Case study on the murger of
Daimler-Benz and Chrysler
Introduction to Daimler- Benz
Daimler-BenzAG was a German manufacturer of automobiles, motor vehicles,
andenginesfounded in 1926. An Agreement of Mutual Interest - which was valid until 2000 -
was signed on 1 May 1924 between Karl Benz's Benz & Cie., and Daimler Motoren
Gesellschaft, which had been founded by Gottlieb Daimler and Wilhelm Maybach. Daimler
had died in 1900, and Maybach had left in 1907.Both companies continued to manufacture
their separate automobile and internal combustion engine marques until, on 28 June 1926,
when Benz & Cie. and Daimler Motoren Gesellschaft formally merged - becoming Daimler-
Benz AG. And agreed that thereafter, all of the factories would use the brand name of
"Mercedes-Benz" on their automobiles. The inclusion of the name Mercedes in the new brand
name honoured the most important model series of DMG automobiles, the Mercedes series,
which were designed and built by Wilhelm Maybach.
They derived their name from a 1900 engine named after the daughter of Emil Jellinek.
Jellinek became one of DMG's directors in 1900, ordered a small number of motor
racing cars built to his specifications by Maybach, stipulated that the engine must be
named Daimler-Mercedes, and made the new automobile famous through motorsports. That
race car later became known as the Mercedes 35 hp. The first of the series of production
models bearing the name, Mercedes, had been produced by DMG in 1902. Jellinek left the
DMG board of directors in 1909.
The name of Daimler as a marque of automobiles had been sold by DMG - following his
death in 1900 - for use by other companies (Daimler Motor Company and Austro-Daimler),
so the new company, Daimler-Benz, would have created confusion and legal problems to
include Daimler in its new brand name, and therefore, used Mercedes to represent
the Daimler Motoren Gesellschaft interest. Karl Benz remained as a member of the board of
directors of Daimler-Benz AG until his death in 1929.
Although Daimler-Benz is best known for its Mercedes-Benz automobile brand,
during World War II it also created a notable series of aircraft, tank, and submarine engines.
Daimler also produced parts for German arms, most notably barrels for the Mouser rifle.
During World War II Daimler-Benz employed slave labour. The slaves "toiled eighteen hours
a day; cowering under the lash, sleeping six to a dog kennel eight feet square, starving or
freezing to death at the whim of their guards.
In 1989 Daimler-Benz InterServices AG (Debis) was created to handle data processing,
financial and insurance services, and real estate management for the Daimler group.
Mercedes is one of the strongest global brands and being sold in more than 200countries.
Daimler has technological, engineering and quality strength and regarded as the best
engineered cars in luxury cars sector.
Due to small production volume of Mercedes-Benz, suppliers transfer innovations to
competing brands. R&D cost-on-turnover was far above the industry average and basically a
German manufacturer has huge factories
Luxury car brands are not independent, except for niche play. DM covered a much broader
range than its competitors although it remains as a kind of ³TransportationCompany´. More
critical observers mentioned that Daimler used the opportunity. The Mercedes brand boomed.
With the Chrysler volume of 3 million units there was the chance of savings in
purchasing which would result in net-earnings of Mercedes
Unsuccessful attempt of Mercedes with ³Smart´ brand that trying to expand outside its
traditional target segment. Japanese rivals producing similar quality & technology with lower
costs. There are many of competitors in the cars segment, even like consolidating industry.
Introduction to Chrysler
ChryslerGroupis an American automobile manufacturer headquartered in Auburn
It is a wholly owned subsidiary of theItalian multinational automaker Fiat. Chrysler is one of
the "Big Three" American automobile manufacturers. It sells vehicles worldwide under its
flagship Chrysler brand, as well as the Dodge, Jeep, and Ram brands; it also manufactures
vehicles sold under the Fiat brand in North America. Other major divisions of Chrysler
include Mopar, its automotive parts and accessories division, and SRT, its performance
automobile division. In 2011, Chrysler Group (not including Fiat) was the twelfth
biggest automaker in the world by production
The Chrysler Corporation was founded by Walter Chrysler in 1925, out of what remained of
the Maxwell Motor Company. Chrysler greatly expanded in 1928, when it acquired
the Fargo truck company and the Dodge Brothers Company and began selling vehicles under
those brands; that same year it also established the Plymouth and DeSoto automobile brands.
In the 1970s, a number of factors including the 1973 oil crisis impacted Chrysler's sales, and
by the late 1970s, Chrysler was on the verge of bankruptcy. Lee Iacocca was brought in as
CEO and is credited with returning the company to profitability in the 1980s. In 1987,
Chrysler acquired American Motors Corporation, which brought the profitable Jeep brand
under the Chrysler umbrella.
Chrysler has been fighting for survival to compete strong competitor. Chrysler has successful
market and has trendy and fashionable design. Mostly bought technology fromsuppliers and
it has the best cost effectiveness time to market design and development timeset world
Chrysler is the smallest and most vulnerable of U.S. Big three, is the leanest manufacturer.
They had been to the edge of bankruptcy twice and its position in car segments weakening
Chrysler just only focused on cars & light trucks not the others vehicle. Chrysler has quality
and engineering skills and they are including a ³fast follower´ InTechnology in the cars and
Emerging distribution systems in US car industry like megadealers, e-commerce, and car
management companies. The declining in US economy could hit Chrysler harder thanthe
larger Big Three rivals and the Japanese competition
REASONS FOR MERGER
Both merger and acquisition growth of market share or sales can be realized instantly.
