The Merger Behind Daimler Benz and Chrysler Finance Essay

On July 17, 1997, Chrysler CEO Bob Eaton walked into the auditorium at company headquarters in Auburn Hills, Michigan, and gave the speech of his life. Instead of reveling in four years of rapid growth, he warned of trouble brewing on the horizon. His urgent oratory, adapted from the nonfiction bestseller The Perfect Storm, a tale of three fishermen caught at the confluence of three potent storms off the Canadian coast, warned that a triad of similar factors threatened to sink Chrysler in the coming decade. "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". That is how one of the parts in one of the biggest mergers of our time saw the circumstances and preconditions which lead to the alliance of the American Chrysler and the German Daimler-Benz. In this paper we would like to analyze the complex decision making process and some of the negotiations involved. Since it is a multisided act, connected with various people, positions, influences, methods and data, we picked some topics we found really important. First we shall discuss the motives for the merger, since the reason why people engage in such a big enterprise influence their decisions and the negotiations involved. Then we shall show the implications of a merger of equals. Important factors of discussion and negotiation are the cross cultural aspects, which affect the decision making process as well. The difference in culture between Germany and the U.S. is evaluated in "the cross cultural aspects of the DaimlerChrysler merger". Next to this the costs and benefits of the merger are discussed with their implications for negotiation. We shall also reflect on the differences in the working methods of the two companies, which could trouble the work of the alliance in the Future, therefore it is an important concept to be considered. Despite all the mentioned issues, we found it important to consider the personality of Jürgen Schrempp, the CEO of DaimlerChrysler, since preconditions, the very merger itself, and the following events were very much manipulated by him - influence based not only on professional, but on personal motives as well.

Company profiles and the reasons for the Daimler-Chrysler merger

On May 7th, 1998, Robert J. Eaton, Chairman and Chief Executive Officer of Chrysler Corporation, announced that Chrysler would merge with Daimler-Benz. Daimler-Benz CEO Jürgen Schrempp hailed the union as "a merger of equals, a merger of growth, and a merger of unprecedented strength". The new company, with 442,000 employees and a market capitalization approaching $100 billion, was expected to be very successful. Lets view companies profiles before the merger, the reasons for merger.

Chrysler Corporation

Chrysler Corporation, incorporated in Delaware, the US. Operated in two principal segments: Automotive Operations and Financial Services. In the mid-1990s, Chrysler Corporation was the most profitable automotive producer in the world. Chrysler had taken a risk in producing vehicles that captured the bold and pioneering American spirit when imports dominated the market - the Dodge Ram, the Jeep Grand Cherokee and the LH Sedan Series. In these vehicles Chrysler found an instant mass appeal, and its U.S. market share climbed to 23% in 1997. The company was considered to be creative, innovative and risky. Their main products were minivans designed for mass market. That is why the values of their production process were reducing costs, finding new cheap solutions. Consequently the organizational culture could be described as innovative, informal, open, dynamic etc.

Daimler-Benz AG

Daimler-Benz AG, a stock corporation, was the largest industrial group in Germany with 1997 revenues of DM124 billion ($68.9 billion). Although known primarily for its luxury Mercedes cars, Daimler operated in four business segments: Automotive (Passenger and Commercial Vehicles), Aerospace, Services, and Directly Managed Businesses. But 95% of the income was from Mercedes Department. In comparison to Chrysler Daimler-Benz was more traditional organization with top-down decision making processes, hierarchical structure, strong subordination. They valued quality, traditions, procedures, perfection.

Reasons for merger

In spite of their size, reputation, long history both companies had objective problems. The solution was found in merger. Actually the motives for the merger could be the following: 1) To ensure stable growth and stability in the future New reality that can be described like (i) chronic overcapacity, (ii) retail revolution that empowered buyers, (iii) environmental concerns that threatened the very existence of the internal combustion engine, left no chances for Chrysler to succeed in the Future being alone. At 1997 the company 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. On the other hand Daimler-Benc could not feel secure either because it's corporate strategy had a number of disadvantages e.g. dealing with a lot of businesses meanwhile 95% of income was from Mercedes Department that made the company unstable in long term period. Moreover its vehicle production method was particularly labor intensive - requiring nearly twice as many workers per unit produced over Toyota's Lexus division. 2) Expansion to new markets Despite a booming U.S. economy, Daimler-Benc's luxury vehicles had captured less than 1% of the American market. They had neither experience of selling cars in the US nor distribution system in North America. Chrysler despite of being recognized car maker in the USA did not do business successfully on the continent. They had the same problems as Daimler-Benc - had no experience, no partners, no distribution system. So merger seemed to be a great opportunity to benefit for both companies by using each other's resources and experience. 3) Synergy from combined competencies There was almost no overlap in the companies' competencies, product lines, market segments (they didn't compete to each other). So both companies had unique knowledge and objectively were interested in sharing it hoping to reach synergetic effect.

