Corporate & Global Strategy

DaimlerChrysler
 CONTENT

INTRODUCTION..............................................................................................................................2

DAIMLER-BENZ & CHRYSLER STRENGTHS AND WEAKNESSES...................................3

DAIMLER STRENGTHS AND WEAKNESSES BEFORE THE MERGER .....................................................................................................3

Strengths.....................................................................................................................................................................3
Weaknesses.................................................................................................................................................................3
CHRYSLER STRENGTHS AND WEAKNESSES BEFORE THE MERGER ...................................................................................................3
Strengths.....................................................................................................................................................................3
Weaknesses.................................................................................................................................................................3
THE DIFFERENCES BETWEEN GERMAN AND AMERICAN BUSINESS CULTURE......4

1. PRACTICAL EXPERIENCES...................................................................................................................................................4
2. PRAGMATISM...................................................................................................................................................................4
3. FLEXIBILITY.....................................................................................................................................................................4
4. INFORMALITY...................................................................................................................................................................4
5. JOB SECURITY..................................................................................................................................................................4
DIFFERENCES BETWEEN GERMAN AND AMERICAN CORPORATE CULTURES WITH THE MERGER ...........................................................5
LESSONS LEARNED AFTER THE MERGER PROBLEMS.....................................................5

THE STRATEGY OF DAIMLER CHRYSLER AND ITS IMPLEMENTATION..............................................................................................6

DAIMLER- CHRYSLER & RENAULT-NISSAN........................................................................7

Similarities between them regarding global strategies and competitive issues:........................................................7

Differences:................................................................................................................................................................8
UPDATING CHRYSLER’S COMPANY AT PRESENT.........................................................................................................................9
UPDATING MERCEDES COMPANY AT PRESENT............................................................................................................................9
THE KEY REASONS FOR DAIMLER CHRYSLER DE-MERGER.......................................10

Introduction

The automotive industry is characterized like no other industry by its global reach. While the
industry faces traditional markets becoming mature and getting an intensified competition, it has
become necessary for the established players to extend to emerging markets and develop new niche
segments. Therefore the automotive industry has seen in the near past a lot of consolidation and
interoperate linkages, as in alliances or joint ventures. All with the aim to become more cost-
efficient and to stay competitive.

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.. 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. 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.

Daimler-Benz & Chrysler strengths and weaknesses

Daimler strengths and weaknesses before the merger

Strengths
• technological engineering
• quality strength
• premium luxury brand with rich heritage
• German efficiency
• problem solving and schedule discipline

Weaknesses
• hardly flexible
• limited growth potential
• high cost
• lack of production ability in US

These technological engineering and quality skills paired with German efficiency positioned the
brand at a premium luxury status and reasoned the higher prices.

Chrysler strengths and weaknesses before the merger

Strengths
• flexibility
• creativity
• self responsibility
• concept cars
• feeling for market opportunities
• lowest production cost

Weaknesses
• less discipline
• hardly investments in R&D
 • loss of key players
• no presence in key foreign markets

Chrysler’s success in the 90s based on a strict cost management paired with lean flexible
management ways and challenging the market regularly with new innovative design consepts.

The differences between German and American business culture

Americans and Germans have different concepts of work ethic .There are many differences
between both culture, the most important differences including the following concepts:

1. Practical experiences

American employers lay emphasis on practical experience with the training on the job
concept. Contrary to Germany where potential employer focuses very much on education and
qualification.

2. Pragmatism

Americans are more pragmatic and goal- orientated than Germans. For example German
business and academic meetings are longer than the American equivalent. While German
businessmen tend to discuss all topics in detail to make sure everything is settled and agreed on,
their American counterparts concentrate on getting a positive result as quickly as possible.

3. Flexibility

Career flexibility, the willingness to change jobs and to face new challenges are much bigger in
America than in Germany. Job security and a certain loyalty from both sides (employer/employee)
still significant elements of work life in Germany.

4. Informality

American businessmen often make a very friendly, informal and self-confident impression on their
German counterparts. Examples are the art of small talk to warm up and the use of first names from
the very beginning. Both things are less common in Germany, especially the latter one.

