The Merger of Daimler Benz with Chrysler Finance Essay

Over the recent past, the motor industry has faced a lot of mergers between companies in the bid to get more clients and internationalize their horizons. The well planned mergers have arguably led to relative success while those that might have omitted some vital factor have had to contend with the pain of getting into detrimental losses.

Examples of such mergers include the partnership between Ford and Jaguar, GM and Saab, Ford and Mazda or even the BMW and the rover. Only a few companies like Toyota and VW have been able to acquire and maintain their clients through solo efforts (Bruner et. Al., 1998, p. 13). However, the most outspoken and widely renowned automobile story is the hopefully planned, yet ill-fated, merger between Chrysler and Daimler which resulted in great losses by both companies. It is based on their failed merger that this case study is going to highlight various aspects like the strengths, weaknesses, risks, opportunities, challenges and the extent of success of the Chrysler and Daimler project.

Even before the 1998 merger, both Daimler and Chrysler had to face surmountable challenges ranging from stiff market competition, diversification of products and services, global recession among many other factors. Nevertheless, through their hardworking leaders and ingenious contribution from various innovative individuals, both companies were able to stay afloat of the murky waters of the automobile industry. By the end of 1997, both companies had already reestablished themselves as dominant forces in automobile dealership with Daimler being in the German frontline while Chrysler having a lions-share of the American market (Milne & Reed, May 15, 2007).

It is however from the growing competition from other automobile companies, the need to expand markets into international horizons, the need to share the vast potentiality and expertise from both companies that Jürgen Schrempp-the CEO of Daimler- and Robert Eaton-Chrysler's CEO-saw the need to form a merger. Bruner et. Al., (1998, p. 17) opines that in such a merger; companies agreed to exchange of stocks which ultimately led to formation of one new superior company. This posed great possibilities for companies for example; it could enhance saving of costs through elimination of redundant mechanisms, improve the quality of products and services based on the uniqueness of technologies, expand territorial conquest for the involved parties, increase employment of people residing in the place where the company is to be incepted among others. So in spite of the high numbers of documented failures; Chrysler and Daimler were greatly determined towards forming a merger and recording good output (p. 17-24). As explicated later, this determination and hope backfired on them as they faced greater challenges that led to the downfall of two of the most revered automobile companies in the whole world.

1 i) To what extent is it fair to say that the merger of Daimler-Benz with Chrysler was a logical realization of the stated strategy of either company?

Very little can be shown for the immense positivity and hope that Daimler and Chrysler when their merger began. Apart from a slight increase in the GDP rates in both Germany and the U.S, much of the merger results were considered as one of the most devastating partnerships of all time. Of course there were little positive mobility in terms of development of new products and services. Mackintosh & Milne (2005) exemplify this by citing the increased sales and profits between the year 2000 and 2003 that resulted from the 300c saloon. However, cumulatively, the products were not able to give returns as earlier projected by the planners. In fact, there were not even enough returns to cater for the huge amount of money that were pumped into the project (Bruner et. Al., 1998, p. 42-44).

Mackintosh & Milne (2005) additionally say that in the latter years of the merger, there was a relative increase in employment which greatly boosted the economic status of both Germany and U.S.A. The duo further document that this merger was resulted in the opening up of more trading fronts for vehicles, spare parts as well as other vital automobile accessories which relatively boosted the financial output of the Chrysler-Daimler partnership.

1 ii)To what extent is it fair to say that the merger of Daimler-Benz with Chrysler was a relevant response to any of the principal issues emerging from a SWOT analysis of either company conducted at the end of 1997?

In spite of the relatively increased profit margins of both Daimler and Chrysler, both companies were facing surmountable challenges that greatly required the formation of a merger. This is going to be analyzed below based on the SWOT analysis i.e. the Strengths, Weaknesses, Opportunities and Threats/Risks.

a) Strengths

As of 2007, both companies were dominant in their respective states. The formation of a merger would therefore not only increase their domination locally but also open international fronts for more market and sales of their various products and services.

The merger also offered a chance to further the strength of the companies in terms of developing new products and services which was very vital for an increase in profit margins.

Lastly, both companies were strong in terms of their technical expertise. By merging, both of the companies had the chance to learn from one another, incorporate their unique skills and invent new strategies or systems of operation even as they worked to further the common goal of ensuring the overall growth of the company as a unified entity.

b) Weaknesses

According to LEX column (1997), merging the companies would mean that new designs that incorporate technology from both Chrysler and Daimler. This was greatly inhibiting since both companies had previously tried redesigning or remodeling new products based on the new technology but ended up failing. The prospects of succeeding this time round were therefore seen as being quite limited (Simonian, 1987).

