Change Management Analysis of Daimler Chrysler Merger

Daimler - Chrysler Merger Analysis

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1. STAKEHOLDERS IN THE MERGER Stakeholders played an important role in the merger. These were entities that could critically influence any decisions in the merger. The major stakeholders were the two companies, the workers union and the majority Share holders. Table 1. Daimler Chrysler Statistics in 1997, gives information about the two companies. Table 1. Daimler - Chrysler Statistics in 1997 (Schulten Thorsten, 28 May 1998) Revenues, profits and employment of Daimler-Chrysler, 1997 Daimler-Benz AG Chrysler Corporation Daimler-Chrysler AG (pro-forma) Revenues USD 68,917 million USD 61,147 million USD 130,064 million Operating profit USD 2,404 million USD 4,723 million USD 7,127 million Number of employees 300,168 121,000 421,168 1.1 Daimler - Benz AG Daimler Benz or Daimler Mercedes Benz (DMB) was incorporated in 1926 after a merger of Daimler and Benz companies. The new company made the famous Mercedes cars that have dominated the market for premium, luxury and racecars since the past few decades. The company has drastically changed the way in which

world class engineering and top of the line premium and luxury cars through its M and E class series. Grand Cherokee. 2001) 1. 1.(Waller David. anti lock brakes. CC was seeing falling sales and was not in a dominant position in the merger (Waller David. 2001) . 2001). It also introduced the concept of minivans that became highly successful. Chrysler Corporation Chrysler Corporation (CC) was founded in 1925 in America by Walter Chrysler. Over the years. Faced with increasing competition from the Japanese carmakers. safety and in providing a rich riding experience. the company had peaks of high revenues followed by fall in sales and the US Government has bailed it out on a few occasions. buses and SUVs. It also had a stable of well received Jeeps such as Commander. The company also makes racecars. The carmaker has manufacturing facilities in a number of countries and Mercedes cars and sold throughout the world.2. At the time of the merger with Daimler Benz. transmission. Dodge Charger and a few others and these were called as the muscle cars. trucks. In 1965.3. seat belts pre-tensioners and many more. The company has introduced innovations such as safety crumple zones. What Daimler Benz brought into the merger DMB brought into the merger. Compass.cars are made and driven and have brought in a number of technology changes in areas such as the engine. 147 million USD. Patriot and Wrangler and these were in the 15000/ 30000 USD price range. The company has a worldwide dealer and after sales network and has a very strong brand identity as an exclusive and prestigious cars and owning a Mercedes cars is considered as a status symbol. the revenues were 61. Liberty. airbags. Plymouth GTX. CC entered the European market and challenged the market with cars such as Plymouth Road Runner. The company had created a strong reputation with its well-engineered cars that were targeted for the middle class. DMB also brought in its excellent research and development lab that is highly regarded and very well equipped to develop high speed and high performance cars with a high level of safety (Waller David.

5. an excellent and skilled work force and a huge sales network made of many dealers and sales agents. Since the merger was registered as German company. The German workers felt that since this was a deemed German company. Kirk was a billionaire from Beverley hills. 10 workers would be given a place on the supervisory board. What Chrysler brought into the merger CC had a great acceptance with the middle class Americans.1. 2001).000 workers affiliated to the American United Auto Workers. 1. The car was identified with the blue-collar worker. The management was not ready to give a written guarantee and this caused increasing unrest among the German workers. but the strain had already set in (Schulten Thorsten. It had an excellent marketing strategy in place and the cars were categorised to cover different market segments such as Town and Country. Daimler Benz had a workers union of 300. The leaders wanted the management to extend the job guarantee agreement that was valid till 2000. Major Shareholders Kirk Kerkorian (Auto Talk. Since the Germans outnumbered the Americans by three times. very good brand identity. Cruiser. Jeep. to be extended to 2002.6. June 1998) was the single largest private shareholder in Chrysler Corporation. But after the merger. The merger would create the largest group of workers.168. He had bought a . the Americans were not ready to accept this arrangement. as per the German laws.4. president of Daimler-Benz that there would not be any layoffs and job cuts. It brought its expertise in marketing in recession struck economies. mid size. This issue was to be settled amicably by mutual discussions. full size. 1. 28 May 1998).168 who were affiliated to IG Metall while Chrysler had 121. a total of 421. sports and SUV. the management announced that five members would be from Chrysler. The German workers union leaders were not taken in by the assurances given by Jürgen E Schrempp. the members had to be elected from the workers union and the elected members could in turn sit on the board. Workers Union The merger was not only a merger of two companies but also of the workers unions. Convertible. middle class segment and people who required value for money and with people who shopped on a tight budget (Waller David.

