The DaimlerChrysler Post-Merger Analysis

I. Executive Summary In May 1998, Daimler-Benz and Chrysler Corporation, two of the worlds leading car manufacturers, agreed to combine their businesses in what they claimed to be a merger of equals. (Dutta, 2003) The DaimlerChrysler (DCX) merger took approximately one year to finalize. The merger resulted in a large automobile company, ranked third in the world in terms of revenues, market capitalization and earnings, and fifth in the number of units (passenger-cars and commercial vehicles combined) sold. DCX generated revenues of $155.3 billion and sold 4 millions cars and trucks in 1998. Jrgen Schrempp, CEO of Daimler-Benz, and Robert Eaton, Chairman and CEO of Chrysler, jointly led the merged entity, as co-chairmen and co-CEOs. DCX sources were confident that the new company was well poised to exploit the growth opportunities offered by the global automotive market in terms of geographical and product segment coverage.

However, analysis showed that to make the merger a success, several important issues needed to be addressed. (Dutta, 2003) The most significant of these was organizational culture. German and American styles of management differed sharply. A cultural clash would be a major hurdle to the realization of the synergies identified before the merger. To minimize this clash of cultures, Schrempp decided to allow both groups to maintain their existing cultures.

The Mighty Ligers will provide analysis and research on key post merger issues with the DaimlerChrysler merger. The key issues that will be discussed are the following: Cultural Integration, Leadership Effectiveness, Communication, Retention, Organization Integration, and Workforce Retention.

II. General History Chrysler Corporation Walter P. Chrysler, founder of Chrysler Corporation, started the company in 1924 at The New York Auto Show (refer to Exhibit 1). The Chrysler Corporation was chartered as a Delaware corporation on June 6, 1925 (Smith, 2007). In 1928, Chrysler Corporation bought the Dodge Brothers automotive operation, and launched two new brands later that year, Plymouth and DeSoto. By 1929, there were 12,000 US dealers, 2,600 dealers in Canada, and 38,000 overseas.

In contrast, Chrysler was in serious financial trouble by 1976. Years of mismanagement and shortsightedness led to serious bankruptcy avoidance tactics. In 1978, on November 2, Lee Iacocca became president of Chrysler.

In the early 1990s, Chrysler made its first tentative steps back into Europe, setting up car production in Austria, and started manufacturing certain right-hand drive Jeep models in their 1993 return to the UK market. The continuing popularity of Jeep, bold new models for the domestic market such as the Dodge Ram pickup, Dodge Viper sports car, and Plymouth Prowler hot rod, and new "cab forward" front-wheel drive sedans put the company in a strong position as the decade waned. Daimler-Benz Daimler-Benz AG was a German manufacturer of automobiles, motor vehicles, and engines which, founded in 1926. Karl Benzs Benz & Cie. and Daimler Motoren Gesellschaft (DMG) signed an Agreement of interest on May 1, 1924 which was valid until the year 2000.

Both companies continued to manufacture their separate automobile and internal combustion engine brands until, on June 28, 1926, when Benz & Cie. and Daimler Motoren Gesellschaft formally mergedbecoming Daimler-Benz AGand agreed that thereafter, all of the factories would use the brand name of Mercedes-Benz (refer to Exhibit 2) on their automobiles. The Mercedes series name was derived from a 1900 engine named after the daughter of Emil Jellinek, who became one of DMG's directors in 1900. The inclusion of the name, Mercedes, in the new brand name honored the most important model series of DMG automobiles, the Mercedes series, which were designed and built by Wilhelm Maybach (www.wikipedia.com).

Although Daimler-Benz is best known for its Mercedes-Benz automobile brand, during World War II it also created a notable series of aircraft, tank, and submarine engines.

III. Pre-Merger In the years before the merger, Chrysler was facing several changes in the auto industry. Buyers were empowered more on making decisions about what car to buy. There were new environmental regulations that basically were threatening the very existence of the combustion engine (Finkelstein, 2002). Also, the industry was overproducing for the market demand. Very aware of the issues, CEO Bob Eaton knew the only way to combat the problems, Chrysler needed to change its direction.

