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DaimlerChrysler Merger

:
The Quest to Create “One Company”
Tom Stallkamp, Chrysler president and executive in charge of accelerating integration of
the recently merged Daimler and Chrysler companies, was feeling great frustration.
Why couldn’t he move the integration process along more rapidly? He could see clearly
the amazing potential for payoffs, but it just wasn’t happening. He wasn’t used to being
unable to move the organization, and he hated the feeling of being able to visualize great
things without being able to mobilize people to action. What else could he do? Maybe it
was time to let the two cultures duke it out, and allow the stronger one to win. That would
be one kind of integration, though not quite what he had been working for.
Background
At 4:00pm on November 12, 1998 as the final bell rang on the New York Stock
Exchange, U.S. automaker Chrysler Corporation and German automaker Daimler-Benz
ceased to exist. They emerged the next day as a new global conglomerate named
DaimlerChrysler AG.
With combined revenues of $130 billion and a market capitalization of $92
billion, DaimlerChrysler became the fifth largest automaker in the world in number of
vehicles sold and third largest in sales. The $40 billion stock deal was the largest ever in
the industrial world. Upon completion of the transaction Daimler stockholders owned
57 percent of the new DaimlerChrysler and Chrysler stockholders the remaining 43
percent. After ten months of discussions and negotiations between the two companies, the
merger was billed as a marriage of equals. It signaled new levels of consolidation within
the automotive industry and was heralded as the beginning of a new era where only truly
global players would survive. At the May 7, 1998 London press conference officially
announcing the merger, Daimler-Benz Chairman Jürgen Schrempp declared,“This is
much more than a merger. Today we are creating the world’s leading automotive
company for the 21st Century – DaimlerChrysler AG. We are combining to merge the
two most innovative car companies in the world. We are committed to making
DaimlerChrysler the most innovative competitor this industry has ever seen, one that will

As a result of being among the first. Ford Chairman Alex Trotman acknowledged the . The company was financially healthy but industry overcapacity and huge prospective investment outlays created a risky environment for global expansion on their own. “Just give me a chance. We are doing this merger because we share a common passion for making great cars and trucks…. “If you think I’m naïve. we had the ability to choose our favorite partners. I don’t want to create the impression that he was surprised.” I think he phoned me in a week or so. we will have the pre-eminent strategic position in the global marketplace.S.by combining and utilizing each other’s strengths. for the benefit of our customers.. I said. like Toyota.” He smiled and said. He recalled the first meeting with Eaton. In 1998 Ford pitched a merger plan of its own to Daimler-Benz. unaware of the already ongoing talks between the German automaker and Chrysler. and thereby improve return and value to our shareholders. this is nonsense I’m talking just tell me. Eaton had gone so far as to poll investment bankers on their ideas and spoke with executives from BMW on this topic. Only a small number of automakers.” Chrysler CEO Bob Eaton added. auto manufacturer nor was it the first time Chrysler had thought of combining with another major automobile company. Volkswagen. “I just presented the case and I was out again.set the pace in the automotive world in the next Millennium. Ford and GM had the capability to go global without major acquisitions. We have done some evaluation as well and I will phone you in the next two weeks. This was not the first discussion Daimler-Benz had with a U. In 1997 Chrysler and Daimler-Benz had studied the possibility of a joint venture to merge international operations but the deal never came to fruition. When the meeting was over.” Schrempp was convinced the two auto companies could form a powerful partnership. “We are leading a new trend that we believe will change the future and the face of this industry. We will be able to exploit new markets. Chrysler had studied various combinations and recognized the need for global presence. The meeting lasted about 17minutes.