From Merger to Acquisition

Thus we can see that on the face of it both Daimler-Benz and Chrysler had very strong motives to combine their businesses. All these motives seem to be extremely logical, relevant, adequate and objective. Indeed two leaders of car market can decide to act like one player. From the view point of Chrysler a solution had to be found to the mentioned problems and the alternatives for such a big company, competing on an extremely dynamic market aren't many. In the case of a decision about a future prospective such a giant company had to gather really reliable and relevant information (forecasts, calculations, subjective factors etc.), and to consider the risks and uncertainties connected to each and every possible step in the future. Without any doubts Daimler-Benz had to do the same. So when the merger was announced there was no panic among stake-holders - indeed it was "merger of equals", reasons were logical, consequences were considered predictable, companies looked equal. The decision seemed to be well though-out from the economic point of view. Analysts, observers, stakeholders were so exited expecting successful developing of the new alliance. But very soon everything went wrong. Autumn 2000 the German executives proclaim that: "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". Moreover the companies did not succeed in managing the merger-acquisition. How could stakeholders and the whole public be so mistaken? It can be easily explained if we pay attention to some very important factors the stakeholders and top-management didn't take into account while analyzing the need for the merger and then during managing it. First of all and the most important is that this decision-making process was much more based not on rational but on personal reasons. So we can say that stakeholders' decision that the merger was good was based on representativeness Heuristics. Indeed - there is a stereotype that big companies act absolutely rationally; Daimler-Benz and Chrysler were big respected companies, consequently everybody suggested that the merger was well thought-out decision based on rational motives and reasons. But in fact in this case much of the decisiveness of the German company was based on the personal and managerial features of the chief executive officer of Daimler-Benz, Jürgen Schrempp, on which we shall touch upon later in the paper. What is important is that Schrempp's motives for the merger had more authority and stubbornness in themselves, than needed, and in the same time less common sense and supportive data. Liebler, DaimlerChrysler's Senior Vice President said: ''It was an acquisition, and by calling it something else, we confused a lot of people on both parts of the Atlantic". As we all know relevant information is extremely important in a decision making process, so by announcing this as a merger, the companies gave misleading information. For example in the trial about the merger U.S.- billionaire Kirk Kerkorian and his Investment company Tracinda accused DaimlerChrysler of cheating. Kerkorian argued that from the outset the merger was an acquisition. Therefore Kerkorian would have got more money (higher premium) for the exchange of share certificates. In the decision making process the question about "merger or acquisition" was quite important. The Chrysler board of management would never have accepted the merger, if they had known that Schrempp, from the very day he walked in Robert Eaton's office in Auburn Hills in January 1998, he intended to swallow Chrysler whole..( he told so in a rare interview for the Financial Times of London) Then while managing the merger cultural differences appeared, the analysis of which follows.