When looking at Daimler, one sees a successful luxury car company. However, they were only able to gain a disappointing 1% share of the market. Daimlers vehicle production was very labor intensive and required twice as many workers. Jrgen Schrempp realized that they needed to find economies of scale in this capital-intensive industry. (Finkelstein, 2002)

One item worth mentioning is why the merger was even considered in the first place. Essentially Chrysler had experienced a lot of success in the 1990s, It seemed as if nothing could stop Chrysler, and as a result the stock appeared to be immensely undervalued. (Smith, 2007). This helped to prompt an attempted leveraged buyout (LBO), by its largest shareholder, Kirk Kerkorian. Although the attempt failed, this led Chrysler to seek a partner in order to avoid a future buy out. Chrysler saw the partnership with Daimler as an opportunity to increase its global presence and ensure its future in new markets. In addition, most analysts showed Chrysler and Daimler to have the potential to be excellent complements. They seemed to be able to add the needed strength to each companys weaker areas and they also did not have any product overlap. Pre-merger each company was thought to be strong financially and the merger was expected to improve these conditions. However, the companies had undisclosed issues which inspired each to seek a merger. With both companies looking for solutions, it seemed natural that the two CEOs would meet to discuss joining forces. The two companies seemed to fill needs in both organizations. Chrysler had the streamlined manufacturing along with the innovative product line and Daimler had the technology edge of non-combustion engines. The meeting was held on January 12, 1998. The meeting went well; because the two companies began talks about how to integrate the two organizations (refer to Exhibit 3). The merger was approved in November of 1998. This DaimlerChrysler merger is seen as a hybrid merger. Its a combination of a consolidation merger (removing redundant operations) and an opportunity to launch into new markets (buy vs. make)

With the merger on the horizon, Chrysler and Daimler had several challenges ahead of them. The companies had different cultures, pay structures, and working styles. However the primary challenge was getting the two corporate cultures to a middle ground agreeable to both. IV. Post Merger After the Merger was completed, there were several boards and committees set up to join the two companies. The boards and committees were tasked with working on approximately 100 issues. The groups were composed of all levels of management from each organization. DaimlerChryslers organization dysfunction was a main reason the merger did not run as smoothly as hoped. The analysis will show that the new company was plagued with controversy and disbelief in the merger. It is important to look at six areas that companies need to focus on to have a successful merger. Those areas are cultural integration, leadership effectiveness, communication, retention, organization integration, and workforce reduction. The sections talk about what both organizations did in each of these areas, what went wrong, and what went well. V. Cultural Integration Description of problem / issue: Differences in culture between the two organizations were largely responsible for [the failure of the merger] (Vlassic and Stertz, 2000). Operations and management were not successfully integrated as equals because of the very different ways in which the Germans and Americans operated: while Daimler-Benzs culture stressed a more formal and structured management style. Chrysler favored a more relaxed, freewheeling style (to which it owed a large part of its premerger financial success).

In addition, the two units traditionally held entirely different views on important things such as pay scales and travel expenses. As a result of these differences and the German units increasing dominance, employee satisfaction and performance at Chrysler took a steep downturn. There were large numbers of departures among key Chrysler executives and engineers. The German unit became increasingly dissatisfied with the performance of the Chrysler division. Chrysler employees became extremely dissatisfied with what they perceived as the source of their divisions problems: Daimlers attempts to take over the entire organization and impose their culture on the whole firm. VI. Leadership Effectiveness Description of problem / issue: Obviously effective leadership is extremely critical before, during, and after a merger. For this reason alone, you have to wonder why Bob Eaton the CO-CEO suddenly fell short in this area

and allowed his German counter-part, Jrgen Schrempp, to essentially assume full control. As a result of the CO-CEO issue and the loss of other legacy Chrysler leadership the remaining employees were left without hope or a clear since of direction. Their creative spirits were crushed and they could only assume and expect the worst. Their fears were soon realized.