1998 just days before Schrempp visited Eaton to plant the seeds for the historic merger. quality and brands. however. “I do think that managing the cultural issues will indeed be the toughest part of making this marriage work. Stallkamp had become Chrysler president effective January 1. Before DaimlerChrysler could hope to unseat GM or Ford. Despite the powerful . they considered it essential that their respective companies play a leading role in the process of expected industry consolidation and in choosing a partner with optimal strategic fit. Schrempp and Eaton believed the potential benefits from joint product design. It was the family’s unwillingness to give up control that apparently ended the discussions.talks but then suggested the talks had not become very serious. since the companies had virtually no product overlap there was little threat to immediate rationalization of product offerings. a key reason why merger talks between Ford and Fiat a few years prior also collapsed. as always. It required a blending of corporate and national cultures and operations. Furthermore. efficient manufacturing. And the challenge. The integration of the two companies was no small challenge. will be getting the cultures to really meld below the level of senior-most management. other economies of scale and brand expansion and diversification would position the combined entity as a powerful global player. development of new technology to meet emissions and fuel economy requirements. both the timing of the proposed business combination and the selection of the parties were considered highly appropriate in order to secure and strengthen their respective market positions. supplier relationships. In discussing the possibility of a business combination between Daimler-Benz and Chrysler. cost savings. Former Chrysler President Robert Lutz commented.” The task of integrating the two car companies fell to Chrysler President Tom Stallkamp. keeping the best of both former companies in the areas of innovation. which controlled 40 percent of the automaker’s voting stock. it had to create a single company. combined purchasing. But the Ford Chairman reportedly briefed both his board of directors and the Ford family. In this respect.

Autolatina.company the merger created on paper.” If they really want to integrate they need to figure out how their two different systems can [blend]. editor of Car and Driver magazine observed. “The greatest challenge of any major merger is the culture. incorporated in different countries. industry experts and Wall Street created an environment of speculation. “The way you can make the merger work is to get people excited about finding something new. the victim of continued arguments over product plans between executives of the two automakers. It’s . and Volvo AB also fell apart in 1995 due to extreme resistance and cultural friction within each company. The attention the merger garnered from the media. Power asserted. Stallkamp knew the track record for such large mergers. A global report by KPMG at the time indicated 83 percent of mergers were unsuccessful in producing any business benefit with regard to shareholder value.-Volkswagen AG venture in Brazil and Argentina collapsed in 1995. was not good. and with different business cultures and compensation structures created challenges that were quite different from absorbing a smaller acquired company into an existing structure. The world auto industry had already experienced culture clashes that ended various mergers and joint ventures. rather than going back to defending their own turf. particularly cross border ones. a weekly industry news show hosted a special one-hour panel discussion on the merger. the Ford Motor Co.A.D. Merging two large successful companies. A proposed merger of Renault S. chief economist at J.” Stallkamp thought that. with geographically dispersed operations. Everyone had an opinion about the merger and its chances for success. Autoline Detroit. Each side has something/have a very proud history and each side thinks they know unique knowledge about how to do things. Daimler-Benz had conducted its own study of previous mergers and found that 70 percent had failed. It probably will or should be the number one topic on their agenda for the next 35 years. Csaba Csere.” Paul Ballew.

Daimler-Benz was stronger in Europe. the combined company had greater financial strength with which to enter new markets. The combination with Chrysler helped reduce the risk associated with DaimlerBenz’s dependence on the premium segment of the automobile market by introducing brand diversity. Mercedes-Benz’s cost structure was considered too high to make a reasonable return on cars below $20. but all eyes were on DaimlerChrysler. Exhibit 2 summarizes the potential advantages of the merger to both. in North America. Daimler-Benz’s reputation for engineering complemented Chrysler’s reputation for creative styling and product development. Daimler-Benz had a global distribution network. Chrysler’s freewheeling methods of vehicle development would kick-start the more bureaucratic Mercedes-Benz. compared to Chrysler’s 3 percent. We have to take away the fear of the unknown by making it fun and exciting. As an engineering company Daimler-Benz had high development costs.human nature to fall back on what’s familiar. Daimler-Benz typically spent 5 percent on R&D. Of particular importance was the need to improve Daimler’s development time and reduce development costs and the need to improve Chrysler’s quality and engineering. Daimler-Benz’s financial clout and technical prowess would bolster Chrysler in the auto wars. Chrysler’s experience in dealing with US investors would help Daimler-Benz become a pacesetter in bringing modern concepts of corporate governance and shareholder value to the German economy.” Both companies had a history of strong turnarounds and recent market success (see Exhibit 1 for company histories). Chrysler. Mercedes R&D cost was over $2000 per vehicle compared to Chrysler’s $590 and it could take as long as 60 days to build a vehicle in Germany (see Exhibit 3 for key performance comparison for the 1997 calendar year). . as the price of failure for the largest industrial merger in history would be immense. Potential Benefits of the Merger For Chrysler and Daimler-Benz there were high hopes about a number of gains to be achieved through their merger.000. Moreover.

