Chrysler Fiat Theshin Angulugaha and Tristan Haas BADM 670 Global Competition and the World Economy

Prof. John Volkmar 5/12/11

S Chrysler facility (“Obama administration. founded by Walter Chrysler in 1925. and Ford Motor Company.S. Volkswagen AG. 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. General Motor Company. The company manufactures and distributes Chrysler. Chrysler competes globally against auto mass producers Toyota Motor Corporation. Dodge.” 2009).S.Chrysler LLC. both wanted a stronger market segment in each other’s geographic areas. Mopar. that performs at 40 mpg. These companies wanted to . Jeep. and manufacturing state-of-the art. Daimler purchased Chrysler for $36 billion dollars. and GEM brand vehicles and parts in over 80 countries. next generation engines at a U. According to the U. In 1998 Daimler-Benz and Chrysler Group merged to form DaimlerChrysler." 2009) and also the third largest American automaker for years.” 2009). Under the agreement. Fiat is contributing to create a global strategic alliance and the sixth largest global automaker. providing Chrysler a global distribution network. Department of the Treasury. and both were in good financial standing within a year of the merger." Daimler and Chrysler were similar in size. Ram. is the sixteenth largest automobile manufacture in the world ("World motor vehicle. The combination of both companies was continuously referred to as a "merger of equals. Fiat will have the right to earn up to an additional 15% equity in three installments of 5% in exchange for meeting performance metrics. including a vehicle produced at a Chrysler factory in the U. On January 20. 2009 the two companies confirmed a merger with Fiat holding an initial 20% equity ownership of Chrysler without making a cash investment or a commitment to fund Chrysler in the future.

said. management styles.” (Finkelstein. Employee wages and benefits were another area of friction for the company. The companies made a good decision to merge and improve business. Chrysler vice-chairman. Bob Lutz said. Chrysler and.” (Finkelstein. a Mercedes-Benz division chief. Chrysler needed to revitalize some brands and improve designs. "My mother drove a Plymouth. and are used to different company cultures does not work.merge in order to lower operational costs. The banter by executives was not one sided. and strengthen brand names to stay competitive. Time passed and the merger began to falter. Chrysler and. improve market shares of both lines. Jürgen Hubbert. "the Jeep Grand Cherokee earned much higher consumer satisfaction ratings than the Mercedes M-class." according to Professor Sydney Finkelstein (Finkelstein. One issue the new company had was attempting to operate with co-CEOs and co-Chairmen. Daimler wanted to improve quality in America and streamline the use of Daimler parts. Bob Eaton. ("Daimler. and it barely lasted two-and-a-half years. Differences in pay tore the company apart even more as German employees found out about it. left the company. executives from both sides of the company made harsh statements and accusations about each other. "sometimes four times as much. One of the synergies the two companies were supposed to benefit from was each other’s dealership 3 . 2002). Chrysler's employees earned significantly more money. The co-CEOs did not see eye-to-eye at DaimlerChrysler and eventually. 2002). but some issues surfaced soon after the merger. ("Daimler. 2002). Chrysler's CEO." 2008) DaimlerChrysler had several events occur and specific issues arise before the separation of the merger. Trying to run one company with two different leaders who have different visions." (Finkelstein. 2002)." 2008). Other Daimler executives were quoted saying they "would never drive a Chrysler.

Daimler and Chrysler would have stayed more objective when trying . 2009). The authors of IMB developed a process to understand social perceptions: describe. Ultimately DaimlerChrysler sold Chrysler. International Management Behavior (IMB) says it is important to understand how and why people make assumptions about others. interpret. such as "Sexual Harassment in the American Workplace" and "German Dining Etiquette." it was not enough (Finkelstein. The companies should have been open about the merger and disclosed that it was never designed to be a "merger of equals. and mapped each culture. especially in Europe. Daimler and Chrysler should have become more aware of their cultural stereotypes." Daimler was in fact purchasing Chrysler. 2002)." 2007). Those were significant cultural attitudes to overcome and were not going to be completed by basic cultural sensitivity training. so the vehicles did not share space at dealerships. All of the problems Daimler and Chrysler were subjected to were a direct result of cultural issues. then perceptions of different cultures can be controlled as we interact with them. Matthew C. Cultural training was a good step but only basic sensitivities were discussed. ("DaimlerChrysler closes transaction. When Daimler and Chrysler began their merger. 2005). perceptions. When people understand their assumptions. and evaluate (D-I-E) (Lane. several things should have happened. The executives should have studied the assumptions.networks. Daimler did not want Mercedes to be affiliated with a low quality brand. Keegan said Daimler and Chrysler were battling between "German authoritarian[ism]" and "American creativity. Although millions of dollars were put towards cultural sensitivity training. the companies would have been able to move past such differences and improve their operating profits and market shares. By using this process.” (Keegan. That way.