5. Job security

One factor that also contributes to American work ethic but that sometimes seems to be neglected
is the low job security in American companies. Employees can be laid off quite easily and without a
warning, especially compared to Germany. However, the better an individual’s performance, the
more secure this person’s job will be.
Differences between German and American corporate cultures with the merger

Regarding this subject Daimler-Benz was known as rigid company concerning its product
development, quality standards and corporate bureaucracy. On the other hand Chrysler’s corporate
culture was known as informal, outward oriented, and somewhat less rigid in its operations,
Daimler lacked exposure to the American way of management and business practices. In the first
few years some of Chrysler’s operations in the US took a downturn because of management
shakeups, disagreements on joint vision, collective strategies, production, and branding issues.
Since Daimler Chrysler was made into a transnational company, dealing with two national cultures
with distinct business practices was a daunting task. Neither companies’ executives were ready for
the changes to take place in the transnational structure since Chrysler was an independent
organization before the merger. American managers disliked Daimler-Benz’s control and majority
ownership, especially seeing the new entity’s headquarter moving to Germany. Some managers
resented moving to Stuttgart because their families not wanting to give up the American way of life.
Languages problems were cited as another hurdle in assimilation process; the Germans held
meeting using only German knowing that the Chrysler’s executives did not understand, reinforcing
the nation that this was a takeover not a merger. After the merger Daimler-Benz controlled 51% of
the company and moved the headquarters to Stuttgart.
In addition Daimler Chrysler’s shareholders fretted over the loss of shareholder value that instigated
a $9 billion lawsuit and two other class action suits by Chrysler’s largest individual investor Krik
Kerkorian. In 1999 Daimler Chrysler shares were trading at $108. In 2002 the stock dropped down
to $35, losing billions of dollars of shareholder value. In short both companies top managements did
not anticipate dealing with so many problems in the areas of culture assimilation, executive
departures, disappearing shareholder value, and weak demand for Chrysler products. Eventually this
resulted in a major distraction for the company.

Lessons learned after the merger problems

1. There was definitely a need for knowledge management at Daimler, but was a merger
with Chrysler the best solution (consolidation in the automotive industry was also a
factor).
2. Alternatives:
• Strategic alliances-would increase market share globally, but sharing of resources
and R&D would not have worked.
• Strategic outsourcing-could improve the rate of innovation, reduce cost, and
improve quality.
• Concentrate on core competencies and outsource none-core value creation activity
Examples: developments of vehicle platforms could be outsourced to Chrysler by Daimler
The strategy of Daimler Chrysler and its implementation

DaimlerChrysler has embarked upon a strategy of becoming a world wide leader in the automobile
industry, representing all vehicle types across all world markets. This is summed up by
DaimlerChrysler's four-pillar strategy. The four pillars include:

• Global presence
• Broad product range
• Strong Brand
• Technology leadership

DaimlerChrysler, formed by a merger of the American Company Chrysler and the German Daimler
Benz in 1998, was instrumental in the achievement of many of these pillars. DaimlerChrysler
currently sells products in over 200 countries and manufacturing plants in 17. DaimlerChrysler also
has headquarters covering all major geographic regions on every continent except Antarctica. After
the merger DaimlerChrysler had ownership of several major car manufacturers with certain
geographic presence. Daimler Benz was one of Europe's largest car manufacturers, while Chrysler
was a leading American country. This gives
DaimlerChrysler a large presence in two of the largest auto markets in the world. They also choose
to purchase a 30 percent stake in the Japanese Mitsubishi Motors as a way to penetrate the Japanese
markets. These three markets are the largest in the world and gives DaimlerChrysler a strong global
presence.

DaimlerChrysler also wished to produce strong brands of automobiles with broad product ranges to
be offered in these markets. DaimlerChrysler currently lays claim to passenger vehicle brands such
as Chrysler, Dodge, Jeep, Mercedes, Maybach, and Smart. They also have ownership of
Freightliner, which is one of the largest commercial truck producers in the world.

These brand names represent all vehicle types currently offered to consumers. From Dodge and
Chryslers cars and trucks covering all price ranges and styles to Mercedes' and Maybach's
representation in the luxury market. Even specialized vehicles are represented; Jeep is a top
producer of off-road and SUV vehicles, while the smaller Smart brand produces economical urban
vehicles for sale in Europe and the Freightliner brand gives DaimlerChrysler a strong share of the
market in the commercial shipping and transportation.