however. Sales and marketing will be among the first. like global purchasing. “Some things will be integrated right away. Chrysler and Daimler-Benz had very different ways of operating. though the brands will remain separate. DaimlerChrysler could leverage its unit volume to achieve additional savings and streamline its systems. The Two Companies before the Merger Recent Change and Structure at Chrysler . never the same vehicles. the sharing of design expertise from Chrysler would keep DaimlerChrysler at the forefront of innovation. You won’t sell Chrysler products at Mercedes dealerships or Mercedes products through Chrysler. But our technical people have come in and said let’s find new ways of doing things.” Exhibit 4 indicates the areas where synergies were expected.4 billion in 1999 and more than $3 billion by 2001. On the operational side he saw numerous opportunities for significant savings. We need more common product. like sideimpact protection devices. was a formidable challenge. Commenting on the areas for integration and savings Stallkamp explained. The next area is engineering. This was the area I was most concerned about. A more strategically focused R&D process would help drive technology transition. The last area will be manufacturing. He envisioned separate marketing and sales to ensure brand integrity. and that’s driven by product. Bringing this vision to reality. Getting both sides to see the benefit of operating in a new way was critical to the success of integration. We’ll never share the same platforms (between Chrysler and Mercedes). The integration will occur behind the scenes. a single manufacturing organization with separate plants would provide for the transfer of key manufacturing process technologies and systems. This could save enormous amounts of money. Stallkamp knew they had to deliver on the promised synergies but the big savings would come from the combination of back office functions and the streamlining of systems and processes.In addition the two companies had promised to deliver synergies totaling $1. Achieving these synergies required a focused effort to quickly integrate the necessary functions. but maybe common components.

assigning all functional employees to one of five teams. objectives. large car. a mild mannered and even. Many of the traditional vice presidents were replaced with people who not only had functional expertise but who were able to work together. head of design.Reengineering expert Michael Hammer called Chrysler.tempered man who believed in the power of teams. In order for Tom Stallkamp. providing periodic progress reports to senior management. Eaton and former Chrysler President Bob Lutz. had formed a balanced partnership in running the company. Corporate staff was all but eliminated. When Tom Stallkamp replaced Lutz as Chrysler president. it was believed his self-effacing manner and ability to generate consensus would enable Chrysler to continue on its successful path.” Chrysler garnered this praise following company-wide restructuring. “overwhelmingly the most innovative auto company in the world. Chrysler’s management had bulldozed its traditional functional organizational structure. Each vice president under the new structure had two jobs. It created platform teams for the whole organization. Likewise for Gale to receive quality parts from procurement and supply he needed to provide good designs for the platforms. CEO Bob Eaton was considered to be one of the more modest chief executives in the world. The executive vice presidents were co-located on one floor and were forced to work through issues together.the specific goals. creating mutual dependence among them. a dynamic and outspoken man. he needed to provide supply chain support to Gale. constraints. With the introduction of the platform teams. truck or Jeep (see Exhibit 5 for platform team structure). Beginning in 1991.” Teams were empowered to find the best way to deliver the results. to obtain good designs for his minivans from Tom Gale. and resources . minivan. small car. Chrysler soon .but the team would determine the “how. management focused on determining the “what” . Chrysler established a matrix management structure for these senior managers. This teamwork ethic applied to the highest levels within Chrysler. then vice president of Procurement and Supply and general manager of Minivan Operations.

