Professional Documents
Culture Documents
5/12/11
Chrysler LLC, founded by Walter Chrysler in 1925, is the sixteenth largest
automobile manufacture in the world ("World motor vehicle," 2009) and also the third
largest American automaker for years. The company manufactures and distributes
Chrysler, Jeep, Dodge, Ram, Mopar, and GEM brand vehicles and parts in over 80
countries. Chrysler competes globally against auto mass producers Toyota Motor
Corporation, General Motor Company, Volkswagen AG, and Ford Motor Company.
On January 20, 2009 the two companies confirmed a merger with Fiat holding an
commitment to fund Chrysler in the future. Under the agreement, Fiat is contributing to
create a global strategic alliance and the sixth largest global automaker. Fiat will provide
advanced technology and platforms to Chrysler to build smaller fuel efficient cars and
also free license to use all of its intellectual property (“Obama administration,” 2009).
According to the U.S. Department of the Treasury, Fiat will have the right to earn up to
performance metrics, including a vehicle produced at a Chrysler factory in the U.S. that
administration,” 2009).
Daimler purchased Chrysler for $36 billion dollars. The combination of both companies
was continuously referred to as a "merger of equals." Daimler and Chrysler were similar
in size, both wanted a stronger market segment in each other’s geographic areas, and both
were in good financial standing within a year of the merger. These companies wanted to
merge in order to lower operational costs, improve market shares of both lines, and
strengthen brand names to stay competitive. Chrysler needed to revitalize some brands
and improve designs. Daimler wanted to improve quality in America and streamline the
use of Daimler parts. The companies made a good decision to merge and improve
business, but some issues surfaced soon after the merger. ("Daimler, Chrysler and," 2008)
DaimlerChrysler had several events occur and specific issues arise before the
separation of the merger. One issue the new company had was attempting to operate with
co-CEOs and co-Chairmen. Trying to run one company with two different leaders who
have different visions, management styles, and are used to different company cultures
does not work. The co-CEOs did not see eye-to-eye at DaimlerChrysler and eventually,
Chrysler's CEO, Bob Eaton, left the company. ("Daimler, Chrysler and," 2008).
Employee wages and benefits were another area of friction for the company. Chrysler's
employees earned significantly more money, "sometimes four times as much," according
to Professor Sydney Finkelstein (Finkelstein, 2002). Differences in pay tore the company
apart even more as German employees found out about it. Time passed and the merger
began to falter, executives from both sides of the company made harsh statements and
accusations about each other. Jürgen Hubbert, a Mercedes-Benz division chief, said,
"My mother drove a Plymouth, and it barely lasted two-and-a-half years.” (Finkelstein,
2002). Other Daimler executives were quoted saying they "would never drive a
Chrysler." (Finkelstein, 2002). The banter by executives was not one sided, Chrysler
vice-chairman, Bob Lutz said, "the Jeep Grand Cherokee earned much higher consumer
satisfaction ratings than the Mercedes M-class.” (Finkelstein, 2002). One of the
synergies the two companies were supposed to benefit from was each other’s dealership
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networks. Daimler did not want Mercedes to be affiliated with a low quality brand, so
the vehicles did not share space at dealerships, especially in Europe. Ultimately
All of the problems Daimler and Chrysler were subjected to were a direct result of
cultural issues. Although millions of dollars were put towards cultural sensitivity
training, such as "Sexual Harassment in the American Workplace" and "German Dining
Etiquette," it was not enough (Finkelstein, 2002). Matthew C. Keegan said Daimler and
(Keegan, 2005). Those were significant cultural attitudes to overcome and were not
When Daimler and Chrysler began their merger, several things should have
happened. The companies should have been open about the merger and disclosed that it
was never designed to be a "merger of equals." Daimler was in fact purchasing Chrysler.
Cultural training was a good step but only basic sensitivities were discussed. The
executives should have studied the assumptions, perceptions, and mapped each culture.
why people make assumptions about others. When people understand their assumptions,
then perceptions of different cultures can be controlled as we interact with them. Daimler
and Chrysler should have become more aware of their cultural stereotypes. That way, the
companies would have been able to move past such differences and improve their
operating profits and market shares. The authors of IMB developed a process to
understand social perceptions: describe, interpret, and evaluate (D-I-E) (Lane, 2009). By
using this process, Daimler and Chrysler would have stayed more objective when trying
to understand the differences between each other’s employees, customers, and corporate
vision. Had Daimler and Chrysler applied the D-I-E process, the company would have
understood that salaries and benefits should have remained confidential, the strengths of
each individual company had a place in the new company, and dealerships would have
Another tool Daimler and Chrysler should have used was Mapping. Mapping
circumstances. Mapping the different cultures would have provided Daimler and
Chrysler with detailed information about different people’s values and what they
expected from the merger. (Lane, 2009). Additionally, executives should have treated
every employee from both companies with more respect. It was unprofessional and
ineffective when executives made harsh statements about each other’s brand.
