Friday, April 16, 2010

The Daimler Chrysler Merger: A Lost War of Assimilation (Part 1)

The Daimler Chrysler Merger: A Lost War of Assimilation (Part 1)

On May 7th, 1998 Chrysler and Daimler- Benz announced the biggest trans- Atlantic merger in history. In a $37 billion stock swap deal a new company was formed with 442.000 employees, and a market capitalization of almost $90 billion. The leaders promised synergies of savings in retail sales, purchasing, distribution, product design and R&D. Daimler-Benz CEO Jürgen Schrempp hailed the union as "a merger of equals, a merger of growth, and a merger of unprecedented strength." The Daimler Chrysler merger could have been a major leap forward in the automotive industry. Both companies had qualities, abilities and market share that could have benefited the other. Unfortunately, the merger like many others was unsuccessful and never achieved its potential. It eventually was considered so unworkable that the Chrysler portion was sold off at a serious loss. One of the major reasons for this lack of success was a poor handling of the integration process and in particular the people portion.

The move to place German top executives in the American company was at least controversial and in the end proved to be clearly detrimental to the process. In an article entitled “The Ten Merger commandments” by David Gebler (2009), most of the commandments have to do with integration of people factors. Commandment one says: do not act like a conqueror. Perhaps we need to consider the unfortunate history between the two nations. Germany had been conquered twice in the century and the memory was still lingering in both the minds and psyches of the Germans and of the Americans. The beneficial reasons for the merger were quickly over shadowed by the egoistic and nationalistic considerations of mere individuals rather than being elevated to the considerations of what was best for the new corporate entity.

The tactic of misrepresenting the intention of partnership set the entire process off on the wrong foot and it smacks of pay back and the mentality of the conqueror. The rushed and secretive negotiations did not allow for a clear understanding of what the process of running the company would look like post merger nor did it permit a ferreting out of such misrepresentations. The one on one negotiation conducted between Schrempp of Daimler and Eaton of Chrysler did not include Human Resource considerations because the speed and secrecy of the deal. In fact, Eaton was oblivious enough to state that there were no cultural differences. “There was a remarkable meeting of the minds at the senior management level. They look like us, they talk like us, they’re focused on the same things, and their command of English is impeccable. There was definitely no culture clash there.” (Lutz, 2001)

The obvious naïveté did not last long. In spite of these assertions there was soon evidence of the culture clash with Daimler executives publically stating that they would never own a Chrysler product and Chrysler executive responding that Chrysler Jeeps had a much higher consumer satisfaction rating than Mercedes products. The companies were very different in wage structure with American workers sometimes earning 4 times as much as an equivalent German worker, corporate hierarchies and culture were also poorly aligned. Even the branding stances were diametrically opposed. Chrysler was known for innovation, risk taking and American frontier values in a cost controlled environment while Mercedes-Benz was known for German engineering, uncompromised quality and top end luxury. These factors kept both retail and logistics distinctly separate.

To clarify his position, Schrempp told the German media in the autumn of 2000 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".

This statement was relayed to the English-speaking world by the Financial Times the day after the original news broke in Germany. It had always been Schrempp’s intention that Chrysler should become a subsidiary. Daimler-Benz was the majority share holder in the conglomerate and it controlled the majority of seats on the Supervisory Board. The illusion of equality was perpetuated by the DaimlerChrysler name and two parallel management structures under co-CEOs at separate headquarters which lent substance to the "merger of equals" assertion.

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