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How Daimler, hrysler !erger "ailed

#y: $aure% &oods 'utomotive records reflect that most of the failures i% the i%dustry i%volved i%dividual vehicles. #ut at prese%t, a failure of more i%te%se mag%itude (ecause it is o%e defi%ed (y a compa%y %ot )ust car, has shoc*ed the i%dustry. +he %ews came li*e a (om( especially for the wor*ers of the aili%g 'merica% automa*er. ,ve% the -tille% cold air i%ta*e could %ot circumve%t the heat of the matter. +he %i%e year merge%ce of the auto gia%ts has come to a halt through the er(erus apital !a%ageme%t.s ac/uisitio% of a% 00.1 perce%t sta*e i% hrysler. +he 2ew 3or*4(ased private e/uity firm promised !o%day to restore hrysler 5to the first ra%*s of the 6.-. a%d glo(al auto i%dustry.5 Daimler will *eep 17.7 perce%t sta*e a%d fi%d sy%ergies that still have %ot occurred. 5&e o(viously overestimated the pote%tial of sy%ergies,5 Dieter 8etsche, the chief e9ecutive of Daimler hrysler, said at a %ews co%fere%ce !o%day at the compa%y.s head/uarters i% -tuttgart, :erma%y. 5; do%.t *%ow if a%y amou%t of due dilige%ce could have give% us a (etter estimatio% i% that regard.5 +he ac/uisitio% of hrysler mar*s the first time o%e of the Detroit #ig +hree automa*ers will (e i% the ha%ds of a private e/uity firm. 's such, the circumsta%ce has draw% a %um(er of i%terpretatio% a%d a%alysis. +here are those who say the merger, which faced sig%ifica%t cultural differe%ces, was doomed from the start. 53ou had two compa%ies from differe%t cou%tries with differe%t la%guages a%d differe%t styles come together yet there were %o sy%ergies. ;t was simply a% e9ercise i% empire4(uildi%g (y <uerge% -chrempp,5 said Dave Healy, a% a%alyst with #ur%ham -ecurities, referri%g to the the%4Daimler4#e%= chairma% a%d why the merger failed. 5#asically Daimler has %ow paid er(erus to ta*e hrysler off its ha%ds,5 Healy added. >rigi%ally, the pla% was for hrysler to use Daimler parts, compo%e%ts a%d eve% vehicle architecture to sharply reduce the cost to produce future vehicles. #ut pro(lems surfaced whe% Daimler.s !ercedes4 #e%= lu9ury divisio%, whose compo%e%ts hrysler would use, was averse to co%tri(ute to hrysler. ,ve%tually, all hrysler got were some steeri%g a%d suspe%sio% compo%e%ts, a tra%smissio% a%d a diesel e%gi%e a%d few pac*ages. ;% retur%, Daimler had hoped that hrysler would radically raise its sta%di%g i% the 2orth 'merica% auto mar*et. #ut due to tough competitio% from 'sia% automa*ers, hrysler fell short. #illed as a 5merger of e/uals,5 the ?3@ (illio% deal tur%ed out to (e a%ythi%g (ut, a%alysts said. -hortly, co%trol of the com(i%ed compa%y fell to Daimler hairma% -chrempp.

5,ato% pa%ic*ed,5 $ee ;acocca, said. 5&e were ma*i%g ?1 (illio% a /uarter a%d had ?1A (illio% i% cash, a%d while he said it was a merger of e/uals, he sold hrysler to Daimler4#e%=, whe% we should have (ought them.5 '%d Daimler was a% all4too4willi%g, if u%i%formed, part%er, a%alysts said. +he compa%y u%derrated the competitive forces that would i%vade the 2orth 'merica% car mar*et a%d ta*e mar*et share from the domestic carma*ers. 5Due dilige%ceB Daimler4#e%= %ever did due dilige%ce (efore it (ought hrysler, %ever loo*ed i%to the future to see whether hrysler could afford to (e competitive with the others i% the i%dustry,5 stressed :eorge Ceterso%, the preside%t of :lo(al ;%sight. hrysler sales slipped, prompti%g the :erma% automa*er to dispatch 8etsche to Detroit i% A000 to tur% hrysler arou%d. Havi%g retur%ed hrysler to profita(ility (y the time he we%t (ac* to head Daimler i% A00@, 8etsche said last !o%day that the sale 5was a difficult tas* perso%ally.5 &ith 8etsche at the helm, hrysler reported a ?1.0 (illio% gai% i% A005. #ut li*e other Detroit automa*ers, the compa%y misread the mar*et. &ith a heavy relia%ce o% truc*s a%d -6Ds, s*yroc*eti%g fuel prices /uic*ly dampe%ed sales a%d hrysler.s profit melted i%to a ?1.E7 (illio% loss last year, culmi%ati%g i% !o%day.s a%%ou%ceme%t. 5&he% 8etsche left hrysler to (ecome chairma% of Daimler hrysler, it should%.t have (ee% %ews to him that hrysler was headed for trou(le,5 Ceterso% said. 5-elli%g hrysler :roup %ow ta*es him off the hoo*.5 !ost of er(erus. i%vestme%t will %ot go to Daimler (ut will (e used to (olster hrysler.s operatio%s. <ust over ?1 (illio% has (ee% allocated for its fi%a%cial4services activities. 5>ur approach is fu%dame%tally lo%g term. &e do%.t thi%* a(out the %e9t /uarter. >ur capital is patie%ce,5 said er(erus chairma% <oh% -%ow. 5&e ta*e a lo%ger view. &e.re prepared to ma*e i%vestme%ts that support ma%ageme%t pla%s.5 #ut a%alysts said that the pressure will (e o% the 'u(ur% Hills, !ich.4(ased automa*er to perform. 5 er(erus. history is to ma*e a A0 perce%t retur% o% its i%vestme%ts a%%ually. +hey wo%.t treat hrysler li*e a certificate of deposit,5 said Dave ole, the chairma% for the e%ter for 'utomotive Fesearch. '%d that may mea% spi%%i%g off some of hrysler.s operatio%s. 5+hey could (rea* hrysler up a%d spi% off some parts, li*e its <eep operatio%s or its mi%i4va% operatio%s. ;.m %ot sayi%g they would, (ut they could,5 said Ceterso%. 8etsche %oted that er(erus is %ot committed to a%y cha%ges i% head cou%t other tha% the 13,000 wor*ers the automa*er already said it %eeds to shed i% three years. 5He says %o head cou%ts, (ut that.s today. +hey still %eed to get ?A0 a% hour out of the wages a%d (e%efits of their wor*ers to (e competitive,5 Healy said. er(erus. co%trol over hrysler is e9pected to (e completed i% the third /uarter. '%alysts said that the situatio% could possi(ly ope% the door for the retur% of &olfga%g #er%hard at hrysler. +hough er(erus said it will retai% +om $a-orda as ,>, the private4e/uity firm hired #er%hard, who left the )o(

of chief fi%a%cial officer at hrysler i% A00E, as a co%sulta%t o% the deal. #er%hard was most rece%tly head of Dol*swage% ':.