Management never blended together in the new company. The vision of the
DaimlerChrysler company was never jointly developed. From the beginning, the merger
was on a failing path. Had Daimler and Chrysler recognized that there was going to be a
new company culture as a result of the merger, than DaimlerChrysler might not have
Under the merger with the German luxury car manufacturer Daimler, Chrysler
LLC continued to strengthen its primary focus on low fuel-efficient vehicles such as
SUV’s, pickups, full size/luxury cars that were popular products in their largest North
American market. These vehicles carried high profit margins for Chrysler and about three
out of every four vehicles sold by the Chrysler group was a light truck, which was the
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highest percentage by any automaker (Isidore, 2007). When sales began to drop due to
the energy crisis in 2003-2008, Chrysler continued to report losses in billions of dollars.
private equity bank, for $ 7.4 billion which it paid $36 billion nine years ago (Isidore,
2007). The situation was critical as the credit crunch increased the prices of the raw
materials and decreased the availability of credit for auto consumers. As the consumers
shifted the demand for smaller, fuel efficient cars, Chrysler was unable to respond
quickly as their plants and technology were focused on producing SUVs and trucks and
luxury brands, therefore the Japanese and European automakers increased and established
their market share in North America. When Chrysler reported a 32% sales decrease in
2008, its competitors Honda and Nissan reported sales increases 1.5% and 8.5%
respectively based on the strong demand for their fuel economic cars with powerful
engines. Chrysler knew that they had to increase their capacity of fuel-efficient cars to
increase their market share to response to the shift in the long-run demand curve. They
had to diversify their product portfolio and bring new models to the market to meet the
consumer demand soon enough before it was too late to compete with the Japanese and
European automakers. On the other hand, Ford has secured a $2.6 billion private loan and
is already on the process of manufacturing low fuel efficient cars. GM had the financial
ability to stand alone and continued to improve their technology and produce smaller new
vehicles even after a federal bailout followed by a bankruptcy protection. As the U.S.
President Barack Obama mentioned in 2009, the situation was more challenging for
Chrysler. Simple federal government bailout or even chapter 11 bankruptcy filing was
not the complete solution for Chrysler not only to survive the crisis situation but also to
be able to thrive in the global automotive industry to create comparative advantage to
1899, faced a multiple of threats including rising steel prices, a strong euro and increase
of Japanese and South Korean car sales in Europe. When current CEO, Sergio
Marchionne was appointed to his position in 2004, the world’s 9th largest automaker
("World motor vehicle," 2009) carrying global brands in its portfolio including Alfa
Romeo, Maserati, Ferrari (90% ownership) and Fiat had reported losses during the last
four years. Fiat Group had even considered selling its automotive business to General
Motors in late 2004. Marchionne returned the company to profitability by 2006 through a
revamp of company culture by speeding up introducing new stylish cars to the market.
While turning around Fiat into one of the fastest growing European auto manufactures,
model based on markets and profits. He used Apple as a model, focusing on transforming
his products into a “global icon of cool” and followed Apple’s powerful branding process
and even benchmarked his activities against Apple (Gumbell, 2009). Newly redesigned
Fiat 500, which won the European car of the year award in 2008 (“Car of the,” 2008) also
named as “our iPod” by Marchionne and its success, demonstrated the new direction of
the company.