The cross-cultural aspects of the DaimlerChrysler merger

The merger between Daimler-Benz and Chrysler was supposed to be "the merger of the century", but it didn't work as planned. So what went wrong? When two powerful companies from different countries merge, there's always expected to be a clash of two cultures. But in DaimlerChrysler case, it seems that their clash was a text-book example of how things can go wrong when trying to combine the two cultures. Even though German and American business cultures may seem very similar there are still some distinctive features to both of them. According to Executiveplanet.com "What to know before negotiating" , American business culture puts emphasis on competition and individual achievements and creativity. They often like to open the negotiations with a small talk about some topic not relevant to the negotiations. The phrase "time is money" is also taken seriously in American business culture: businessmen are not afraid to say no and are used to make decisions fast. It is also acceptable to add personal feeling into business life. German business in the other hand is said to be less risk-taking culture as Americans. They tend to be less spontaneous and like to follow the old traditions and rules of the company. Personal feelings and relationships needs to be left out of the negotiations and business in general, they like to keep their personal lives and business separate. When analysing more closely about the differences between these two cultures, use of Hofstede's famous cultural dimensions provide lots of information. During the 1970's Dutch organisational anthropologist Geert Hofstede researched work-related values in employees of IBM. From this researched he derives four cultural dimensions that are found in organizations around the world. The four dimension are Power Distance (PDI),individualism/collectivism(IDV),masculinity/femininity (MAS) and uncertainty avoidance (UAI). Later on he also added a fifth dimension, Long Term Orientation (LTO). As seen on the table comparing German scores with American scores, there is a difference. The PDI index is almost the same, meaning that the lower the score, less inequality there is in the society and organisations. Also the MAS index scores for the both countries are pretty high, meaning that both Germany and USA are more or less masculine societies. In the UAI index there is a difference to be noticed. This difference means that American organisations are more comfortable with unstructured situations than Germans. The lower the score, the more rule oriented society it is. Finally, the index that shows most dramatic differences is the IDV index. USA was said to be one of the highest scoring countries in this index, meaning that they are very individual society and puts emphasis on individual achievements. In the other hand, Germany is more collectivistic culture where interpersonal relationship count more. Now that we've gone through the differences in German and American cultures, we can analyse what went wrong in the DaimlerChrysler merger in a cross-cultural point of view. As Sydney Finkelstein states on her case story "DaimlerChrysler merger", when it came down to the principles involving the deal, there were no clashes of cultures. There were no noticeable differences on the general management level, they looked the same, talked the same and had same interest. Of course the differences are more visible when having a negotiation with for example Japanese business men when their appearance is different and they may not even speak the same language. The problems arise when the Germans continued to run their part of the company in German way and the Americans did the same thing in their side. With all the cultural differences analyzed above, it is easy to see why there were so many conflicts. After the merger, the differences started to show. Although the management spend a lot of money to make their employees aware of each others cultures in a very practical level, the big problem was that the general business and management structures remain unchanged. Chrysler, who had its headquarters in Michigan valued efficiency, empowerment, and equal relations among staff; and in contrast Daimler-Benz who had its headquarters in Stuttgart seemed to value respect for authority, bureaucratic accurateness. The different styles of communicating and negotiating caused confusion. Germans felt unease by the unstructured ways and by contrast, Americans thought that the way Germans handled thing were too formal and frigid. Americans couldn't understand why people from Daimler-Benz didn't care about details such as the shape of a pamphlet send to their employees. According to Ronald Klein, DaimlerChrysler's manager of corporate communications: "Germans analyze the problem in great detail, find a solution, discuss it with their partners and then make a decision. It's a very structured process. In contrast: "Americans start with a discussion, and then come back to new aspects after talking with other people - after a process that they call creative- they come to a conclusion". Naturally these kinds of different communication styles causes confusion and chaos inside the company. Also the differences in salaries weren't helping the workers from the two companies to feel equal. American employees earned noticeably more than their German colleagues and this caused tension inside the new build company. The brand images behind the two companies were very different. Chrysler's image was all-American "cowboy", providing cars for "blue collar" customers produced within a cost-controlled atmosphere whereas Mercedes-Benz portraits high class German engineering and is known for its luxury cars. In the next part we shall give some further explanations to other costs (except those, caused by cultural discrepancies) and the occurring benefits of the merger.

Cost and Benefit Analysis

The two CEO's believed that the industry was running on overcapacity. Potential benefits of combining car manufacturers as we mentioned could arise from the general synergy sources (joint product design, development and manufacturing, combined purchasing, other economies of scale and brand expansion and diversification). In this part the financial side of the merger will be discussed. Next to this we will also deal with the non financial benefits. The influence of all of this is analysed.

The financial side

Chrysler

As most companies want, Chrysler wanted this merger to maximize value for its stockholders. They wanted this merger to be tax-free for their U.S. stockholders and the resulting company to be tax efficient. They had the following expectations of the merger: Management expected benefits of $1,4 billion in the first year of merged operations, and annual benefits of $3 billion within three to five years Chrysler stockholders receive Daimler-Chrysler ordinary shares so they are able to participate in the combined company's future growth The combined financial strength will be greater so new markets can be entered easier Credit Suise First Boston (investment bank) analysed for Chrysler a two case scenario in case they did not merge. The Chrysler base case projected an average income for 1998 until 2002 of $72.2 million (reflects Chrysler's current business plan, including Chrysler management forecasts for fiscal years 1998 through 2002). Based upon the analysis of Daimler-Benz as well, CSFB projected that the merger would lead to smaller earnings per share for Chrysler and bigger earnings per share for Daimler-Benz for 1999 and 2000. But the theoretical trading value of a DaimlerChrysler share would be greater than the share prices of Chrysler or Daimler-Benz on a stand alone basis.