By placing importance on shared values. if employees would follow a predetermined set of corporate values then they could be allowed to bring in innovation. It is reported that it was this hostile takeover bid that made Chrysler think of a merger with Daimler. This would mean that shared values would help to encourage employees to perform better than ever. In 1995 he attempted a hostile takeover of the company but had to abort it due to governments intervention. Organizations have a number of interdependent subsystems and these need to be aligned to each other. 5 April 2007). He argues that when dealing with cross cultural changes. 2. societal and cultural forces have to be addressed effectively. Taylor (Taylor. But this approach has its own disadvantages. the employees may feel that they are being manipulated and this can create distrust and cynicism. Johnson (Johnson et all. These things need to be followed and reflected in the behaviour of managers. The subsystems cannot work in isolation and any change that is brought should be . On April 2007. 2004) have argued that in the early 1980s. These forces can severely effect organizations and restrict their functioning. His case was turned down since the company was registered in Germany and German rules do not allow for stock options. 2000) has written about the manner in which companies need to communicate effectively. So slogans such as people are our greatest assets become meaningless when job cuts are looming ahead and the whole exercise is derailed. He sued the Daimler Chrysler in 2000 claiming that he had lost billion of dollars due to the merger. he has again made a bid of 4. Johnson has also written about Change Levers and the issues that change agents face in organizations.5 billion USD for Chrysler (Kerkorian. Another important fact that Johnson has pointed out is regarding slogans and the vision statement.10% stake in 1990 in Chrysler and this grew to more than 15%. There are a number of levers and interventions that need to be used. LITERATURE REVIEW Many researchers and scholars have written about the care to be taken for organisational changes and change management policies that occur when international companies merge. He then offered to sell a part of his shares in exchange for a place on the Board of Directors.

The market cap was supposed to be more than 130 billion USD. If any job cuts are planned. Johnson speaks of the cultural web of an organisation that centres around an explicit paradigm. The management needs to be honest about certain things that they are not sure of. All these form a part of the social fabric and any change management policies must ensure that these elements are included. market caps and others.effected at the organization level. The merger was also supposed to produce huge savings in the form of reduced development cost. workers and staff status. In the fourth and the final stage. the change management policies from the merger are implemented. Organisation Structures. Daimler on the other hand had a sound business model and had enjoyed stable growth. the merger is announced and in the second phase covers the time frame between the initial announcement of the merger and the final approval. In the first phase. 15 May 1998). In the third phase. There are various factors such as Stories. the merger is signed and the merger needs to stay away and ahead of the rumourmongers. Power Structures. Symbols. then it is best if this is mentioned as a possibility. A lot of questions need to be answered about finance. 3. Both these companies were expected to use their knowledge in a proactive and cooperative way to increase their business. If this does not happen then other units in an organisation will start a counter effect. US Suppliers to Chrysler were looking forward to sales in the . Control Systems and Routines and Rituals. Daimler had a very good presence in the premium and luxury car market while Chrysler had a good hold in the middle level car market segment. The management needs to make regular announcements about any plant closures or job losses. sharing of resources and reduction in procurement and outsourcing costs. (Surowiecki James. While Chrysler had managed to salvage it operation from bankruptcy on more than a few occasions. 1999) suggests that there are four phases in a merger. WHAT THE MERGER WAS SUPPOSED TO DO The merger between Daimler Chrysler was supposed to create a vast automobile manufacturing company that would create a virtual monopoly in all market segments. Bloomgarden (Bloomgarden. it was financially vulnerable.