Theeconomy of scale in mergers of companies in the same industry is very important. There
aresome reasons for Daimler and Chrysler to merge their company.Daimler-Benz deal with
the situation because they think most of the automotive companywhich manufactures luxury
cars have done mergers or acquisitions in order to expand marketshare outside of its market
share at the time. Production of luxury cars experiencingovercapacity (saturated market
because demand is smaller).On the other side, Chrysler did the merger because Chrysler is a
company that havetrendyand fashionable cars, so Chrysler has a chance to succeed in the
marketplace and has theobsession to achieve cost effectiveness. Chrysler automotive
company is small, so that whenthe American economy declines, Chrysler was affected.
Competition in the segment minivansand sport utility vehicles (SUV) which is dominated by
Chrysler is becoming increaserapidly, so Chrysler weak, because the competitor is getting
higher. Furthermore, the merger is expected to make huge savings by combining purchasing
andother operations. It is also aimed to reduce total research and development costs
Porters Five Forces
Rivalry among Competitors is high because automobile industries are worldwide markets.
There are a number of competitors such as BMW, AUDI, Volkswagen, Porsche, Toyota,
GM, Hyundai, Chrysler, and more are competing day by day. The threat of substitutes is low
Because Europeans can substitute automobiles to other transportations such as Euro train,
Bicycles. The barrier of entry is high because R&D requires sufficient finance resources for
Product differentiation. For instance, the world’s automobile manufactures have a great deal
Of expenditures for their advertisements. Accordingly, they had access to the capital
Necessary to do it. Buyer power is high because modern lifestyles have a propensity to live
in convenience. Even though the consumers have a mind-set of price sensitivity under the
recession, they can save gas money by buying these eco-conscious cars. Consumers are a
large portion of the industry’s total output. Indeed, the European industry is environmentally
conscious Oriented, which means people have propensity to buy diesel fuel cars. Supplier
power is low due to many suppliers in the markets.
REASONS OF FAILURE
After all, it was seemed that all effort in the merger of Daimler-Benz and Chrysler failed in
its integration process due to several factors. Those main reasons of why did the merger of
Daimler and Chrysler fail are explained as follow cultural clash mismanagement, lack of due
diligence and the Asian challenge.
Culture clash is the misunderstandings, and disagreements between different cultures.
Cultural issue is one of the most important problems in combining cross boarder company.
The diversity of culture from each region will take effect in work attitude, quality, system of
authority, etc., and create the business culture itself. In this merger, Daimler-Benz and
Chrysler come from two different cultures, which are the Eastern Culture of Germany from
Daimler Benz and the Western Culture that is represented by Chrysler. These nationality
cultures were different in terms of organization, working style and compensation.
From the start, the leaders of Daimler and Chrysler announced their combination as a merger
of equal. But that was a scam. Chrysler was bought and was subsequently treated like a
stepchild, not a partner. The domination by one partner over the other was led the company
into the mismanagement.
Asaresult,themanagerswhohadbuiltChrysler’successinthepastwerenomoreleft. Some remained on
staff, feeling withdrawn, ineffective and eclipsed by theGermans in Stuttgart. Others left for a
more promising future at G.M. or Ford. TheAmerican dynamism faded under subtle German
pressure, but the Germans were notstrong enough to impose their own managers
LackofDueDiligenceandthe Asian Challenge
Daimler-Benz never did due diligence before it bought Chrysler, they never looked into the
future to see whether Chrysler could afford to be competitive with the others in the industry,
especially when the Asian automotive players such as Toyota and HondaenteredtheU.Smarket.
In the case of DaimlerChrysler, both parties should truly will to cooperate whole
heartedly and to accept changes and to enter compromises in order to make this
merger of the two companies a success.
In order to avoid the failure of cross-border M&As, it is of very high importance to
consider the important aspects even before the actual merger takes place.
It is important to take into account in which areas it will come to cultural
discrepancies and how they will influence day-today work.
To be a successful company did not succeed in joining their strengths and
complementing each other’s weaknesses to overcome a crisis together.
Communicate the ³merger´ as Daimler’s acquisition of Chrysler to
avoid further uncertainties.
Be aware of national differences which can affect the business culture, you must observe the
business culture before you do the merger with the professional and better qualityofthe
Build a good R&D-department.
Channels of communication must be open and consider a mediator at meetings - hired
Avoid cultural stereotyping with contextual differences, share knowledge, and exploit
These basic cultural issues must be addressed before the merger or acquisition is
completed. Cultural conflicts are the most common reasons behind failed mergers and
This is a diagnosis of cultural relations between companies prior to a merger and a
determination of the extent to which cultural clashes are likely to occur.
The cultures of the two organizations must be sure that they are compatible. If they
are not compatible, the two parties can identify before the merger or acquisition what
needs to be done to fit the two cultures together and whether it is worth theeffort
A large number of cross-border M & As fail because of the difficulties are not insurmountable. as well as the
merger between the two car manufacturers Daimler-Benz and Chrysler Corporation. This promising
merger failed because of cultural differences that cannot be bridged between two car
manufacturers, Daimler-Benz and Chrysler Corporation. Therefore, observing business
culture and deciding on leadership decision rights well is better from the beginning. Besides
that, hiring the outside help (consultants) to aids in the acquisition process also could help
them to find solutions. In the case of DaimlerChrysler, the two sides have never really willing
to cooperate wholeheartedly and accept change and enter a compromise to make the merger
of two successful companies. To avoid the failure of cross-border M & As, it is important to
consider the important aspects even before the merger actually happens. And also important
to identify and define common goals and appropriate to describe certain norms and rules to
business processes. Furthermore, good communication strategies and far-reaching is
required. In this case can be concluded that the merger of Daimler-Benz and ChryslerCorporation failed