International Case:The Daimler-Chrysler Merger:

A New World Order?

Synopsis

• In May 1998, Daimler-Benz, the biggest industrial firm in Europe and Chrysler, the third largest carmaker in the US merged.

• Chrysler lower-priced cars, light trucks,minivans appeared to complement Daimler’s luxury cars.commercial vans.

• The merger followed a trend of other consolidations.

• The Daimler-Chrysler cross-cultural merger has the advantage of both CEO’s having international experience and knowledge.

• Chrysler’s Robert Eaton had experience in restyling Opel cars in GM’s European operations.

• Daimler’s CEO Juergen Schrempp worked in the US with Euclid Inc. and has experience in South Africa.

Why this merger took place?

• At the time of merger, Daimler was selling fewer vehicles than Chrysler but had high revenues.

• The company was also into other business of airplanes,trains and helicopters.

• 2/3rd of its revenues came from outside Germany.

• Chrysler show an opportunity to overcom some of the European trade barriers.

• Main reason for this merger was technology nad overcapacity.

• Companies with economies of scale can survive.

• Merger became more of a competitive necessity than a competitive advantage.

Post Merger

• In the early 1990’s Japan made great strides in the auto industry.

• Post merger, Daimler-Chrysler new care company became fifth largest in the world and could be the volume producer in the whole product line range.

Strengths of the two cos.

Daimler

Known for its luxury cars and its innovation in small cars

High revenues

Into other business

2/3rd revenues from outside Germany

CHRYSLER

Has an average profit per vehicle that is highest among the big 3(GM,Ford and Chrysler)

Known for its highly skilled management and efficient production.

Low cost and simplicity are other hallmarks.

Actions taken post merger

• Schrempp initiated many changes in the German opeartion.

• Reduced the number if businesses from 35 to 23.

• Laid emphasis on shareholder value is counter to traditional German business culture.

• Schrempp changed his managerial style, got inspration from GE CEO, Jack Welch.

• Yet, he faced many challenges.• Mercedes faced tough competition from

Japan’s Lexus,Infinity and Acura as well as BMW and Ford’s jaguar.

• Schrempp forced to cut costs and improve productivity in order to survive.

• In 1999, co. announced to invest $48 billion to introduce 64 new models in the next five years.

Strategic Implementation

• Formulation of the merger was carefully planned.

• Global perspective of Schrempp and Eaton as well as the product line indicate a fit.

• Instead of two headquarters, the top managers prdicted to have only one headquarter anf that will be in Germany.

Questions

Evaluate the formulation of the merger between Daimler nad Chrysler. Discuss the strategic fir

and the different product lines.

Assess the international prespective of Eaton and Schrempp.

What are the difficulties in merging the organizational cultures of the two companies?

What is the probability of success or failure of the merger? What other mergers do you forsee

in the car industry?

Thank you….