WHAT WENT WRONG A number of reasons have been attributed to the failed merger and these cantered around certain cultural perceptions. the Germans outnumbered the Americans by two to one. Finland and Ireland" (WSWS. The Americans were expecting a sober German. work methods. had a different background. Denmark. Daimler has paid 37 billion USD in a stock swap exchange and it wanted good value for its money. The Germans on the other hand had imagined a 'Cowboy' image of the Americans and were expecting a gung ho team. It is reported that in one of the first meetings held on 11 December 1998 in Spain called the 'Top Management Meeting'. Clash of Cultures Though Schrempp had announced that this was a merger of equals. Portugal. everybody joined in the fun and it was Schrempp who sang the loudest and probably drank the most. but well ahead of six other members of the European Union-Greece. it would rank 37th in the world in terms of Gross Domestic Product. But the reality was very different as the German leader. Jürgen Schrempp. hard working but brilliant who had a low profile and kept to themselves. South America and Canada. technology and other issues. Norway. This incident created a new paradigm shift in the relations and it was understood that the Germans with their money and superior cars would be in a dominant position. but they were facing someone who seemed to be more fun than their serious CEO. this was actually not the case. 4. just behind Austria. When the time came for drinks. . the Americans had the impression that the Germans were simpletons. The market was supposed to include OEM sales as well as the spare parts market. talking from the podium and shouting around. They looked down at the Americans as rather poor cousins who made small and inexpensive cars for the middle class (Vlasic et all.European market while the German suppliers looked for similar opportunities in US. 8 May 1998). When the merger was to be signed. 5 June 2000). As the editorial board of WSES put it "If Daimler Chrysler were a country. It was clear that Schrempp was in charge as he rushed about. Eaton and it was clear who was in charge.1. These are discussed in this section 4.

Disparities in Wages There were wide disparities in wages between the US and the German workers. which had initially applauded the merger. This issue continued to cause severe strain in the interactions between the US and German employees. Different Business Models There was an apparent clash of business models and ethics for the stakeholders. 17 May 1999). Eaton.2. According to Orr (Orr Deborah. low volume-manufacturing model. The Germans catered to the high and premium market segment and consequently followed the high cost. This created a very bad publicity and may have hastened the failure of the merger. The US workers would not agree to any pay cuts while the increasing the wages all around for a 440. 4. high volume-manufacturing model that relied on mass production techniques. June 2002).4. the head of Chrysler was getting about 11. The value proposition it offered to its customers was brand identity and exclusiveness. An excerpt from the book by Vlasic says . The big question that was being asked was if the US workers would have to take a pay cut or would the Germans be given a massive pay hike. but incidentally before the issue became very serious.Adverse Media Reporting The media. 4. The company had filed a declaration with the Securities and Exchange Commission and had declared that only 17 managers and board members were paid a total sum of 40.4 million USD. Chrysler on the other hand had to skim off each cent it could save and provide low cost models to a price sensitive and fuel economy minded customers.000 workforce would mean certain financial ruin. It had adopted a low cost. Schrempp was being paid about 2 million USD.3. It was felt the US workers were being a larger amount when compared to the amount the Germans were getting much lesser.4. started damming the merger and everyone from lay journalists to authors had a field day in bashing the merger.7 million USD while his counter part. Certain changes were made and bonus paid to the Daimler staff and the options given to the Chrysler staff disappeared when the merger came into effect. Mixing and integrating these two models unfortunately did not pay off and was not handled well (Sandoz. the merger itself was doomed.