Again, the German market tended to be freer as opposed to the U.S market which was quite rigid in terms of the policies governing sales, marketing and circulation of money. This, therefore, made it difficult for the formation of a unified cash-flow system that was accommodative of both ends.

c) Opportunities

As stated earlier, this merger would open a vista of opportunities for the expansion of market bases, inception of new products, joining of superior technologies and even creating employment opportunities.

d) Threats

Mackintosh & Milne (2005) say that such a merger would pose threats like the facing out of some unique designs in the name of creating new ones, lack of independence amongst the companies, overcapacity of equipment, development of unstable products and services based on the incorporation of numerous technologies among many others. Similarly, there was the risk of competition amongst the partners in the bid for who gets the lion's share of profits or benefits from the company. This would in turn inhibit positive growth of the partners.

3. Do you believe that management was slow to identify, or to respond to, the problems which emerged at Chrysler from 2000 onwards? If so, what do you think was the reason for the delayed reaction?

It would be subjective to ultimately vest the problems faced by Chrysler on the management. This is because all the people in the organization had a part to play; and their failure meant that the management would also no be able to ardently perform its job. On the flipside, I still believe that the management had a huge role to play and their laxity in terms of identifying or responding to the withstanding problems hugely affected the outcome of the organization. The reasons for the delayed reaction might have been because of:

Firstly, the partnership between Chrysler and Daimler ensured that both parties had a say on the managerial issues. In order for a decision to be passed, both parties had to consult one another. It is only after a consensus was reached that a decision move was able to be made. This process was quite tiresome and involved many bureaucratic steps that hugely devoured the available time thus leading to the laxity.

Secondly, different managerial factors played differently in various regions. This means that the problem faced by one Chrysler branch did not necessarily mean that the other was affected. This disparity therefore dragged the pace at which problems were discovered or even rectified by those in the management.

Thirdly, some implementation procedures were quite advanced and needed to be first tested on a pilot basis. As a result, the process of implementation was snail-paced since full implementation could only take place once it was tested and proven on a small scale basis. Consequently, a lot of time was consumed in the processes.

Finally, some problems were not easily identifiable by the management. For example, if a new vehicle was taken for a test drive, it was upon those who tested it to notify the management of any problems witnessed. Failure to do so by the "testers" therefore means that; the management does not get to know of the problem and thus not able to solve it. In such cases, the problem might even go unnoticed even to the point of the car being launched and then the blames coming back later to the management who were not necessarily aware of the problem.

4. Do you believe that management was slow to take the decision to sell off a controlling interest in Chrysler? Again, if so, what do you think is the reason for any delay?

Here, I believe-and therefore strongly oppose- the argument that the management procrastinated in selling off the controlling interest in Chrysler. Taking into account Simonian (1987) sentiments, the management could not make such an apt decision just because they were facing difficulties; in the previous times, Chrysler faced similar difficulties and through their patience, they were able to come out victoriously. In this case too, their patience was justified.

In addition, market conditions are subject to constant changes. And based on the vibrancy in the automobiles industry, it is very vital to give an opportunity for all the vital factors to first play out before making a decision to sell or buy something. It is only when you have reached your irreducible minimum that professionalism dictates you to make a change. This is the same scenario witnessed in the case of Chrysler; the management had to take time first and try all its options before throwing the towel on the battle for success and increase in profits.

When making a sale, it is also important not just to look at the prospects of getting rid of a product or service, it is vital that you also factor in the prospects of getting a considerable and worthwhile amount from your sale. Even in the case of selling something at a "throw away" price-like in the instance of Chrysler-, some modicum amount of positive earnings has to be realized by the seller. In spite of going below their targeted mark, Milne and Reed (2007) cite the sale of shares by Chrysler to Cerberus as a good deal that positively changed the automobile environment in the United States (Simonian, 1997).

Yet still, it is important to note that selling of vital company shares can only be done in consultation with the (major) stakeholders of the company. Prior to their approval, the management is as good as silent since its opinion will not really matter. This is exhibited by the deal between Chrysler and Cerberus which was only possible after a go ahead from the shareholders and the investors.

Shortly, it is inherent to note that the merger did not live up to the expectation of its founders. A lot of technical know-how, money, expertise and time was put into it but very little was realized. The many cases in courts-some not yet even solved to date-attest of the misdoings of both Chrysler and Daimler in the management of their merger. On a positive note though, several other developing-and developed-countries have learnt from Daimler and Chrysler's mistake and have ended up with success in their mergers. So instead of just blanketing the whole issue of merger, it is highly recommended that more research and trials are done into mergers so as to ensure future success to those who would like to use this risky yet rewarding partnership.

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