Daimler-Benz

Daimler-Benz wanted as well to maximize value for stockholders, that it be tax-free to Daimler-Benz stockholders and tax efficient for DaimlerChrysler. In addition they wanted the result of a merger to be a German stock corporation, to enhance the likelihood of acceptance by all important stakeholders. In addition, Daimler-Benz believes that the increase in market capitalization will provide enhanced liquidity for Daimler-Benz stockholders. Goldman Sachs estimated pre-tax annual savings as the result of synergy from $0 to $1,6 billion (scenario specific). Earnings per share would increase on average with 40% depending on the level of cost savings by synergy. Daimler-Benz believes that the increase in market capitalization will provide enhanced liquidity for Daimler-Benz stockholders.

Non-financial benefits

The opportunities for significant synergies afforded by a combination of Chrysler and Daimler-Benz are not based on plant closings or lay-offs, but on such factors as shared technologies, distribution, purchasing and know-how. These are other major benefits: The automotive industry will become more and more consolidated. This results in a smaller number of larger companies surviving as effective global competitors The combined company will be stronger than the companies individually, because of the already indicated companies' complementary strengths - Chrysler being better in sport-utility vehicles and minivans while Daimler-Benz being stronger in the high end and luxury automobiles. Chrysler has a reputation for product development and Daimler-Benz for engineering complements. The Daimler-Benz Management Board viewed the combination with Chrysler as an opportunity to strengthen Daimler-Benz's competitive position. This is because the merger covers virtually the entire market. As well geographically as in product markets. The parties concluded that a primary goal of the merger is to create a market system for the Daimler-Chrysler ordinary shares that is the most efficient and investor friendly. But there were still some major financial points of discussion: Valuation. Daimler-Benz shares have had a higher price/earnings multiple than Chrysler's, although Chrysler has had higher earnings Finding a structure that would result in a tax-free transaction for both companies' stockholders and in future tax-efficiency Chart of DaimlerChryslers' stock price

Influence of financial factors on negotiation

There was no power imbalance from financial point of view. Both companies where getting less and less successful in their field of business. Both companies were dependent on the other for survival. On one hand does this power balance increases the progress of the negotiation since no company has to be afraid of losing power. On the other hand it can become a negotiation where no company wants to compromise since they have the same rights. In the face of goal setting both companies agreed. They both wanted it to be tax-free and tax efficient. Having equal goals is very beneficial for all negotiations. In the sense of motivation they where similar as well. They both saw the need to merge in order to stay competitive. Again this makes negotiation easier since equal motives generate equal goals. These similarities suppose a cooperative negotiation style. This merger could be ranked as a typical example of a win-win situation. The parts would see each other as collaborators instead of opponents. And consequently this way of approaching a negotiation would yield the best results. That unethical tactics of negotiation and the other significant aspects connected with the merger where used came clear afterwards.

Differences in operation process and management technique, different requirements and principles for quality and efficiency.

The companies were almost meant to be partners in terms of operations but the differences between them in this field as well were sometimes too far-reaching, which made the merger less effective than previously presumed. Let's start with naming some of the obvious operation advantages of the merger before we turn to problems and disadvantages:

Advantages of the merger

Mutual advantages

Common opinion states that it was Chrysler who mainly profited form the merger. Daimler-Benz offered the American firm the quality of Mercedes to improve the dull Chrysler brand image and save the company billions of dollars in warranty costs. But Daimler-Benz also has advantages to being linked with Chrysler. Although Chrysler has not been known for its quality, the corporation has always been coupled with creative styling and the product innovation we referred to previously. Daimler-Benz could use help in these areas, as well as decreasing its development costs. The German firm typically employs only a handful of close suppliers, therefore driving up costs. Because Chrysler employs several different suppliers, costs remain relatively low. Merging the two companies, when put in this light, seems to have been a match made in heaven.

The already reported perfect fit of product lines

Financial analysts at the beginning were all excited about the perfect fit of product lines, regional penetration and technical and operational strengths. Uncalculated savings were anticipated in warehousing and logistics for spare parts.

