GLOBAL CAR INDUSTRY CASE :

HOW CAN DAIMLER-BENZ PREPARE FOR

THE TWENTY-FIRST CENTURY ?

Japanese and Korea now entering luxury models such Lexus

and Hyundai. Even UK, developed Roll Royce to fill Asia
market. The Japanese Toyota and Nissan companies are
targeting luxury cars markets not only in the United
States but also in Europe. Fearing that a “Fortress
Europe” may evolve from the European Community 1992 (EC
1992) program, the Japanese have developed a strategy to
establish themselves in the European market by setting up
manufacturing plants in England with the encouragement of
the former Japanese-friendly Thatcher government. One
interesting question is how European carmakers will
respond to the Japanese threat.

Daimler’s Profile in 2018

Daimler-Benz was commonly known for its Mercedes cars,

which have the image of engineering excellence. Yet, the
company faces fierce competition from Japanese carmakers.
In addition, this traditional car company has been
undergoing dramatic changes, venturing into nondefense

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and defense electronics. Consequently, Daimler has to
wrestle with fundamental questions such as the following:

What is our business?

Who are our costumers?
What do our costumers want?
What should our business be?

Although in the past, Daimler was known

primarily for its Mercedes-Benz luxury cars, buses, and
trucks, this has been changing. For one, Mercedes has
expanded its car model range so that its domain includes
the market for smaller cars. Much more dramatic has been
the recent diversification into electronics and
aerospace. In 1989, Daimler was divided into three
operating groups : Cars and trucks are in the Mercedes-
Benz unit; electronics not related to defense is in the
AEG unit; and defense electronics and military aerospace
are in the DA (Deutsche Aerospace) group. In 1990, a
fourth group was set up; the DEBIT (Daimler-Benz Inter
services AG), which focuses on financial services,
marketing, software systems, and other services. The plan
is to become one of the biggest service groups in Europe,
if not in the world. The common threads integrating the
business units are high technology and the development
and creative application of new materials.
While it was relatively easy to identify the
primary costumers for luxury cars, the task became much

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more complex with the creation of the four operating
units. Marketing consumer goods and services and dealing
with the government in defense contracts require very
different approaches to market penetration. The wants and
needs of the divergent costumer groups are quite
different. Although the four operating groups are
designed to work in fairly autonomous manner, at some
point the very divergent organizational cultures and
management systems need to be integrated-a difficult task
indeed.

Purpose or Mission of Daimler

In the past, it was relatively easy to identify Daimler’s

purpose when the company’s aim was to produce cars that
were “engineered like no other car in the world” and Now
with Autonomous Car Concept Daimler think were “
Automated Driving:How do we develop trust between human
and Machine”. With four operating divisions, this task is
much more difficult. Automobiles will remain the primary
sector; producing and distributing high-quality luxury
cars is still the main purpose. However, with the
acquisition of the aerospace group Messerschmitt-Boelkow-
Blohm GmbH (MBB), Daimler became one of the leading
defense contractors. While this purchase seemed a wise
strategic move at that time, the recent developments in
Eastern Europe and the thawing between East and West

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suggest that the once profitable defense contracts may be
curtailed.
Edzard Reuter’s vision of Daimler is that it
will be “an integrated transportation company, in
vehicles,railroad and aircraft. Reuter wants Daimler to
be a global company yet remain flexible to cope with the
dynamic changes. Through the entrance into new fields,
the company aim to gain access to new information
technologies, new materials, and system knowledge. The
top priority will still be to build the best automobiles
in the world, although by the end of the decade the
company will play an important role in aerospace,
electronics, and factory automation.

The Need to Formula a Strategy

Daimler realizes the need for systematic analysis of its
strengths, weaknesses, opportunities, and threats as the
basis for formulating a strategy. The analysis of the
external environment identified these factors :
External threats. Daimler faces several threats. The
easing of tensions between East and West reduces the need
for military hardware. Thus, Daimler’s defense unit may
fall on hard times in the 1990s. But the focus will be on
the automobile sector.
In Europe, and indeed around the world, the
German BMW firm is Daimler’s major competitor. While in
the past, BMW’s strength was in smaller cars the Series 5
and 7 cars compete directly with Mercedes’s middle-and

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upper-class luxury cars. The recent agreement of
cooperation between the French Renault and Swedish Volvo
carmakers reduces their development costs and makes their
cars more competitive with Mercedes in the European
market. Moreover, Volvo plans a joint project with
Mitsubishi for making cars in a plant 70 miles from
Amsterdam, Holland. American manufacturers have a
strategy of their own. In order to gain access to the
Mercedes-BMW- dominated luxury market. Ford acquired the
British Jaguar Company. Similarly, General Motors formed
a strategic alliance with Swedish Saab-Scania.
Even greater threats to Mercedes are the
recently introduced Japanese luxury cars Lexus and
Infiniti by Toyota and Nissan, respectively. Comparisons
have shown that the Japanese cars are on par with those
by BMW and Mercedes. The traditional rival is , of
course, BMW. That company is a threat to Mercedes not
only in the European market but also in Japan, where the
appetite for European luxury cars has increased. Mercedes
engaged in a cooperative agreement with the Japanese
Mitsubishi company. The ties between the two companies go
beyond the interest in cars; they extend to electronics
and aerospace. For example, the aim is to produce jointly
a 75-seat aircraft. Collaboration in the defense sector,
however, has been ruled out. The combination of these two
giant companies makes the competition shudder.
Another threat for Mercedes consist of laws and
regulation governing emissions. Diesel engines,