smart baby seats. cost of the car would go up and finds lesser takers. 5 June 2000) Such writings were published day in and day out and caused much anger and distrust among the Americans who believed that they had been 'conned' and 'taken for a ride' by the wily Germans 4. Chrysler had always used the front wheel drive transmission that got power from the New Venture gearbox that had been developed along with General motors. seat belt pre-tensioners. then a very competitive model could have been developed for Chrysler in the 4 cylinders to 12 cylinder automobiles. Chrysler had used aluminium and impact resistance composite materials in the body panel construction.5. And Thomas T. bio diesel. Eaton. Daimler was firmly in control of Chrysler. Germans had advance in the field of 4 stroke direct injection diesel engines. If the Mercedes engine could be adapted to the Chrysler vehicles and vice versa. hydrogen based fuel . Stallkamp.Technology Issues Chrysler had certain technologies that could have helped the German company. When the dust settled. and the shock waves were reverberating on both sides of the Atlantic. This was supposed to help the Daimler cars. which were always rear drive vehicles. His co-chairman from Chrysler. While Chrysler always led in the 2 stroke petrol engine that has been termed as more powerful but 'gas guzzling'. Both the companies had developed prototypes of hybrid vehicles that could run on alternative fuels such as electricity. This could have been used by Daimler to improve the fuel economy of their cars since the German company had always used gage steel sheets for the body panel work. Daimler cars were renowned for certain safety measures that were built into the cars and these included features such as anti lock braking systems. Robert J. Chrysler did not implement these systems in their cars since they felt there was no need for these innovations." (Vlasic et all. and a German giant would grow in power and influence. An American icon would lose its independence. got caught in between. took a back seat. Daimler chief Jurgen E. fuel cells."But the union didn't turn out to be a merger made in heaven. safety air bags and others. ultrasonic obstacle detectors. Chrysler's president. Mercedes on the other hand had the famous 5 speed automatic transmission that are standard features in its cars while this technology was not used at all by Chrysler. Schrempp grabbed the wheel of DaimlerChrysler.

17 USD from the 3. This has created a lot if unrest in the workforce and the labour unions (Hawranek Dietmar.8. This was deemed necessary since sales were down and there was excess capacity. June 1998).28 billion USD up from 8. Standard & Poor's. The earning per share of the company have also gone up to 4. there was an urgent need to control costs. the market demand for these cars fell in the early 2000's. 14 February 2007). While there was a demand for fuel efficient.6. 4.7 USD of 2005 (Isidore Chris. The credit rating company. 4. In 2006. Daimler on the other hand has shown steady growth and increased sales. 4 April 2004). Daimler showed an operating income of 7.000 jobs and close a number of plants and factories. With steeply falling sales. The benefits in engineering knowledge remained isolated in their respective companies (Herman Don. Unfortunately deep distrust and 'we are better' attitude acted as sound barriers for knowledge sharing. This leaves a very small operating margin.cells and so on. Chrysler lost about 1. Consequently. Market Segments Issues Chrysler had an upper hand in the gas-guzzling card such as the SUVs and the minivan. The management decided to cut about 13. There have been increasing demands from major shareholders such as the Deutsche Bank to sell off the ailing unit (Heading For Divorce. so closing down idle plants was the immediate solution to control costs. But common projects were never taken up to develop these vehicles. Cost Cutting Measures With reducing sales and increasing overheads.5 billion USD in 2006. Daimler has announced that it wants to sell of the company and is reportedly seeking buyers (Hawranek Dietmar. 19 February 2007).7.84 billon USD in 2005. Chrysler did not have any good car model to meet this demand. 19 February 2007). have brought down the rating of the company from BBB+ to BBB . 4. Where the merger stands now Daimler had reportedly spent 36billion USD to acquire Chrysler. Chrysler is worth only about 14 billion dollars and it has a pension and health liability of 12 billion USD. compact cars. While these vehicles were popular in the early 1990s.

This downgrade is a strong blow as it would make credit companies and banks think twice before involving themselves on this company or backing any investor who would be interested in it (Harnischfeger et all. There was a cultural mismatch. Mutual distrust.and have given it a negative outlook since they have strong doubts about any possible recovery by the company. bad market conditions. increased competition. non-competitive car models and between themselves they stood a chance to cut a wide swathe in the full spectrum of the car market. . 22 October 2003). poor support from the management and political issues that played a negative role in bringing down the merger. indifferent management and many other factors caused the merger to fail. Both companies had some intrinsic strength and good. CONCLUSION The Daimler Chrysler Merger is an example of how technologically advanced and financial strong market leaders manage to bring down a merger that should have worked wonders and turned the merged entity into a global giant. 5. hostile labour. The paper should serve as a learning document for any future mergers and acquisitions that companies may undertake.

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