With its global mindset, Fiat formed joint ventures with China’s Chery Motors
(“Fiat ends JV talks with China’s Chery”, 2010) and Indian Tata motors (“Fiat and tata,”
2007). Under the new leadership, Fiat also re-entered several large markets it had
occupied before such as Mexico and Australia. However, Marchinonne realized that in
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order to survive long term in this business, Fiat needed to increase its market share and
produce more cars. Marchinonne mentioned, “The only way for companies to survive is
if they make more than 5.5 million cars every year” (Castonguay, 2008). Marchinonne
estimated only six mass auto producers could survive the crisis with gas prices continuing
to increase in the future. He also stated, “It cannot continue as it did in the past,
by the intensity of competitive rivalry in that industry.” Both Chrysler and Fiat were
facing high rivalry in the industry with the slow market growth and Japanese automakers
such as Toyota and Honda were continuously increasing their sales and market share in a
global scale. Though the threat of new entrants was almost nonexistence, automakers
were restructuring their ownership models, forming alliances and global partnerships to
become more strategic and cost effective producers against each other. Ford’s sale of
Jaguar and Land Rover to Tata Motors in 2008, Nissan-Renault Merger, and GMs
presence in China are a few examples of other companies’ strategic models. More
bargaining power from customers has shifted the demand for smaller, fuel-efficient cars
instead of trucks and SUVs. The shift in demand by customers was the largest threat for
Chrysler, because they lacked the technology and platforms or even the time and capital
to transform their business model. On the other hand, Fiat had invested in the research
and development of these types of vehicles many years ago, therefore they already had
the early advantage over competitors, such as GM and Ford, bringing smaller fuel
efficient cars to the market in a timely fashion. However, Fiat will be at high risk when
Ford and GM (who had the immediate access to capital and technology) begins to build
smaller fuel efficient cars and innovate technology to build powerful hybrids and electric
cars (as a solution for future fuel prices) with direct access to the highly important North
American market. Fiat knew to grab a market share for their new cars, including the Fiat
500. The company has to offer competitive pricing because of the bargaining power of
customers in the North American market. For Fiat to produce a low cost fuel efficient
vehicle, the vehicles have to be produced in the US. Production in the US will allow for
The two companies merged in 2009 with the support of the US government. Both
companies will benefit with Fiat’s access to the US dealership network because it will
bring Alfa Romeo back to the US market and introduce Fiat 500, increase market share,
achieve economies of scale, and also arm Chrysler with advanced technology and
management services by Fiat. It will also provide Chrysler with access to the key growth
markets such as China, Russia and Latin America. Fiat is currently holding 30% of
Chrysler, after achieving two performance goals, and both companies have reported
steady sales growth since the merger. For example, the Fiat 500 is now selling in over
200 dealerships in US. Fiat expects to increase its Chrysler stake to 51% (5% after
completing the final performance metrics plus additional 16% equity for $12.3 billion
through a call option) at the end of this year, when both companies will further
consolidate for accounting purposes and also for better operational functioning. The
company is in the process of refinancing the remaining $7 billion debt owed to the
Canadian and US governments, in order to acquire a 51% stake before the planned IPO
In conclusion, if Chrysler was able to learn from the mistakes they made during
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the DaimlerChrysler merger, they will be more successful in the future, specifically in
regards to their more recent merger with Fiat. The Fiat merger is more likely to succeed
because it brings a singular, strong leader who has a clear vision for the company. Both
companies are determined to broaden their markets. Additionally, both companies are
advocates for the other’s brand. These two mergers exemplify today’s environment of
global competition. The primary focus for global businesses is market share, mass
production and cost efficiency. Additionally, global alliances will help companies
their risks.
Resources
content/uploads/ranking-2009.pdf
releases/Pages/tg115.aspx
Daimler, Chrysler and the Failed Merger. (2008, March 10). Retrieved from
http://www.casestudyinc.com/daimler-chrysler-and-the-failed-merger
0071.pdf
http://media.daimler.com/dcmedia/0-921-656186-1-908999-1-0-0-0-0-1-11701-
614232-0-1-0-0-0-0-0.html
from http://www.thearticlewriter.com/daimler-chrysler-merger-or-acquisition.htm
Lane, H. W., Maznevski, M. L., DiStefano, J. J., & Dietz, J. (2009). International
Management Behavior Leading with a Global Mindset. West Sussex, UK: Wiley.
http://www.articlesbase.com/automotive-articles/how-daimler-chrysler-merger-
failed-149797.html
Isidore, C. (2007, May 14). Daimler pays to dump chrysler. Retrieved from
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http://money.cnn.com/2007/05/14/news/companies/chrysler_sal
e/index.htm
Gumbell, P. (2009, June 18). Chrysler's sergio marchionne: the turnaround artista.
Retrieved from
http://www.time.com/time/magazine/article/0,9171,1905416,00.html
winners/2008_1/coty
Fiat ends jv talks with china's chery automobile. (2010, July 16). Retrieved from
http://auto.globaltimes.cn/automakers/chery/2011-03/473105.html
Fiat and tata motors to establish joint venture in india. (2007, October 12). Retrieved
from http://www.automotive-business-
review.com/news/fiat_and_tata_motors_to_establish_joint_venture_in_india
Castonguay, G. (2008, December 06). Fiat ceo sees mergers among carmakers. Retrieved
from http://www.reuters.com/article/2008/12/06/autos-mergers-
idUSL618101120081206
Jolly, D. (2011, April 21). Fiat to raise its chrysler stake to 46%. Retrieved from
http://dealbook.nytimes.com/2011/04/21/fiat-to-raise-chrysler-stake-to-46-
percent/