefited from the merger in several ways, including:

New Mercedes inspired products. The Chrysler Crossfire was the first of several new Mercedes inspired products to find their way into the Chrysler Group. Made in Germany, the Crossfire is essentially a rebadged Mercedes roadster, a model that the top of the line Chrysler division never had.

Strengthening of the Dodge name. Already a decent performer, the Dodge division has received several Mercedes M class inspired models including the Magnum and the Charger. The Viper has been redone, the Ram trucks updated, and the Neon is in the process of being replaced. Dodge market share is increasing even in the face of strong foreign competition.

Fresh blood for Jeep. An all new 7 passenger Commander has hit the streets and additional products are being planned.

Likely, Mercedes would have survived without a merger, while Chrysler would not have. Overcoming strong cultural differences – German authoritarian vs. American creativity – has kept the company afloat. Some are crediting Zetsche’s understanding of the American company and culture with easing tensions, thus allowing the companies to benefit from what they have in common versus their differences.

Certainly, the rancor that existed just a few years ago seems to have eased. For DCX to survive and grow a mutual trust and respect of German and American cultural differences and business practices is necessary. Without both, renewed hostilities will surface and potentially scuttle what is still perceived by many as to be a fragile business relationship.

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