Combining R&D department

Chrysler and Mercedes have started combining their research and development operations for key technologies such as fuel cells. Last year for example, Mercedes began building its M-Class vehicle in Chrysler's plant in Graz, Austria. Still, achieving synergies will take time. ''Many things you can only implement in one generation of products, which takes four to five years,'' says Schrempp. So this is crucial for the company to combine forces and benefit form advantages of scales.

Joint purchasing of steel and other commodities

The first full year of the merger, through joint purchasing of steel and other commodities DaimlerChrysler had saved $1.4 billion in 1999.

Sharing interchangeable parts has proved

Although sharing interchangeable parts has proved tough, German and American engineers agreed early on that Chrysler could share Mercedes' technology: But when Chrysler engineers wanted to incorporate some of those components into the next-generation Dodge Intrepid and Chrysler Concorde, the Germans dragged their feet, according to sources close to the company. The Germans apparently worried they would be caught short of supplies if demand soared for the more profitable Mercedes cars.

Theoretical insight of the pointed advantages

Those positive outcomes of merger are results of win-win approach of decision making and negotiation processes in the questions dealing with operations. Both companies discovered their weak points and discussed how they can profit from cooperating with the partner it this particular domain. They set priorities, identified the underlying concerns and tried to solve them by cooperation. The wisely combined capacities tend to benefit form advantages of scale. They share knowledge, experience and facilities in fields where distinct advantages can be gained.

Disadvantages of the merger

Now let's unveil some problems that the companies faced after the merger. Following are the main reasons, from the operational point of view for the merger to be considered as failure.

Big communication mistakes

Communication mistakes, probably, started on the day the deal was officially announced. The problem grew from the fact that the employee audience received minor attention, as it mainly focused on lawyers, investment bankers, senior management and shareholders. "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". Later we now that Schrempp confirmed, that he never intended this to be a merger of equals: as the months of ineffective management were passing "the mood at the company was fast switching from concern to panic." This caused managers fear for their careers, and in the absence of assurance, they assumed the worst. Jürgen Schremp didn't help the situation, he looked at Chrysler's past success and told himself there is no point in trying to smash these two companies together. At some point he even almost cut off from American partner. He said "let's let the Chrysler guys continue to run its operations because they have done a great job in the past". It was a misjudgment. What they didn't take into account was that immediately prior to the consummation of the merger or shortly thereafter, enough of the key members of that former Chrysler management team left being uncertain about their future job security.

Assembly systems quality highly overestimated by Mercedes

When German engineers went to take a closer look into American factories (after the merger!) they were very surprised about the quality of assembly lines and the work being done. There were no quality checking systems at all or they were out of the date. American assembly lines were very old and were not compliant with German standards. This is when Germans realized that there are billons of dollars needed to be invested in order to bring the American lines back to reasonable quality levels. It is quite surprising that those detailed analyses were not conveyed before the merger took place.

Decreasing quality of new Mercedes-Benz cars

Instead of increasing in Chrysler quality we can observe a drop in Mercedes-Benz's quality. In late November 2000 we find out that DaimlerChrysler not only faced quality problems within the Chrysler unit, but also with regards to the Mercedes-Benz brand. Internal company reports had concluded that the corporation had been "underestimating the so-called Quality Early-Warning System from the corporation's car dealers." Particularly technical problems emerged as a major area of discontent among dealers and customers. Because of problems with quality Mercedes' sales and market share declined and it lost its leader position in the luxury cars segment in favor of BMW cars in 2004.

Different product development philosophies

Differing product development philosophies continued to hamper joint purchasing and manufacturing efforts as well. Daimler-Benz remained committed to its founding credo of "quality at any cost", while Chrysler aimed to produce price-targeted vehicles. This resulted in a fundamental disconnect in supply-procurement tactics and factory staffing requirements. Upon visiting the Jeep factory in Graz, Austria, Mercedes' chief quality officer proclaimed: "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" The M-Class was eventually built in Graz, but not without an expensive round of hiring and standard increases to meet German's manufacturing standards.

Decrease in financial operating indicators for both companies.

In 2001, three years after a "merger of equals" , the outlook is much bleaker. The financial data is less optimistic. The U.S. market share in auto industry has sunk to 14%, earnings have slid by 20%, and the once independent company has been fully subordinated to Stuttgart. Its key revenue generators - the minivan, the Jeep SUV, and the supercharged pickup truck - have all come under heavy competition from Toyota, Honda, General Motors and Ford.