the passion for designing. and to move quickly to capitalize on it. and doing it faster than our competitors. cost leadership and flashy design.” Chrysler’s management wanted to ensure that speed and adaptability to change remained part of the company’s culture. The speed energizes the people within Chrysler. Nor would we want to. “We’re trying to build a culture that is focused on continuous improvement. We’re lean. developing and building the world’s greatest cars and trucks. Chrysler’s Vice President for Marketing “Bud” Liebler stated. Stallkamp commented. improving the company and the way we operate the business. speedy product development. “One of our greatest challenges is to prevent our people from thinking everything is OK because Chrysler is no longer on the ropes. setting tougher objectives and never being satisfied with where we’re at. Chrysler’s brushes with bankruptcy in 1979 and 1990 along with its radical restructuring had forged a culture dedicated to teamwork. Former Chrysler President Bob Lutz commented. “Perhaps the most important attribute of any company today is to anticipate change.began to reap the benefits of its platform team concept and new structure. lean operations. It’s about converting ideas into profits. Everyone is truly passionate about what we’re trying to do.” Recent Change and Structure at Daimler-Benz . What we’re trying to do is run the company as a team like we’ve been doing. we believe it’s about passion . Above all.” Upon taking the position as Chrysler president. Eaton commented.” With respect to the use of platform teams. It’s all about speed and flexibility. It’s about speed to market. We’re very flexible. The speed in improving quality.” Eaton summed up his thoughts. “At this point there is no way we’d be able to even think of managing without them. “At Chrysler we’re all different personalities. Chrysler became one of the most profitable automakers in the world. etc. Timing is very important to us.

to improve financial transparency. Daimler-Benz began reporting results externally based on US GAAP. Many of its 35 business units were making little or no profit. to keep friction to a minimum.When Schrempp took over as chairman in May 1995. the head of Mercedes-Benz and the man credited with its success. was a vocal opponent of the move. the environment and society. business units were required to earn a 12% return on capital employed in order to remain part of the company’s portfolio. Helmut Werner.” The Board also undertook an aggressive cost cutting program. The Board was determined to see the process through and to keep the momentum going. Its traditional slow bureaucratic structure and amalgamation of disparate businesses created an unwieldy organization focused on its past successes. In 1995. One trade union representative expressed the opinion that “the obsession with increasing shareholder value rides roughshod over the interests of employees. as few interfaces as possible. something unprecedented in Germany. In addition Schrempp and his new Board began preaching the necessity for a strategy focused on “shareholder value. Significant levels of streamlining and restructuring were needed. They attached great importance at the outset to organizing the change process so that there was a clear division of responsibilities with predefined tasks and priorities and. Mercedes-Benz was merged with the Daimler-Benz group. The issues surrounding quarterly reporting and focusing on stock price triggered lively debate. A restructuring of the . He resigned soon after the decision was made. Profitability became a key measure for the company– once restructured. As part of the restructuring of the auto business.” This approach had not yet been expressly formulated or followed in Germany. Schrempp created a new Board of Management with many new members who would undertake the fundamental changes to the inherited structure. The Board quickly carried out a streamlining of Daimler’s business portfolio trimming it to 23 strategic business units (see Exhibit 6 for Daimler-Benz structure). which included layoffs of thousands of workers. The goal was to achieve a strong market position in first or second place in the world market in each business. Daimler was in serious financial trouble.

” The significant changes at Daimler-Benz left many managers dazed by its rapid pace. Although significant reductions were made Daimler-Benz still maintained a strong centralized corporate staff. Schrempp. At a January 1997 announcement of the new group structure Schrempp announced. By 1997 the restructure had borne its first fruit.” By the end of 1997 the new structure was fully in place.headquarters group was initiated to reduce the bureaucracy and improve planning and decision-making.” The new structure gave business unit managers more autonomy in running their businesses and increased accountability for profits.” partly due to the speed with which he demanded change and partly because of his direct and sometimes severe nature. that Daimler Benz has still only completed the first stage in its effort to reach world best practice. Schrempp reported.” . But we still need a culture shock.3 billion. “The new structure will make us fit for the next century. We must also point out however. “Our strategy of orienting the group around units that are profitable and offer good prospects for future growth has now borne its first fruit. earned a reputation as a “Rambo. Many of the people working for the century-old company were unable to keep pace or keep track of the changes going on around them. “We had once again lashed the new organization down at a time when many in the company thought that we were still in the change state. Schrempp responded. “If Rambo is someone who acts quickly and decisively. For financial year 1997 DaimlerBenz reported an operating profit of DM 4. This meant that we had already moved on to refreezing at a time when many thought that we were still in the unfreezing and moving stage. the image is an appropriate one. a driven and charismatic individual. Each business unit maintained its own staff. a 79 percent increase over 1996.

