Saturday, April 17, 2010

Daimler Chrysler Merger (Part 2)

The Daimler Chrysler Merger: A Lost War of Assimilation (Part 2)

It seems to me that Daimler had initially intended to allow Chrysler to continue to run its own show at least for a time. Problems started even before the merger was announced, however, when the integration teams functioned poorly. The Americans were submerged by the Germans in every aspect of announcement and communication. While initial media coverage was favourable, it went sour quickly once Schrempp revealed his deception.

The initial problem was that many Chrysler executives saw the deal and its ramifications and chose to leave. This is the point at which I believe the war was lost. Four VPs left in the first 3 months. Some went to Ford and others to GM. Chrysler’s decline did not start when staff was replaced. It came through initial neglect and confusion including lack of direction and security. The company needed to communicate quickly with the key executives to assure them of their importance and their mandate. From 1998 to 2001 Chrysler was not taken over nor was it granted an equal status. It was not until eleven months after Eaton’s retirement that Schrempp brought in his own team and by then the company had begun to flounder. Even a prompt take over would have been better.

Daimler had underestimated what the loss of key personnel and revelation of the deception would do. After the merger, many observed the co-CEO Eaton was withdrawn, detached and dispassionate about the new company. He avoided communication with Schrempp. I attribute this to the reality that he had been lied to and disillusioned. Schrempp admonished him to “act like a co-chairman and step up to the podium” but it does not appear to have had an effect. Peter Stallkamp reported that Eaton “had checked out about a year before he left. The managers feared for their careers and in the absence of assurance, they assumed the worst. There were a good eighteen months when we were being hollowed out from the core by the German’s inaction and our own paralysis.”

The board of directors of the new company was heavily weighted in favour of the Germans. By the end of 2000 eleven top executives had left Chrysler and that included the replacement CEO and the legendary designer, Gale. When Stallkamp left, Lehman Brothers down graded the stock. Analysts wondered in print why there was no place for one of the most talented men in the automotive industry. It was rumoured that Stallkamp wanted to take a slower more unified approach to integrating the companies and that Schrempp had overruled the approach. American investors were worried but the Daimler executive was far more worried about the opinions of the European investors. Morale was steadily declining. Stallkamp was quickly replaced by a German CFO.

(Part 3 to be posted soon)

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