Theoretical insight of the pointed disadvantages

We can name 3 main possible sources of problems: Too much attention is given to short-term issues, such as "settling the deal," to the detriment of long-term corporate identity and strategy. We think there was no proper agenda of the sequence of the operations, objectives and goals were poorly defined. Leadership issues are not properly recognized. Proper management structures and supervisory responsibilities are very important. Lack of attention and support of German CEO and German mangers caused the highly skilled and valuable American employees to leave the company for it's competitors: Ford and GM. Communications problems. The managers of both companies committed significant communication mistakes while announcing that this will be the "Merger of Equals" (it was never meant to be). They didn't say the truth in order not to scary away American shareholders and not to decrease morals of American employees. This is not the way to solve such kind of problems. Company should educate the public and employees instead of lying to them. Open discussion and explanation would probably keep the employees and shareholders being loyal to the company.

Jürgen E. Schrempp:

Origin and Background:

Jürgen Erich Schrempp (born September 15, 1944 in Freiburg) is the CEO of DaimlerChrysler. He will resign from his post in December, following a decision of the board taken on July 28, 2005, and will be replaced by Chrysler front man Dieter Zetsche. He is married to Lydia Schrempp, with whom he has a daughter and a son. Mr. Schrempp has two sons from a previous marriage. Mr. Schrempp's international experience is the result of long-term assignments in Europe, South Africa and the United States and, over a more than forty-year career, managing a complex and global array of financial, organizational challenges. Under his leadership, Daimler-Benz bought out the former Chrysler Corporation to become the current company. Before becoming the CEO of Daimler-Benz in 1995, Schrempp headed the aerospace division of Daimler-Benz, then called DASA, which is EADS today. DASA acquired the Dutch aircraft manufacturer Fokker that was already in trouble in 1993 after it signed the contract stating the intention to take Fokker over on October 30, 1992. Schrempp called Fokker his "love baby". On January 22, 1996, after having subsidized the losses of Fokker with billions of Deutsche Marks, Daimler-Benz decided to stop putting more money into Fokker that subsequently went bankrupt. He is a Director of the South African Coal, Oil and Gas Corporation Ltd., Vodafone Group plc, UK, and Compagnie Financière Richemont S.A., Switzerland. Additional engagements include the Advisory Board of Deutsche Bank, the European Advisory Board of Harvard Business School, and the German Council of INSEAD.

Strong personality features:

In the 1990s, Jürgen Schrempp tore up the rules of German management. His rescues of the failing companies Deutsche Aerospace and Daimler-Benz established his reputation as a management miracle worker. But his methods - mass redundancies, elimination of entire business units and most of all his assault on the social market consensus between workers and managers - also made him feared and hated by many in Germany. Now Schrempp has found a global profile, thanks to his merger of Daimler with Chrysler in 1998, and his 'Germanisation' of Chrysler is proving equally controversial in the US. Men like Schrempp are always forward-turned; he is a live wire and sets the pace that it is almost impossible to follow him. An exemplary situation from the board meeting in Seville: Bud Liebler, head of Chrysler marketing, stood up. ''I don't know how we're going to get anything done,'' Liebler said to the packed room. ''We talk about speed, but all I hear about is committees.'' Schrempp just about jumped off the podium. He jabbed his finger in the air, then pointed it directly at Liebler. ''We are not going to slow anything down!'' he boomed. ''If you can come up with any example of slowing down, next time we meet I'll buy you the best bottle of red wine you have ever had!'' "Speed" is one of his favorite words and everything is in line with it: He is very fast in coming to a decision (not typically German feature, as we pointed it out when discussing the cross-cultural issue). Acquaintances of him suggest that you can feel it, when he's in range. When he once comes to a decision he consequently pushes it through - regardless of losses! So he releases top-class managers if he thinks they are unnecessary. In the same way he acts at Chrysler in the United States. Walter Chrysler in person prohibited in his lifetimes smoking and consuming alcohol in his company. Schrempp ignored it! Jürgen Schrempp grew up in hard times (for Germany). His father worked as an administration secretary of the university with a small income so Mr. Schrempp left school after the O-level (ten years out of 13) and started an apprenticeship as mechanic at Daimler-Benz. With the certificate of apprenticeship he left the company to study engineering. In the year 1967 he came back to Daimler as a graduate engineer. Born into a lower social class and the proximate advancement is maybe one of the reasons of his harshness: He absolutely wanted to be the boss. After he replaced Edzard Reuter as the head of the Daimler group followed a shake-up that was unprecedented in the culture of German management, which was based on job security, generous benefits and paternalistic management. Schrempp sacked over 60,000 workers, including most of the staff in the Stuttgart head office, and cut a third of the group's 35 departments. The surviving departments were warned that if they did not earn a 12 per cent return on their capital, they also faced elimination. Fokker and much of AEG were closed down; corporate survival was more urgent than prestige. Schrempp knew no limits.