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Mercedes’s traditional strength, have come under attack
by environmentalists. Moreover, car buyer’s preferences
have been shifting from the sluggish diesel-powered
vehicles to gasoline engines.
External opportunities. The robust economies in the
Pacific Rim countries have increased the demand for
luxury cars. Moreover, European countries such as Spain,
which will profit greatly from the EC 1992 program,
provide good opportunities for Mercedes. While there is a
great demand for automobiles in Eastern Europe, the
initial demand is likely to be for low-priced cars
because of the shortage of hard currency. In the future,
however, as the economies improve, the demand for luxury
cars is likely to increased.
In Eastern Europe, especially former East
Germany, there are opportunities for acquiring supplier
companies. Daimler, with its strong financial position,
has good opportunities for purchasing those companies.
However, the concern is that the company may harm its
quality image by producing cars in the eastern part of
Germany, which in the past produced the Wartburg and
Trabant, cars of very low quality.
Increasingly, electronic components are used in
cars for fuel injection, brakes, and a variety of other
applications. In the future, developments in the
electronics and information technologies will become more
even more important for automobiles.

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Internal weaknesses. One of the weaknesses of Mercedes
is the high cost structure. In Germany, the factory
hourly wage is $21 but it is $17,50 in Japan and $16,90
in the United States. Germans work 38 hours per week; the
Japanese , 42 hours; and Americans, 40 hours. West
Germans also have many more holidays than workers in any
other industrialized country except Italy. Germany has 30
holidays, Japan has 11, and the United States has 12.
Although these figures are for the countries and not the
automotive industry, they give, nevertheless, an
important insight as to why the costs of automobile
production are so high for Mercedes.
The size of Daimler and its bureaucratic
structure are potential weaknesses; and so is the
venturing into non automotive business. Past successes of
Daimler can make the organization complacent. The long
time it takes to develop a new model may be an indication
of that.

Internal strengths. With $30 billion available and the

strong backing of the Deutsche Bank, Germany’s largest
bank, Daimler-Benz is in a strong financial position.
Moreover, the high-priced SL roadster has a backlog
orders of several years. Critical in the production lines
is the new S-class model, which is expected to sell for
over $70,000 in the United States; some models even go up
to $100,000 or more. Another Mercedes strength is the
company’s location near its suppliers. The geographic

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proximity facilities close cooperation and shortens the
time of transporting parts. Mercedes will also benefit
from the high-technology strengths of the acquired
companies because the new car models use electronics for
many functions, such as antilock brakes and fuel and
ignition controls.

The Strategic Fit

One key aspect of strategic planning is the testing for
consistency of the various elements of the plan. Some
observers question Daimler’s wisdom in venturing outside
the traditional automotive business through the
acquisitions of the defense companies and the AEG
appliance firm. Also, the cooperation between Daimler and
Mitsubishi may be hindered by the difference in
organization cultures. The orderly German bureaucratic
organization structure appears to be inconsistent with
the group-oriented managerial approach of the Japanese.

Summary of the Daimler Case

As Daimler-Benz moves toward the twenty-first century, it
will have to make some strategic choices. It mission has
changed from being an automotive company to being an
integrated transportation company, defense contractors,
and consumer appliance manufacturer. In the past, the
focus was on the Mercedes unit, which now faces fierce
competition from Japanese carmakers in the luxury market.
The TOWS Matrix (discussed in Chapter 7), an analytical

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tool that can be used to identify a firm’s strengths and
weaknesses and the relationships to external
opportunities and threats, can also be used to develop
four distinct strategies for Daimler-Benz. These choices
must be made in light of risks and also must be congruent
with the vision of the CEO, Edzard Reuter. Daimler must
prepare now for the competitive global car market.

1. Develop the data and all information about Daimler and

its competitor recently. At least 2018
2. Use the TOWS Matrix to identify Daimler’s strengths
and weaknesses. Prepare a matrix as shown in Figure 7-
2 (in Chapter 7), and fill in Daimler-Benz’s strengths
and weaknesses in the appropriate boxes.
3. Identify external opportunities and threats, and note
them in the TOWS Matrix.
4. Develop alternative strategies (SO, ST, WO and WT),
write them in the appropriate boxes, and make
strategic choices.
5. What do you think of the acquisitions of non-car-
related companies?
6. What will be the competitive position of Daimler
against Internal like BMW & AUDI, Roll Royce, Lexus,
and other luxury automobiles in the year 2025?