Without significant American representation, the legacy Chrysler employees were left at the mercy of the new dominant German regime, with whom they could not identify. No one was left that could be trusted to reinforce that the decision to merge was right, or that they were now on the correct path. This also meant that no one was left to pave the way for the employees or help them understand their place in the new company. Without any effective leadership, as you would expect, the flock began to thin. The Daimler CEO failed to enact his leadership, because he did not want to be seen as the bad guy. This worsened the already volatile situation. VII. Communication Description of problem / issue: The DaimlerChrysler merger was riddled with many major communications issues, even before the merger took place. The initial bases for building effective long lasting trusting communications was apparently never considered by the CEO of Daimler, as illustrated by his deliberately misleading statements about the merger being that of Equals. In fact, Jrgen had always planned on essentially acquiring Chrysler.

If they cannot trust Jrgen with the most fundamentals aspects of the merger, how could anyone ever expect to believe him regarding the future of his or her job? The plans for the company should have been more openly communicated throughout the new combined company in terms of the real objectives of the merger and everyone should have been kept well informed, thus not allowing the rumor mill and speculation to propagate the dissemination of merger related information.

In addition, each company was given autonomy to continue their current direction. The opportunity, and motivation required to create new combined processes was never realized. The autonomy also resulted in a lack of development of good cross-company communication activities as well as a lack of focus for the company.

In fact, Daimlers CEO allowed each company to continue to operate separately for a longer time after the merger in order for Daimler to avoid being seen as invaders. This cost the new company severely. This approach although for some of the right reasons resulted in a lack of

focus and direction for the company.(i.e. what should they produce, luxury versus mass-market product, how should they collaborate on designing and sharing of parts inventory, etc...).

In the end, at least some attempt at communication across the cultural divide did eventually occur. One good result, Daimler learned that in order to communicate effectively with the Amercians they needed to deliver more concise and to the point information. Unfortunately, this was far from enough to enable the two former companies to bridge their communication gap. VIII. Retention Description of problem / issue: The New DCX organization had significant employee retention problems. Many contributing factors for the retention issues can be contributed to include the following: Lack of a formally planned / executed strategy for employee retention Failure to help the employees understand what was going on with the new merger Decreasing company moral was due to the departure of key people from the highly successful Chrysler top executive team was followed almost immediately with signs of internal demoralization". (A Study of the DaimlerChrysler Merger Portrayal in U.S. and European Media) Pre-merger Chryslers employees were also given more empowerment and freedom

The constant movement of the American personnel instilled insecurity throughout the legacy Chrysler workforce. As you would expect, the result of this insecurity caused a mass exodus on the former Chrysler side of the house due to the following factors:

Fears were rising that Stuttgart, the new CEO, leadership will destroy the creative spirit at Chrysler (A Study of the DaimlerChrysler Merger Portrayal in U.S. and European Media) Growing German dominance Employees were not aligned to meet the new companies goals Enormous differences in compensation magnitudes and forms across merging companies (Has DaimlerChrysler Hit the Breakdown Lane or Just Stopped to Fill Up?). Employee satisfaction was not a focus

IX. Organization Integration

Description of problem / issue: Daimler-Benz was the stereotypical German-run company that was very traditional top-down management, whose founding credo was Quality at any cost.(Finkelstein, 2002) Daimler-Benz was held to the industry standard in automobile development, coined as the assembly line method. This method passes the design through different towers or silos of development, and if something is wrong with one of the elements, it goes back through the entire design process again, until all of the defects are removed. This lengthens the design time, as well as increases costs to the company in more man hour. All the while the advances per vehicle model each year declines.

The Pre-Merger Chrysler organization was doing a number of things right. They had formed a Dream Team that was to find new and innovative ways for the company to cut costs, improve productivity, and take advantage of the successes of the early eighties and nineties. Chrysler had implemented a new way of automobile development which used a functional team built around a particular model, rather than the assembly line method described earlier. Teams were built with members from each of the different silos, (such as design, engineering, production, etc,) that stayed with the development until completion. If there was a problem found by one of the team members, it was corrected immediately, instead of going back through the whole assembly line again. This shorted time from concept to production considerably, as well as cut cost per vehicle and fostered innovation and cooperation between departments. Other concepts that were implemented by the Dream Team pre-merger were lean manufacturing, quality improvement initiatives, and other cost-saving methodologies.