quality. Jürgen Schrempp and Bob Eaton were to be co-chairmen and co-chief executive officers for a period of approximately three years. then chairman of the Supervisory Board of DaimlerBenz. Based on the German Co-Determination Law the Supervisory Board was comprised of ten shareholders’ representatives and ten employees’ representatives. causing considerable consternation at Chrysler. daring and basic changes as Daimler-Benz. eight from Chrysler and two responsible for the Aerospace and Services divisions. Dieter Zetsche. (Eaton and Stallkamp). Five members from the Supervisory Board of Daimler-Benz and five members of the Chrysler Board of Directors comprised the new Supervisory Board. The Board of Management consisted of 18 members. Eaton announced at the outset of the merger that he would retire within three years. engineering. Reflecting on the significant changes made at Daimler-Benz. and business unit autonomy. head of sales and marketing. conservative company of managers wearing dark suits and moving ahead very slowly. In order to assist the integration of the two companies. was named chairman of the Supervisory Board of DaimlerChrysler for at least two years. concluded. where he was seen as having made himself a lame duck with considerable loss of power. DaimlerChrysler President Tom Stallkamp was put in charge of the integration effort (see Exhibit 7 for profiles of Schrempp. Hilmar Kopper. Chrysler also had employment continuation agreements in place with each of its executive officers to cover a period of two years following the merger. profitability.” Initial Structure of Management and Integration Process As a public limited company DaimlerChrysler like Daimler-Benz was required under German law to have a Board of Management and a Supervisory Board. “In many people’s minds Daimler-Benz is this traditional. .Daimler-Benz had forged a culture focused on (brand) image. I have to say that there are very few companies in the automotive industry that have made as many rapid. eight from Daimler-Benz.

The Board of Management formed a committee. It was anticipated that the Council would be in place for two years. Each team was co-led by DaimlerBenz and Chrysler managers. The PMI reported to the chairmen’s Integration Council and was responsible for ensuring integration occurred in all areas. The companies prepared for integration through 29 Issue Resolving Teams. Automotive Integration Teams: Product Creation Purchasing Marketing and Sales Production Planning Global Strategy-Integration Non-automotive and Corporate Functions Teams: Corporate Development Technology and Research Information Technology Finance and Controlling Human Resource and Corporate Structure Corporate Communication Non-automotive Divisions . automotive. called the “Chairman’s Integration Council. called the Post Merger Integration Team (PMI) was also introduced and headed by managers from both Daimler-Benz and Chrysler. later approximately 70 working groups were brought together to make recommendations.” the stated main task of which was to promote the integration of the two companies (see Exhibit 8 for Integration Organization). An overall coordination team. and non-automotive areas and corporate functions. Integration teams fell into two categories. Final decisions were left to the Board of Management.

The Germans tend to be very rigid. “They have the best combination of creativity and charisma plus bureaucracy and precision management. In the May 24. Commenting on the unique blending of the two organizations. Dean Langford.” Because of the intense scrutiny the merger was under. September 3. and they had their own team doing the same thing independently. . managing director of Autofacts. of which there were very few. Americans have a tendency to sometimes go off on tangents. “Americans are more free form in their discussions. analysts and the media sought out benchmarks in other major US-German mergers and acquisitions. “We will all be working for a new company. more methodological in their meetings and thought processes. “We had our own team internally that was getting ready for this.000 employees need to know we’ve left Chrysler behind and we’ve left Daimler-Benz behind. “Transition Teams smooth the way for big merger. President of OSRAM Sylvania. 1998 Autoline Detroit special.Commenting on the integration structure Stallkamp noted.” The Quest to Create “One Company” After the May 1998 public merger announcement Daimler and Chrysler executives initiated efforts to address the challenges of integrating the two companies. 1998 PricewaterhouseCoopers stated. a little less rigid. “All 420. B. Chris Benko. gave insight into the challenge of integrating German and American companies.” Stallkamp commented. a division of Vlasic.” he said.” The Detroit News. Since only a handful of managers were taken into confidence during the negotiation phase the task of bringing the management levels together needed to begin immediately. the result of a 1993 acquisition of GTE’s Sylvania by Siemens subsidiary OSRAM. We have now married those two teams together.