In the arena of Technology leadership DaimlerChrysler boasts that it is a world leader in the
development of hydrogen fuel cell powered automobiles. DaimlerChrysler hopes that its research
into the new power technology will result in affordable vehicles powered by the alternative fuel
source in the neat future. This Technology has the potential to be the next industry standard for
engines and DaimlerChrysler is heavily invested in assuring that if or when it is they will be
positioned to offer the best hydrogen engines available. They are also looking in the direction of
cleaner, more efficient diesel engines as an alternative to hybrid technology. DaimlerChrysler
believes that advances in diesel engines are superior to the improvements made by gas/electric
hybrids currently offered by many competitors. DaimlerChrysler that strong research into these
alternative power sources will facilitate their desire to be a technological leader in innovation
among other companies in the automobile manufacturing industry.

Not all strategies are implemented seamlessly and. One of DaimlerChrysler's biggest current
problems is its weak market penetration in Asia. While they do have a strategic partnership with
Mitsubishi motors it is apparent that Mitsubishi isn't fulfilling the high expectations
DaimlerChrysler expected. DaimlerChrysler is already on the right track with its plans to open
manufacturing facilities in China, but a more immediate impact might be needed to ensure
DaimlerChrysler doesn't fall behind in the region. A more immediate presence could be achieved
through another strategic partner, specifically with one of the Korean builders Daewoo or Hyundai.
Both companies have successful small car divisions, which are a need for DaimlerChrysler, and
more importantly they come with distribution centers throughout the Asian market.. The addition of
a new Asian partner to the DaimlerChrysler stable can prove to be a great advantage through the
immediate presence DaimlerChrysler could gain presence in the underrepresented Asian market, but
it could also turn out to be a drawback. By taking on another acquisition or strategic partner
DaimlerChrysler could face the same problems it is currently experiencing with Mitsubishi. By only
being partners with another Asian firm DaimlerChrysler would not have ultimate control of the
partner firm leaving more of a liability than if DaimlerChrysler opted to simply acquire of the
company.

DaimlerChrysler could also hedge its bets on hydrogen engines by investing more in hybrid
technology to provide more immediate returns. DaimlerChrysler's resistance to go ahead with full
scale implementation of hybrid engines has come from a number of sources, most notably their
focus on hydrogen and a belief that other fuels, such as diesel, may hold greater promise than
hybrids. if DaimlerChrysler's assertions about the future of hydrogen power are incorrect they could
face large consequences of not embracing hybrid engines. To fill this gap DaimlerChrysler could
purchase plans for hybrid engines to hedge their bets of the upcoming market for more efficient
fuels. Many manufacturers have begun licensing their hybrid technologies to other manufacturers,
and while this isn't as good as DaimlerChrysler producing there own technology, it will allow them
to introduce hybrid engines in there own models quicker and not lose precious market share to
rivals. This would be an advantage for DaimlerChrysler because the promises of hydrogen power,
while great, are still many years away and the use of hybrid engines and technology is growing
exponentially in the present.

Daimler- Chrysler & Renault-Nissan

The automotive industry has seen in the near past a lot of consolidation and inter- corporate
linkages, as in alliances or joint ventures. All with the aim to become more cost-efficient and to stay
competitive.

Two very different examples of this consolidation process are shown in this section– the merger of
Daimler-Benz and Chrysler in 1998 and the alliance between Renault and Nissan in 1999.

Similarities between them regarding global strategies and competitive issues:

Already the driving forces for the need of a closer cooperation with a partner for Daimler-Benz and
Renault reveal some similarities. Both act mainly on the mature European market, lacking a global
scope, and do not have a complete product portfolio, so Daimler-Benz focused only on luxury and
Renault more on small and mass-market cars.
The partners therefore should have market and product complementarities. With Chrysler and
Nissan they found also main players in their home markets, Chrysler in North America and Nissan
in Japan as well as in the Asia-Pacific region, with special focus on other niches, such as sport-
utility vehicles and minivans at Chrysler and among other larger passenger cars at Nissan. They
should result from synergies in a joint research and development, the usage of common platforms,
the sharing of other parts, a joint purchasing and a joint IS/IT-system combined with the exchange
of best-practise in technology and the manufacturing process.
Another analogy is the cross-border scope of both examples, which raised the complexity of the
post-merger integration even more than the already existing different corporate cultures with their
different management styles did.
Obviously also the fact that at DaimlerChrysler and Renault-Nissan both companies kept their
headquarters and the brand identities remained untouched. Furthermore Daimler-Benz as well as
Renault used to be the senior partner in both transactions, which were both at least announced as
partnership of equals, on the one side as a "merger of equals" (DaimlerChrysler) and on the other
side as a win-win partnership in case of the Renault-Nissan alliance. Both junior partners, i.e.
Chrysler and Nissan, have had serious financial trouble and needed a turnaround. They were solved
in both cases by managers of the senior partner, Dieter Zetsche at Chrysler and Carlos Goshn at
Nissan, who revealed themselves as massive cost killers with their processed immense lay-offs,
closing of plants and dramatically decreasing of procurement costs at the suppliers.