The problems with the pre-merger organizations would continue to haunt the companies throughout the periods that they were merging, and all the way through until Daimler sold off the Chrysler division to Cerberus. Because of the way that the companies were fundamentally organized, post-merger they had issues in procurement, manufacturing, as well as retail sales systems. For example, Mercedes-Benz dealers had proven adverse to offering the Chrysler models alongside their own brand. (Finkelstein, 2002) A good example of the differences in manufacturing systems would be when Jrgen Hubbert visited the Jeep Factory in Graz, Austria. Upon inspection, he proclaimed, If we are to produce the M-Class here as well, we will need to create a separate quality control section and double the number of line workers. It simply cant be built to the same specifications as the Jeep. (Grasslin, 2000)

Even though this was to be a merger of equals, the companies decided that instead of having a honeymoon period as is the case with many large corporations, they would set up a decentralized board with a centralized coordination team, immediately. It consisted of the CoChairmen of the company, essentially two board of directors, (one called the Board of Supervisors, and the other the Board of Management.) (Refer to Exhibit 4) A subset of the Board

of Management formed the Chairmens Integration Council. (CIC). Each member of the CIC was responsible for at least one of the Issue Resolution Teams, (IRT) who had ten dedicated members per team, plus two coordinators. The coordinators were defined as the Post Merger Implementation Team. (PMI) The chain of command was basically as follows; Co-Chairmen, Extended Board of Directors, Chairmens Integration Council (CIC), IRT Coordinators (PMI), Issue Resolution Team members (IRT).

At the beginning of the merger, it was determined that there were 100 projects that were integral to the success of the merger, and they were given two to three years to accomplish this goal, so that they would be able to achieve the (substantial,) financial targets of the merger. Despite having three years to implement the merger, after ten months, DaimlerChrysler announced that the integration program had completed successfully, and that further integration efforts would be on the division level, and Jrgen stated that he would no longer disclose information on merger synergies, as they were one company now. (Bansal, 2003)

Following the completion of the merger, there was a restructuring of the company to reflect the global nature of the business, enable a greater focus on markets, accelerate decision-making and deliver greater shareholder value.(Bansal, 2003) The new structure of the company increased autonomy of the individual units, such as Chrysler, Mercedes-Benz, etc. Basically, it restructured the old Chrysler Corporation as a division of the new DaimlerChrysler Corporation, while disbanding the CIC and PMI teams.

While this was good for the management in Detroit, it made people even more suspicious that this wasnt what the plan was all along. Unfortunately, Jrgen did little to allay their fears. Quite the contrary, he reinforced them by saying, The structure we have now with Chrysler, [as a stand-alone division] was always the structure I wanted. We had to go a round-about way, but it had to be done for psychological reasons. If I had gone and said Chrysler would be a division, everybody on their side would have said, There is no way well do a deal. But its precisely what I wanted to do. (Bansal, 2003) He would later retract the statement, as part of a lawsuit on behalf of the shareholders, filed by Kirk Kerkorian, a major shareholder. Workforce Reduction Description of problem / issue: As a part of mergers in general, workforce reductions are inevitable. But from the start, this was billed by both CEOs that it was a merger of growth, and that there would be no layoffs in the integration phase.(Morosini and Radler, 1999) To each companies credit, there were no involuntary reductions in the ten month integration phase. However, once DaimlerChrysler reached the end of the integration phase, they decided to announce that there will be layoffs.

The first involuntary reductions were on the extended Boards of Directors, they reduced the number from 17 to 14, with two of the three positions being from Chrysler executives. Then in 2000, Dieter Zetsche took over for James Holden, and announced that he would cut overhead in Stuttart and Auburn Hills, (U.S.) by 25% and to eliminate 5,000 to 5,500 jobs. On the day that he took over, he fired three of the top executives at Chrysler and replaced them with former Daimler executives. All totaled, Dieter arrived with 23 executives from Germany, and started cleaning house.