He climbed in the Italian Alps with Reinhold Messner, the first mountaineer to scale Mount Everest without oxygen. He played chess with champion Gary Kasparov in matches at Daimler headquarters.

As described the personality of Jürgen Schrempp is very one-sided. He is a workaholic who always got what he wanted. In the Decision Making Process of the merger of Daimler Chrysler his personality was the actuating part. He decided the when, the who and the how.

His role the merger:

Of course he was the moving power, but here only his personal benefits should be specified. When and why did Jürgen Schrempp decide to take the risk of the merger? Malicious tongues say Mr. Schrempp pushed through the merger, because he wanted to reach the income-level of U.S. managers! And indeed, his income increased enormously! Before the merger, 1997, Mr. Schrempp earned about one million USD per year and then (2000), because the income in the DaimlerChrysler Corp. must be adjusted, he made more than ten million USD (est.) per year. Thus he became the manager in Europe earning the most. This financial incentive could absolutely be one of the personal motives of the merger. At the moment more and more people, even so called Top-Managers mention this. Further we would like to point out the "Creation of a World Corporation". When he masterminded the merger of Daimler with the US Chrysler Corporation to create Daimler-Chrysler, Schrempp wanted to make Daimler into a global company that could produce both small and large cars. To do this, he needed to acquire a US company, and Chrysler was the best candidate. His wish to create a world corporation could be explained by his resume: When he was young he had nothing but than he became one of the most important managers in the world. To top this he had to do something special, what nobody did before: The creation of a world corporation!

Theoretical insight:

The process of making choices from among several alternatives ended for Mr. Schrempp in this merger. Of course he had some alternatives, but he wanted the World Corp. under his leading. The uncertainty of a merger always is associated with risk. What makes the outcome of the merger risky is the probability of obtaining the desired outcome. Furthermore uncertainty is the fundamental cause of stress. The sources of stress, the stressors, were organizational: task demands, interpersonal demands, leadership! What was the stress defense mechanism? Aggression, he attacked or influenced the stressors directly. From this follows that Mr. Schrempp belongs to Type A, because he is impatient, aggressive, forceful and absolutely devoted to work. A big problem was that Mr. Schrempp as CEO "calculated" his subjective probabilities based on personal beliefs or hunches. We are pretty sure the Daimler board of management on the one hand used the modern Decision-Making Techniques like doing operations research with the latest analysis models, but on the other hand, because Daimler was and still is a very traditional German company with a top-down management and decision-making structure, the CEO's decisions are made habitual. Mr. Schrempp's decisions are influenced by, as described before, his strong personality features and maybe by the financial incentive of his new future income. To make an assumption, he used the business ratio of Chrysler of calculated with it. Due to the decision-style model Mr. Schrempp is a part of directive style: He prefers simple solutions (he had the idea of and pushed the merger through), makes decisions rapidly (period of development of the merger), does not consider many alternatives (need for a merger => with an American company => Chrysler is the one!), and he relies on existing rules (traditional German manager). So he is mixture of the judging and sensing type.

Conclusions

The merger of the German Daimler-Benz with the American Chrysler was a complex process, influenced by many factors, consequently the decision making involved was also complicated and multi-faced. On the bases of the research done and considering the standpoints mentioned, we can conclude that basically the merger was well planned financially with the aim of using the listed advantages of the alliance, and its was skillfully announced too the media and to all stakeholders. In the long term however difficulties such as differences in managing and operational techniques of the two companies, cultural clashes, stakeholders' dissatisfaction because of the acquisition, weren't really considered. The logical question is why? Or maybe these issues were considered, but there was someone, whose aims prevailed over the rational contra arguments and the common sense. The personality of Jürgen Schrempp dominated the combining of the two companies to such extent, that enormous risks were taken, relevant data and significant problems were left out of consideration. Therefore the decision making process was also strongly manipulated by Mr. Schrempp1 personal motives.

Cite this page