[retired Vice Chairman.” DaimlerChrysler’s early integration efforts were focused on trying to identify the best process for the new company. spoke German. with more give and take. Theirs tends to be more formal. from its intricately structured decisionmaking processes to its suit-and-tie dress code and starchy respect for titles and proper names. None of the Americans.” Some close observers believe that the merger was a “marriage of opposites… Daimler embraced formality and hierarchy. On the other side Americans often misinterpret the Germans’ need for rules and order as maybe disinterest in doing something. everything from casual dress days to drinking coffee throughout a meeting. Both sides of the ocean tend to think that what they’ve come up with and developed is the best way to do something. as basic as figuring out how Daimler and Chrysler could share product information when the Germans take .” Charles Jerabek Executive Vice President and General Manager of OSRAM Sylvania added. with a lot more work done in advance. “Take the different ways we conduct meetings. Our approach is more informal. and casual repartee.With the Germans you don’t have to worry about it. “It’s not our intent to say “one side wins and the other loses.” said Stallkamp. Virtually all the German executives spoke English. Chrysler shucked barriers and promoted cross-functional teams that favored open collars. forced out by Eaton]. “For the most part Germans don’t understand the informalities of American business. What we’ve worked hard to overcome and what Daimler and Chrysler will have to work hard to overcome is the separation of Not Invented Here (NIH) syndrome. with the notable exception of Lutz. When they say they’re going to do something and this is the agenda they stick to it. In that context they don’t take the ideas presented as seriously as they would if they were being presented in their own culture.” The differences in business culture were widespread. free-form discussions.

measurements in centimeters and the Americans use inches. “We have said to ourselves. The biggest challenge is the need for face-to-face communications. In an effort to improve the likelihood of integration success. “The national cultures are less of an issue than business culture. Otherwise. the comfort factor would keep pushing people back into their own (traditional cliques). And then when you want to move and change something they say why didn’t they do it immediately?” The Reality of Integration . rather than long distance. let’s rather make 80 percent correct decisions now and not wait for the 100 percent decision which might not eventually happen. When asked about his approach to the integration Stallkamp responded.” Schrempp added his thoughts. How fast do we go on this? This is a big deal. “That is one of the issues. yes it’s necessary. they will say. so if you do something now. “More and more of my time. so that means we have to travel more.” The pace of integration was also a concern to the DaimlerChrysler management. Because the whole organization expects change. is spent on integrating the two companies. you have to meet after business meetings. My job is to integrate them as much as possible. so we can get the synergies we signed up for. and we don’t want to screw it up by crashing some premature integration. rather than videophones. and it’s more important to get cultural training than language training. Chrysler invited employees to take voluntary culture training. if you include the cultural side.” said Stallkamp. You need to meet people in person. “To be fair we move faster and they’re much more analytical. If you do not act for 12-18 months the organization will again get into a sort of stable situation. to as complex as ensuring market competitive compensation systems on both sides of the Atlantic. You have to socialize with each other.” noted Stallkamp. to get one company out of two.

both sides spent significant time trying to convince the other that their system was superior. could provide significant improvements and/or savings long term. not senior officers. Stallkamp saw it as a “slap in the face to non-CIC members. and doomed to fail. Decisions reverted to the 18-member management board. Stallkamp had intended to use the PMI team as the catalyst for process redesign. Topics to be presented before the management board were often previewed by this group. The PMI soon became bogged down in the financial accounting of the synergies that had been so publicly touted and its reports to the management board soon were sanitized to discussions of the financials. maintained a small cadre of loyal advisors.The Chairman’s Integration Council (CIC). Stallkamp and other Chrysler managers felt the PMI could be used to track synergies. however. Since the PMI consisted of working level managers from each business unit.” The CIC met with such retaliation that it was ultimately disbanded. This soon included merger integration updates by the PMI team. The “soft” issues and new processes were not considered important by many of the German managers. Instead they were focused on achieving their portion of the financial synergy target that had been allocated to them. met with immediate and equal dissatisfaction from non-CIC members on both sides. Instead of inventing a new best system. and identify new opportunities.” This small group served as Schrempp’s primary information network and sounding board for his plans. current systems would be detailed and compared and then new systems developed containing the best aspects of the current ones. Schrempp. The framework for process redesign was to be similar to GE’s Workout sessions. was in effect an attempt to get around the cumbersome governance structure and run the company using a small group of leaders with a longterm strategic focus. Initially the PMI would identify “low hanging fruit” that could be used to achieve early synergies. if redesigned. however. however. These senior officers felt they were once again being left out of the important decisions for the company. Stallkamp believed the PMI could identify processes that. . which the Chrysler managers nicknamed his “kitchen cabinet. ostensibly created to promote the integration of the two companies. measure the morale and culture momentum. The formation of the CIC.

