Daimler-Chrysler Merger

A Cultural Mismatch

About Chrysler Corporation

The company was founded by Walter Chrysler (1875–1940) on June 6, 1925.

The Chrysler was a 6-cylinder automobile, designed to provide customers with

an advanced, well-engineered car, but at a more affordable price than they

might expect.

The advanced engineering and testing that went into Chrysler Corporation

cars helped to push the company to the second-place position in U.S. sales by

1936.

About Daimler - Benz

In 1885 Daimler, together with Maybach began work on the first engines that

were designed specifically for use in motor vehicles.

This German firm, initially operating at Cannstatt near Stuttgart, was the

origin of the business variously known as Daimler Motoren Gesellschaft from

1890 to 1926, and then Daimler-Benz from 1926 to 1998.

Daimler Benz was founded in 1926. An Agreement of Mutual Interest - was

signed on 1 May 1924 between Karl Benz's Benz & Cie., and Daimler Motoren

Gesellschaft.

Daimler-Benz and Chrysler Corporation‘s

strengths in 1998

Daimler-Benz

Mercedes is the most popular luxury brand

A strong dealer network

Ranked #17 globally

Chrysler Corporation

Low-end/sub-compact cars and trucks

Big auto manufacturer in North America

Mini-vans, Jeep and Dodge trucks

Ranked #25 globally

The Merger

In May, 1998, Daimler-Benz and Chrysler Corporation, two of the world's

leading car manufacturers, agreed to combine their businesses in what they

claimed to be a ―merger of equals.‖

The process began when Jurgen Schrempp and Robert Eaton met to discuss

the possible merger on January 18, 1998.

The merger was completed on November 12, 1998.

The merger resulted in a large automobile company, ranked third in the world

in terms of revenues, market capitalization and earnings, and fifth in the

number of units sold.

German and American styles of management differed sharply.

To minimize this clash of cultures, Schrempp decided to allow both groups to

maintain their existing cultures.

Troubled Times

When Chrysler performed badly in 2000, its American president, James P Holden,was replaced with Dieter Zetsche from Germany.

A few senior Chrysler executives had already left and more German executiveswere joining Chrysler at senior positions.

In an interview to the Financial Times in early 1999, Schrempp admitted that the―DCX deal was never really intended to be a merger of equals‖ and claimed that―Daimler-Benz had acquired Chrysler.‖

By the end of 2000, there were only 128,000 Chrysler employees still working inthe US operations.

Chrysler reported a third quarter loss of $512 million for the period endingSeptember 30, 2000; and its share value slipped below $40 from a high of $108 inJanuary 1999.

The expected and wished for synergy effects stayed out. Instead of gainingcompetitive advantage over their competitors, the merger rushed the two carproducers ever deeper into the crisis and did not provide the companies with thenecessary tools to overcome the recession.

Clash of Cultures

Mergers and acquisitions take place to

realize the synergies between the two or

more companies.

‗Daimler-Chrysler merger failed to realize

the synergies that were expected from the

merger‘

Opposing Cultures

Chrysler Daimler-Benz

Encouraged creativity Methodical decision-making

Egalitarian relations among staff Respect for authority, bureaucratic precision,

and centralized decision-making

American CEOs were rewarded handsomely Disliked huge pay disparities

Performed little paperwork and liked to keep

their meetings short

Used to lengthy reports and extended

discussions

Favoured fast-paced trial-and-error

experimentation

Detailed plans and precise implementation

Flat structure Top-down management approach

Imposing One‘s Culture

At first, the German management granted Chrysler the freedom to do what

they had always done.

Daimler-Benz wanted to simply take advantage of Chrysler‘s efficiency.

But a number of Chrysler‘s key players had left the corporation and remaining

employees were demoralized and demotivated.

Within 19 months two American CEOs were dismissed and German

management took over.

Daimler-Benz tried to administer the Chrysler division as if it was a German

company.

From Chrysler‘s point of view, instead making use of new synergy effects, and

instead of gaining competitive advantages over the competitors, the merger

with Daimler-Benz drove Chrysler into chaos.

In September, 2001, Business Week

wrote, ―…Daimler-Chrysler have

combined nothing beyond some

administrative departments, such as

finance and public relations.‖

Daimler Chrysler is a cross-cultural

merger. But it was a failure. What

culture differences were there?

What issues should be addressed to make a

cross-cultural merger a success?

Transnational Corporation- Distinct corporate cultures

We are not the same!

Power Distance-Germany(70),U.S.A(50)

Fewer women in higher positions-Germany

Individualism-U.S.A(91),Germany(67)

Masculinity Vs feminity- Germany (69),U.S.A(62)

Uncertainty Index-Germany (7),U.S.A(87)

Long term orientation-U.S.A(56),Germany(23)

Sorry ! I can‘t be you, I cannot change

Corporate structure

Corporate culture

Customer proposition

Value chain

Leadership

Practical experience

Pragmatic and goal oriented

Laid off from work

Daimler- conservative, rigid

Chrysler—informal, outward oriented

Future planning, supervisory boards, expatriate

management, executive salaries,labour relation

Consensus building, seniority

Headquarters moving to Germany

Use of German in meetings

More members from Germany in supervisory

Boards

Selection of corporate spouse

Lets make the marriage work!

Daimler finally divorces Chrysler-

How to avoid it

Stereotypes need to be unlearned

Recognize the differences in corporate context

Channels of communication must be open

Cross cultural training

Strategies to harness the intercultural differences

Development of cultural intelligence

Respect all workers-equal representation

Use of a common language

Hire a mediator

Partnership and trust vs. power and domination

Today you can eliminate that hyphen

because we are taking steps to make

Daimler Chrysler truly one company

everywhere in the world:

No Hyphens ;No spaces;

-Dieter Zesche,CEO,Daimler Chrysler

January 25 ,2006

Very often companies involved in a merger

claim it to be a merger of equals but this is

not the case always.

'The Daimler-Chrysler deal was never

expected to be a merger of equals.'

AIM-COMBINE CULTURE AND GENERATE

SHARED CORPORATE CULTURE.

POST-MERGER-IMPLEMENTATION.

Neither acquired by Daimler-Benz nor guaranteed equal status.

Freedom to Chrysler based on past success.

Eaton successors Holden and Stallkamp dismissed within 19 months.

German manager Zetsche and Bernard.

Chaos in Chrysler.

Conclusion

When it comes to cross-border or cross-cultural M&As, you must not

disregard the cultural differences inherent. One corporate culture

cannot simply suppress and replace the other one. A consensus has to

be reached and the foundation for a new culture, based on elements

of both cultures involved, has to be laid.

In the case of DaimlerChrysler, both parties were never truly willing to

cooperate wholeheartedly and to accept changes and to enter

compromises in order to make this merger of the two companies a

success.