("How Daimler.1% stake in Chrysler. Had Daimler and Chrysler applied the D-I-E process. and dealerships would have been able to sell both car brands.to understand the differences between each other’s employees. (Lane. executives should have treated every employee from both companies with more respect. a subsidiary of Cerberus." 2007) Under the merger with the German luxury car manufacturer Daimler. the strengths of each individual company had a place in the new company. bought an 80. (Lane. Management never blended together in the new company. the company would have understood that salaries and benefits should have remained confidential. the merger was on a failing path. From the beginning. pickups. Chrysler LLC continued to strengthen its primary focus on low fuel-efficient vehicles such as SUV’s. In 2007 Cerberus Capital Management. 2009) Another tool Daimler and Chrysler should have used was Mapping. full size/luxury cars that were popular products in their largest North American market. It was unprofessional and ineffective when executives made harsh statements about each other’s brand. Mapping provides a guide to cultural understanding. 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. and corporate vision. especially in complex and changing circumstances. Additionally. Chrysler. 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. which was the 5 . than DaimlerChrysler might not have failed. Had Daimler and Chrysler recognized that there was going to be a new company culture as a result of the merger. customers. The vision of the DaimlerChrysler company was never jointly developed. 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 . 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. therefore the Japanese and European automakers increased and established their market share in North America. for $ 7. a private equity bank. President Barack Obama mentioned in 2009. Chrysler continued to report losses in billions of dollars. DaimlerChrysler sold 80% of its US brand to Cerberus Capital Management.highest percentage by any automaker (Isidore. Ford has secured a $2. Chrysler was unable to respond quickly as their plants and technology were focused on producing SUVs and trucks and luxury brands. 2007). its competitors Honda and Nissan reported sales increases 1. 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. fuel efficient cars. When sales began to drop due to the energy crisis in 2003-2008.S.6 billion private loan and is already on the process of manufacturing low fuel efficient cars. On the other hand. When Chrysler reported a 32% sales decrease in 2008. As the consumers shifted the demand for smaller.4 billion which it paid $36 billion nine years ago (Isidore. The situation was critical as the credit crunch increased the prices of the raw materials and decreased the availability of credit for auto consumers.5% and 8. 2007). In 2007. As the U.5% respectively based on the strong demand for their fuel economic cars with powerful engines. 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.

With its global mindset.A. Under the new leadership. which won the European car of the year award in 2008 (“Car of the. He used Apple as a model. Marchinonne realized that in 7 . the world’s 9th largest automaker ("World motor vehicle. a strong euro and increase of Japanese and South Korean car sales in Europe. faced a multiple of threats including rising steel prices. Conversely. Ferrari (90% ownership) and Fiat had reported losses during the last four years. Marchionne introduced a new corporate culture influenced by the American business model based on markets and profits.” 2007)..be able to thrive in the global automotive industry to create comparative advantage to compete with strong global automakers. Marchionne returned the company to profitability by 2006 through a revamp of company culture by speeding up introducing new stylish cars to the market. founded in 1899." 2009) carrying global brands in its portfolio including Alfa Romeo. Maserati. Sergio Marchionne was appointed to his position in 2004. demonstrated the new direction of the company. Fiat also re-entered several large markets it had occupied before such as Mexico and Australia.” 2008) also named as “our iPod” by Marchionne and its success. However. Fiat formed joint ventures with China’s Chery Motors (“Fiat ends JV talks with China’s Chery”.p. 2010) and Indian Tata motors (“Fiat and tata. While turning around Fiat into one of the fastest growing European auto manufactures. the largest Italian automobile manufacturer Fiat S. 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. Fiat Group had even considered selling its automotive business to General Motors in late 2004. Newly redesigned Fiat 500. When current CEO. 2009).

The shift in demand by customers was the largest threat for Chrysler. Marchinonne mentioned. 2008) As Michael Porter mentioned “An industry’s profit potential is largely determined by the intensity of competitive rivalry in that industry. He also stated.5 million cars every year” (Castonguay. bringing smaller fuel efficient cars to the market in a timely fashion.” (Castonguay. and GMs presence in China are a few examples of other companies’ strategic models. “The only way for companies to survive is if they make more than 5. because they lacked the technology and platforms or even the time and capital to transform their business model. Fiat will be at high risk when Ford and GM (who had the immediate access to capital and technology) begins to build . such as GM and Ford.” 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. forming alliances and global partnerships to become more strategic and cost effective producers against each other. automakers were restructuring their ownership models. “It cannot continue as it did in the past. Though the threat of new entrants was almost nonexistence. On the other hand. However. 2008). Marchinonne estimated only six mass auto producers could survive the crisis with gas prices continuing to increase in the future. Nissan-Renault Merger.order to survive long term in this business. Fiat needed to increase its market share and produce more cars. Ford’s sale of Jaguar and Land Rover to Tata Motors in 2008. fuel-efficient cars instead of trucks and SUVs. More bargaining power from customers has shifted the demand for smaller. therefore they already had the early advantage over competitors. independence in this business is no longer sustainable. Fiat had invested in the research and development of these types of vehicles many years ago.

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. achieve economies of scale. in order to acquire a 51% stake before the planned IPO for Chrysler shares in 2011 (Jolly. Fiat expects to increase its Chrysler stake to 51% (5% after completing the final performance metrics plus additional 16% equity for $12. 2011) In conclusion. The company is in the process of refinancing the remaining $7 billion debt owed to the Canadian and US governments. the vehicles have to be produced in the US. It will also provide Chrysler with access to the key growth markets such as China. For example. Fiat knew to grab a market share for their new cars. and both companies have reported steady sales growth since the merger. if Chrysler was able to learn from the mistakes they made during 9 .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. 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. including the Fiat 500. and also arm Chrysler with advanced technology and management services by Fiat.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. Russia and Latin America. Production in the US will allow for economies of scale and a market hungry for fuel efficient vehicles. The two companies merged in 2009 with the support of the US government. the Fiat 500 is now selling in over 200 dealerships in US. increase market share. after achieving two performance goals. Fiat is currently holding 30% of Chrysler.

Both companies are determined to broaden their markets. Additionally. These two mergers exemplify today’s environment of global competition. global alliances will help companies maximize their comparative advantage by combining their strengths and diversifying their risks. both companies are advocates for the other’s brand. strong leader who has a clear vision for the company. The primary focus for global businesses is market share.the DaimlerChrysler merger. specifically in regards to their more recent merger with Fiat. . Additionally. they will be more successful in the future. mass production and cost efficiency. The Fiat merger is more likely to succeed because it brings a singular.

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