The differences in compensation. “Who do you shoot when it doesn’t work?” Daimler-Benz managers were rewarded based primarily on the profit and loss results of their unit. Even Schrempp himself asked. stating. “We had to keep brand identity and we see how we do it here. Further. Daimler-Benz had a more traditional structure with direct lines of authority and business unit autonomy for each of its 23 business units. (“golden parachutes”). many managers on both sides wanted to be left alone to run their business units. Despite these major differences Stallkamp believed there were opportunities to demonstrate the benefits of finding the “new way”. infrastructures. Stallkamp’s title of president of DaimlerChrysler caused a disturbance among many of the German managers. particularly those from Mercedes-Benz. identities.The different philosophies of organizational structure became a contentious issue early on. did not make sense to the Daimler-Benz managers. describing every brand.” Stallkamp’s efforts to integrate the operational systems of the company soon hit another major roadblock. describing back offices.were often highlighted in the press. Chrysler managers were rewarded based on the success of their team and Chrysler. “All we needed was a couple key processes to show the workforce that it could be one company. In addition. Even the CEO is not the boss. and the other at much lower German salary -. Daimler-Benz managers. Stallkamp’s title became an issue. And before closing we were able to come up with a great policy paper on how we wanted to do that. were extremely sensitive to the issues of brand image. at least not legally. “Why is he called president?” At the outset neither side was willing to give up its structure. The matrix concept of one manager having two jobs. a practice not used in Germany. in every detail. Schrempp explained. Chrysler executives had rich termination contracts. all board members are considered equal. In a German AG company there is no president. Chrysler had matrix management and platform teams and operated in essence as a single strategic business unit.” . who questioned. particularly between Eaton and Schremmp one paid at the high American CEO rate with ample stock options. for example the head of Mercedes-Benz also heading DaimlerChrysler Engineering. etc.

it was difficult to trace the sources and uses of cash for Daimler-Benz’ business units. Daimler-Benz primarily measured revenue and number of personnel employed as indicators of its size and success. Daimler-Benz on the other hand did not have a strong relationship with Wall Street and followed a more traditional approach to the investment community. In addition Chrysler was adept at dealing with the investment community. “We had one discussion that lasted for three days. even with parts not identified as Chysler-connected. Daimler-Benz had begun reporting according to US GAAP in 1995. but was still developing its approach. Since all cash was pooled. It had received formal recognition for these achievements from the U. It was that we couldn’t have our (Chrysler) Mopar truck. In addition to the internal 12 percent ROCE hurdle rate. the finance staff at Chrysler had implemented several major process redesigns. from our after market parts division. . business community. Wall Street and institutional investors. arrive at a Mercedes dealer.” Financial reporting and investor relations became another battleground. this seemed unnecessarily conservative. Chrysler executives couldn’t believe. This difficulty became a sore point early in the merger. We had a protracted discussion on whether we could even use white trucks and unbranded trucks! We wasted a lot of intellectual capital and time on that issue. for example.The policy paper became known as the “brand bible. Stallkamp recalled.” The Germans pushed for the separation of brands to extend to the back office activities. To the Americans. and established itself as a world-class benchmark. particularly in the area of cash management. It had significant experience dealing with analysts. Its brushes with bankruptcy had ingrained a disciplined approach to cash management.S. Over the previous several years. that the top finance official at Daimler-Benz could not produce – or seem to understand the need for – a simple cash flow statement. reporting the required numbers and avoiding significant attention.