In 2001, he came up with a turnaround plan that included cutting 26,000 jobs, senior management changes, and the closing of six American car plants, and eliminating shifts. This trend continued to 2002 where he cut another 3,500, and non-product spending was to be cut by 58%.

However, the real indicator of how happy the employees are with the merger is how many stay with the new company after the merger is complete. The Brain Drain at Chrysler started even before the merger was announced. Two members of the Dream Team mentioned before resigned just prior to the public announcement. Many of the mid-level managers and engineers left the company in 1999. Two more of the Dream Team left in 1999, and Bob Eaton announced his retirement scheduled for March 2000. The last two of the Dream Team from Chrysler also left in 2000, one in September and one in November.

When asked about the subsequent Brain Drain from Chrysler, Jrgen Schrempp replied, Someone asked me whether, if I could turn things back, is there somebody I would really have liked to keep? I mentioned one name, just to be polite. But generally speaking, Im very happy the way it went. (Globalist, 2000) XI. ABB-Daimler Merger Comparison The newly-formed DaimlerChrysler Corporation studied up to 50 different larger mergers that were across industries and countries. They finally decided to model their merger after the ASEA of Sweden and Brown, Boveri Ltd. of Switzerland who merged to form ABB. The ABB merger was a good merger to model, because it was a merger of two relatively large engineering companies, based in separate countries, and they wanted to expand globally. Unfortunately, that is where the similarities end, as the execution was as different as night and day.

From the beginning both mergers were heralded as mergers of equals, however, ABB meant it. They had a 50/50 stock swap and brought in one CEO, whereas Daimler bought 58% of Chrysler, and they later admitted that it was never a merger of equals, that it was only said to get it past the U.S. regulators. ABB appointed a new head of the company, Percy Barnevik, to take decisive action, whereas DaimlerChrysler implemented Co-CEOs for the first three years of the merger, (Jrgen Schrempp and Robert Eaton). In the ABB merger, the new CEO made quick, deep cuts in upper management, trying to remove much of the bureaucracy from the organization, (cutting mid-to-upper management at headquarters from 2000 to 176) while in DaimlerChrysler they did lots of slow cuts to the workers while adding more bureaucracy through new boards and committees. Percy Barnevik came up with what he called the ABB bible which was a 22 page booklet establishing corporate vision, organization, and emphasized commitment to change and decentralization of the organization. DaimlerChrysler had no such document.

Culturally, they handled the mergers in diametrically opposed ways. ABB concentrated on having highly mobile, highly visible upper management and held cultural diversity classes/seminars that focused on the similarities that the different cultures shared, not the differences. DaimlerChrysler however, made the US executives fly out to Germany for meetings and then had to fly home to disseminate the information from the meetings. DaimlerChrysler had cultural sensitivity classes that focused on the differences between the two companies, not the similarities.

Overall, the ABB merger was an excellent example of what to do in a merger, however, DaimlerChrysler took the structure of the post-merger company, but not the heart of it. XII. Recommendations and Course of Action Cultural Integration Recommendations: Steps that the company should have taken: Quickly eliminating inconsistent and non-common functions causes cultural integration conflict to side track post merger activities. The post merger issues described above with DaimlerChrysler were a result of not clearly identifying non-common or unneeded functions from a company culture standpoint. If the employee base is not clear on strategies of the new company, this causes a separation into two companies vs. a new merged environment.

What has worked well in the separate companies should be identified, both for reasons of culture and to communicate a best practices strategy. Representatives from operations and lead management should have met to intensify key learnings of culture and efficient processes.

Unneeded or unnecessary functions would be discussed and the entire team could come to a viable and best solution. Once this occurs then DaimlerChrysler should have communicated quickly from the top-down so that the employee base could understand the direction.

