Daimler-Chrysler Merger: A Cultural Mismatch?

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Themes: Mergers Acquisition / Takeovers
Period : 1998-2001
Organization : Daimler Benz Chrysler Corporation
Pub Date : 2001
Countries : India, North America, Europe
Industry : Auto and Ancillaries

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Case Code : BSTR009
Case Length : 07 Pages
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"It's no surprise that Schrempp is running the show. What is surprising is the way in which he is putting the two organizations together: forcing head-on confrontations, with the survivors left to run the company."

- TIME, May 24, 1999, commenting on Daimler-Chrysler CEO, Jurgen Schrempp's style of management.

Daimler-Chrysler Merger: A Cultural Mismatch?: Introduction

In May, 1998, Daimler-Benz¹ and Chrysler Corporation,² two of the world's leading car manufacturers, agreed to combine their businesses in what they claimed to be a "merger of equals." The DaimlerChrysler (DCX) merger took approximately one year to finalize. The process began when Jurgen Schrempp³ and Robert Eaton⁴ met to discuss the possible merger on January 18, 1998. After receiving approval from a number of groups, (Refer Exhibit I), the merger was completed on November 12, 1998.

The merger resulted in a large automobile company, ranked third⁵ in the world in terms of revenues, market capitalization and earnings, and fifth⁶ in the number of units (passenger-cars and commercial vehicles combined) sold. DCX generated revenues of $155.3 billion and sold 4 million cars and trucks in 1998. Schrempp and Eaton jointly led the merged entity, as co-chairmen and co-CEOs. DCX sources were confident that the new company was well poised to exploit the growth opportunities offered by the global automotive market in terms of geographical and product segment coverage. (Refer Exhibit II for Daimler Benz and Chrysler's product ranges)

However, analysts felt that to make the merger a success, several important issues needed to be addressed. The most significant of these was organizational culture. German and American styles of management differed sharply. A cultural clash would be a major hurdle to the realization of the synergies identified before the merger. To minimize this clash of cultures, Schrempp decided to allow both groups to maintain their existing cultures.

The former Chrysler group was given autonomy to manufacture mass-market cars and trucks, while the Germans continued to build luxury Mercedes. However, analysts felt that this strategy wouldn't last long. When Chrysler performed badly in 2000,⁷ its American president, James P Holden, was replaced with Dieter Zetsche from Germany. Analysts felt that Zetsche would impose Daimler's culture on its American counterpart. A few senior Chrysler executives had already left and more German executives were 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. Analysts felt that this statement probably wouldn't help the merger process.

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1] Daimler-Benz was formed with the merger of two German automobile manufacturers: Mannheim based Benz & Co. and the Stuttgart-based Daimler Motor Company (DMC) in 1926.
2] The US based Chrysler was a major automobile manufacturer with headquarters at Auburn Hills.
3] CEO of Daimler-Benz.
4] Chairman and CEO of Chrysler Corporation.
5] After General Motors and Ford Motor Company.
6] After General Motors, Ford, Toyota and Volkswagen.
7] Chrysler reported a third quarter loss of $512 million for the period ending September 30, 2000. Its share value had slipped below $40 from a high of $108. Since the merger, Chrysler's market share fell from 16.2% to 13.5%.