Differences:

First of all the form of collaboration is different so Daimler-Benz chose the way of a merger to
cooperate with Chrysler, whereas Renault chose the alliance for its partnership with Nissan. The
merger of DaimlerChrysler on the one hand is very difficult to undo and has nearly no exit-option,
except the divesting of the merged division. Moreover it is very cost-intensive, as the high premium
paid for Chrysler shows. But otherwise DaimlerChrysler can consolidate all the results from
Chrysler directly in its balance sheet, which was a plus in the beginning, but resulted in serious
rouble when it came to the Chrysler crisis. Furthermore it has full control over the whole business,
from a management as well as from a organizational view, and allows to realise economies of scales
rapidly. Renault-Nissan's alliance on the other hand is, even with the strong cross shareholding, a
construction, which is easier to undo and also obviously cheaper, but also able to generate similar
results than a merger would do. This requires a common approach and usually the negotiating costs
in alliances are much higher than in other forms of collaboration. Of course the outcome for the
companies balance sheets result from the cost savings in joint projects, such as purchasing or
platform sharing, and in this case also from the dividends received form each other's shareholding.
This equity tie also enforces a common approach to be successful. Studies, such as from McKinsey,
reveal that two out of three mergers fail because of cultural problems let drive the attention to the
most crucial difference, which lie in the integration phase. In the case of DaimlerChrysler this
integration has failed nearly completely because the culture clash was underestimated right from the
beginning and the Germans have seen themselves as the superior partner. They tried to impose their
management and manufacturing style on Chrysler, without even thinking about benefiting from the
exchange of best-practise. shared, economies of scale were not realized at all or much too slow .
That is why the synergy effects were not delivered in the amount as announced, so only for 1999
the USD 1.4bn cost savings were published, but not the promised USD 3bn for the following years.
When it comes to Renault and Nissan the intercultural challenge must have been even bigger
because of the greater distance between French and Japanese companies, but it turned out to be the
contrary.
The approach of Carlos Goshn first as COO and then as President and CEO has changed the typical
structure with its tradition and mindsets in Nissan nearly completely, which was the key for success.
This was possible because of the disastrously situation Nissan was confronted with when stepping
in the alliance and of course with the fact that a foreigner made these changes which were
unthinkable to be done by a Japanese. It was not only the organizational and operational changes
that restored Nissan's profitability, but also the fact that the Japanese had the feeling to be treated as
equal partner in the alliance. The great exchange of staff, so e.g. around 250 persons have been
transferred from Nissan to Renault, on management and operational level. So a strong corporate
culture taking into consideration the country's culture was maintained within this form of
cooperation. Which contributed to the fast recovery, the fast implementation of synergies
throughout the whole value chain, started from research and development over the production with
common platforms and transmission sharing, which are already in effect, to the joint distribution
and joint new market entries.
Furthermore Renault-Nissan has now a greater annual output than DaimlerChrysler (5.0 vs. 4.4
million units in 2002) ranking fourth worldwide, whereas DaimlerChrysler ranks sixth. Also the
fact that DaimlerChrysler shares have lost nearly two thirds of their value since the merger
euphoria, whereas Renault's share are still in plus with 57% and Nissan's even with an increase of
185% till today.

Updating Chrysler’s company at present

Currently, Chrysler is functioning under the terms of bankruptcy protection since late last month.
As it exists now, Chrysler is in a mutually-agreed partnership with Italian automaker Fiat, who,
according to The Wall Street Journal, is set to take a 20 percent stake in Chrysler once the company
is no longer bankrupt.

In light of the company’s bankruptcy, Fiat has been helping speed the process along, and, with that
effort, comes Chrysler’s claims that the 780 dealerships need to close for financial reasons.