The Chrysler employee base could have realized that Daimler wasnt going to throw the baby out with the bath water. Likewise, Daimler through this team effort described above would have understood American culture and processes enough to decide upon the most effective approach globally for the new company ensuring that cultural integration was not forgotten. This would have made a smoother transaction and to provide checkpoints of how it will be handled and communicated early in post merger negotiations. Culture clash could have been reduced with the approach described above.

Leadership Effectiveness Recommendations: Steps that the company should have taken: Because of the lack of Chryslers leadership, their employee base was left floundering in the new company environment. When Chryslers leadership bowed out of company post merger planning, this cast a major doubt on whos really running the company. This was due to unstated competition for management control since it appeared that Chryslers lead team was taking a backseat, that gave the appearance that Daimler was running the organization and it would be just a matter of time before cuts would get down to Chryslers employee base. Top senior management retention is very critical in identifying who is leading an organization. If any one of the merged lead teams appear as taking major executive headcount losses, it would give the image that there is a takeover, not a merger and this was exemplified in the DaimlerChrysler Post merger leadership activities

Chryslers leadership should have not taken the back seat in the newly merged company. The combined leadership should have lessened the impact of bowing out to let the German counterpart lead. A concerted approach could be to have the leaders partner to ensure adequate span of management control between the two companies to avoid the wrong message sent out to the employee base. Jrgen Schrempp, CEO of DaimlerChrysler, July, 2000 stated Implementation is a harder act than the doing of a deal. This was depicted in the post timeline after the merger. A clear leadership implementation plan was attempted but not effective to galvanize the company as a whole. Pre-merger activities should have identified a discovery period between companies and post merger should have created a clear plan of action, identified key management and communicated quickly throughout the new organization. Communications Recommendations:

Steps that the company should have taken: The severity of communication style differences should have been identified very early on in the pre-merger planning. A plan should have been developed and implemented to ensure cross communication training and awareness were promoted throughout the merger.

A plan should have been implemented to effectively merge the two cultures taking the best from both. o Historically the communications style of the Chrysler Corporation was nonhierarchical and far less structured than the legacy Daimler Corporation. Agreements were generally by consensus and employees were given more empowerment and freedom. When this was known to be different from Daimler, they should have taken the necessary steps to communicate and train people on the new communication styles that were to be used going forward. An iteratively deployed and adaptive process would have made more sense than to trying either to keep the autonomy or to force one very different culture on another. Top management should have better communicated the reasons for the dramatically different compensation packages between the two legacies companies (i.e. cost of living, etc.) and set the expectations of both companies.

What should be done?

A communication strategy needs to be developed and agreed to by all. o This new strategy should be owned by everyone. They need to create a transition team that is specifically focused on determining the communication gaps that exist between each company. o This needs to occur as soon as possible, then they should examine their own environment and determine the gaps that exist between their current and desired combined companies future state. o Once they understand the gaps, they need to put together a roadmap that will take them to where they want to be, while at the same time allowing the company to survive during the transition period. o Whether it is to adapt to the U.S., German or blended culture, they need to determine which One will be the primary culture, but this time make it widely known, and deploy a more open common policy regarding the intentions and plans. o This new transition team should also be allowed the freedom and authority required to explore, develop and enforce approaches that can promote more effective cross-culture communication. o Top management needs to provide the utmost support for this new team.

Retention Recommendations: Steps that the company should have taken:

Changing of the German employees compensation to be more bonus driven should have been better evaluated, as this went against the European culture and was bound to have negative consequences. Daimler could have also mitigated the retention issues by taking better steps to enact a retention plan which could have included elements such as stay pay and a new bonus strategy, based on milestones of the merger. Retention efforts should have been made especially to retain top leadership of the Chrysler. If Jrgen was less authoritative and let the employees keep a sense of their past with Chrysler, the cultures would have merged together and employee retention would have not been a major issue. This approach would help show employees they were valued by allowing them to be self-directed.

What should be done?