According to court papers quoted by the Post, Chrysler said that the “immediate rejection” of the
company’s dealership agreements was “necessary and appropriate to begin the work...to complete
the transition to the smaller, more effective, and more profitable dealer network.”

Updating Mercedes company at present

Mercedes-Benz will introduce a new Citaro FuelCell Hybrid bus beginning this June. The city bus
is a part of MB's overall zero-emission plan, and Daimler's Shaping Future Transportation
initiative. These new hybrids will be tested as part of a large-scale fleet test in-and-around several
major cities in Europe.

The public buses came from the NEBUS research concepts started in the mid-1990s. From that
came a diesel-electric hybrid, and now the FuelCell hybrid. Originally, 36 of the fuel cell buses
were part of a four-year test that logged roughly two million kilometers.

MB's new fuel cell bus uses electric hub motors powered by lithium-ion batteries. Because of this,
Mercedes-Benz claims their buses will consume a significantly lowered amount of hydrogen in
comparison to similar fuel-cell buses.
Look for the same fuel cell system to appear on the Mercedes-Benz B-Class F-CELL when
production begins later in the year.

The key reasons for Daimler Chrysler de-merger

• Market share fell from 16.2% to just13.5%(1998-2001

• Chrysler CEO, holden, fired after less than a year
• Two-thirds of Chrysler’s senior management was fired or resigned (executives did not get
along with German colleagues)
• In 2000 Chrysler’s operating profit decreased 90%
• Daimler Chrysler ranks only fifth among the seven largest automakers.
• Not-invented-here syndrome kept Chrysler and Mercedes from sharing ideas, parts, etc.

References:

Dorothy, Y. 2000. DaimlerChrysler. [pdf] Building Fiscal Knowledge at Debis Capital Services.
Available at: http://www.albany.edu/faculty/miesing/teaching/materials/daimlerchrysler.pdf
[Accessed: 08 October 2009]

Glavin, W.F. 2004. DaimlerChrysler Merger: The Quest to Create “One Company” [pdf] Babson
College. Available at: http://miha.ef.uni-
lj.si/_dokumenti3plus2/192278/ZdruzitevDaimlerjainChryslerja.pdf [Accessed 07 October 2009]

Highfill, D. & Bakki, M., eds. 2004. Automotive Industry Analysis - GM, DaimlerChrysler, Toyota,
Ford, Honda [Online] Available at:
http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-
automotive-industry-analysis.html [Accessed 14 October 2009]
London South Bank University. 2003. Lessons in Post-Merger Integration. [pdf] London: London
South Bank University. Available at:
http://laufhuette.com/Documents/Cases/Strategic_Management_Lessons_in_Post_Merger_Integrati
on.pdf [Accessed 03 October 2009]

Newmark, Z. 2009. Mercedes to Present new Citaro FuelCELL Hybrid BUS. [Online] Available at:
http://www.worldcarfans.com/109031017785/mercedes-to-present-new-citaro-fuelcell-hybrid-bus
[Accessed 12 October 2009]

Sulejewicz, A. 2003. Compare the two mergers: Daimler-Chrysler and Renault-Nissan. Any
implications for the IMGT framework? [pdf] European Strategies and International Business
Available at: http://www.sven-eppert.de/downloads/daimler-chrysler_nissan-renault.pdf [Accessed
10 October 2009]

Vogler, B.2007. Differences between American and German work ethic. [pdf] Available at:
http://3968640299169685783-a-1802744773732722657-s-
sites.googlegroups.com/site/cosmonicationdownloads/pdf/Work_ethic_in_USA_and_Germany.pdf?
attachauth=ANoY7cqdhr2xbVwpn1lP9ZqlDuNi5U7NTwpomJzo4OZ8pK9yGVqfvCaHX5pEfsqzz
pgsliM1p9aILtdDEVjw2Shxwxt7I4Kachy903oq5JqP4FTYf-du_2-e-Hp1-iyYXF-
zoHbN4yFzmyZMWLvnHrHEDT0KWzZM_5SjRwwC6EBj51V9UHFRGgCPRf2843uVs_bmPbj
HS6fdVwamDayIBkttAOoeG7iVyvByYfOWeOtAzhQojF69hOyRsWcVp9H-4x3z-npH0Z-
y&attredirects=0 [Accessed 15 October 2009]