Design a mentoring program for all employees o This mentoring needs to begin to occur as soon as possible, and should be from both senior internal employees as well as potentially bringing in consultants to train people on what it will take to move the company to the new area. In essence, they need to establish a more united team based workforce. o The program should include all aspects of their retention strategy such as teaming, training, integration, measuring of their performance. Develop a formal plan or roadmap, to get to where DaimlerChrysler needs to be o This roadmap should consist of: WHAT the aspects are that need to be setup: i.e. consulting staff, crossfunctional teaming, and all the various training and mentoring aspects. HOW this is to occur and WHEN all the various aspects are to occur along with measurement criteria such as milestone checkpoints, (with resolutions plans) along the way for the migration of the company. Reward systems of each legacy company should be examined pre-merger to determine areas where significant gaps or potential areas of conflict may occur. o The HR organization should create reward systems for each of the disparate cultures but are consistent to the company as a whole. They also need to keep the people that are currently there happy and renew the new companys commitment to them. The offering of a learning roadmap would also help with employee retention. They need to keep learning as a continual part of their careers, performance, and progress as well as monitor for warnings signs. They need to take the necessary steps to ensure that you do not loose your existing talent, which is the backbone of your workforce and DaimlerChryslers biggest asset. Therefore, upper management starting from the CEO needs to encourage everyone to be part of the new company direction. DaimlerChrysler needs to make sure that they develop and have the right people in the correct roles to ensure both short and long-term success.

Organization Integration Recommendations: Steps that the company should have take: DaimlerChrysler should have built their platforms around taking advantage of the synergies that could be achieved instead of the cannibalizing markets for their own brands. (An example of this would be not allowing the K-car to be exported/built in emerging markets for fear that it would eat into the non-existent profits of the Mercedes in the same region.) DaimlerChrysler should have followed ABB merger to the letter or choose a more applicable merger to model their integration.

They should have integrated the development staff better, incorporating more of the techniques that Chrysler was using with the quality-minded Daimler engineers.

In the centralized-decentralized structure that they instituted, they should have cut headcount on the management layer, and removed more of the bureaucracy and red tape, rather than adding to it.

What went well?

They actually took the time at the beginning of the merger to study other mergers that had taken place under similar circumstances. This shows a great deal of forethought, unfortunately, this is also where they went wrong.

What went wrong?

After studying the 50 mergers, they selected the ABB merger to model themselves after, however, they didnt do what ABB was willing to do, and it took them too long to get to their real goal of the merger, which was to have German executives running Chrysler as a division. What they had in selecting the ABB merger, was a classic case of having a great plan executed poorly for the wrong purpose. They shouldnt have perpetuated the lie as long as they did. If the plan was to come in, remove the Chrysler executive staff, close down some plants, lay off a hefty amount of workers, and not have it be a merger of equals or merger of growth, then they needed to just come in and be decisive about it. This would have been more painful in the short term, but better off in the long run.

Workforce Reductions Recommendations

Steps that the company should have taken: What went well?

Most of the reduction in headcount was from people that just didnt want to work for the company anymore and could go elsewhere. (Like Ford, GM, etc.)

What went wrong?

It seemed as though they declared the merger complete so that they could say that they didnt lay off anyone as a result of the merger that it was part of business as usual. They laid off workers, but kept the same number of managers and executives. This isnt good for morale, especially when most of the managers were from Germany.

XIII. Conclusion In conclusion, the merger was a failure from the beginning. Owing to culture clash and a poorly integrated management structure, DaimlerChrysler is unable to accomplish what its forbears took for granted three years ago: profitable automotive production.

In summary, DaimlerChrysler needs to:

1. Conduct feasibility study on cultural integration 2. DaimlerChrysler needs to design a leadership team that is align with merger goals and are able to be effective leading the newly merged company. 3. Make critical merger information available to all employees to ensure employees are aligned with the overall objective of the leadership.

References

Bansal, Pratima (2003). DaimlerChrysler: Post Merger News. Richard Ivey School of Business, The University of Western Ontario. Published business case.

Dutta, Sanjib. (2003). DaimlerChrysler Merger: A Cultural Mismatch? Published management case. Retrieved June 15, 2007, from www.icmrindia.org.

Finkelstein, Sydney. (2002). The DaimlerChrysler Merger. Published business case. Tuck School of Business at Dartmouth College. No. 1-0071.

Gibney Jr., Frank. (1999). Time Magazine Article. Daimler-Benz and Chrysler Merge to DaimlerChrysler. Retrieved June 15, 2007, from http://geocities.com/MotorCity/Downs/9323/dc.htm.

Golitsinski, Sergei. (2000). A Study of the DaimlerChrysler Merger Portrayal in U.S. and European Media. Unpublished research paper.

Grasslin, Jrgen. (2000). Jrgen Schrempp and the Making of an Auto Dynasty. New York: McGraw Hill, 2000, p 217

History of Daimler-Benz. Retrieved June 15, 2007, from http://en.wikipedia.org/wiki/Daimler_Benz.

Smith, Jacob. A general history of Chrysler Corporation and the creation of DaimlerChrysler. Retrieved June 15, 2007, from http://www.allpar.com/history/general.html

The Globalist. (12/6/2000). Titans of the Global Economy: Jrgen Schrempp - A DaimlerChrysler Perspective,

Weber, Roberto A. (2000). Cultural Conflict and Merger Failure: An Experimental Approach. Published Research Paper. Carnegie-Mellon University and the California Institute of Technology

Appendix

Exhibit 1. Chrysler Series 60 2-door Sedan 1926

Exhibit 2. First Logo of Mercedes-Benz.

Exhibit 3. Comparison table of the two companies at the time of the merger. Chrysler The design mavericks from Auburn Hills redefined style in the 1990s 1998: A record 3 million cars and trucks sold. Sales in 1999 are up 11% Bottom: Neon at $12,000 Top: 460-h.p. Dodge Viper at $71,000 The low cost, high-volume kings are still fighting quality demons 120,000 employees, all in automotive, 90% in U.S.A. Wage: $22/hr. Soup to nuts: 28 models, from the basic Neon to macho RAM trucks. As freewheeling as auto companies get. No dress code, no smoking. Construction foremen, boomer families. Jay Leno owns a viper. Daimler State-of-the-art engineering. Styling? Try state of the Soviet Union 1998: 992,795 cars sold. Surprise hit: The M series SUV Bottom: C230 Kompressor at $31,000 Top: S600 at $134,250 The bestbut some of the highest production costs in the industry 320,000 employees, many in non-auto industries. Wage: $28/hr. Striving to add diversity to its once said collection of sedans. Wants to be like an American company-plus ashtrays and red wine. Lots of important men in suits. Yearning for a few more fashion models.

Styling

Sales

Pricing

Quality

Work Force

Variety

Management

Audience

Exhibit 4. Management Board and Supervisory Board of DaimlerChrysler AG Management Board: Daimler-Benz (10) Jrgen E. Schrempp Jrgen Hubbert Chrysler Corporation (8) Robert Eaton Thomas T. Stallkamp

Kurt Lauk Manfred Gentz Eckhard Cordes K.D. Vohringer Dieter Zetsche Klaus Mangold Manfred Bischoff H. Tropitzsch

Gary Valade Thomas Sidlik James Holden N.N. Tom Gale T. Cunningham

Supervisory Board: Daimler-Benz Hilmar Kopper (DeutscheBank) John P. Browne (BP) Manfred Schneider (Bayer) Berhard Walter (Dresdner Bank) Mark Wossner (Bertelsmann) Chrysler Corp. Robert Allen (AT&T) Robert J. Lanigan (Owens) Labor Reps. Steven Yokich (UAW) Karl Feuerstein (employee)

Peter Magowan( SF Giants) Willi Bohm (employee) Richard Thoman (Xerox) Lynton Wilson (BCE) Manfred Gobels (employee) Erich Klemm (employee) Rudolf Kuda (union) Helmut Lense (employee) Herbert Schiller (employee) Peter Schonfelder (employee) Bernhard Wurl (union)