Daimler Chrysler: Lessons in post-merger integration

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Daimler Chrysler: Lessons in post-merger integration

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Abstract

Professor Herbert Paul and student Myriam Tamim prepared this case, solely to provide material for class discussion. The authors do not intend to illustrate either the effective or ineffective handling of a management situation. The case was compiled from public sources. Abstract: The merger of Daimler–Benz with Chrysler Corporation created one of the largest car companies in the world. The case explores a number of issues in the post-merger integration process between Daimler-Benz and Chrysler and, to a lesser extent also Mitsubishi. Now, five years after the merger, questions can be asked about what worked and what did not work. In June 2003 the Chrysler website proudly announced the Chrysler Crossfire – “Dreamed in America. Drafted in Germany. Infused with passionate American design and Precision German engineering. Chrysler Crossfire is a rolling sculpture that moves the body and stirs the soul.” Advertising for the new sports coupe boldly tries to leverage Chrylser's sisterhood with Mercedes-Benz. Chrysler hopes that linking itself with the Mercedes-Benz luxury brand will boost its dented quality image and gain it prestige. The design was hatched at Chrysler's design studios in the U.S., but almost 40 % of the car is lifted directly from the Mercedes-Benz SLK, including suspension, axles and engine.

Introduction.
The Daimler-Chrysler merger: Birth of a global car company.
1. Starting position of Daimler-Benz.
2. Starting position of Chrysler.
3. The expected benefits of the merger.
The post-merger integration process.
1. The post-merger structure.
2. The PMI-process: Speed and digital decisions.
3. Top management changes.
Key Issues after the merger.
1. A clash of cultures.
2. Functional integration and branding.
3. The Asian challenge.
4. Schrempp's Repair Shop.
Appendices.

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[...] A marketing executive of Chrysler is quoted with the following statement, should have never called this a ‘merger of equals'. It was an acquisition and by calling it something else, we confused a lot of people on both sides of the Atlantic.”[24] Functional integration and branding Functional integration and branding policies were core issues in the post- merger process. Rather than forcing integration, top management chose a more selective approach. Safeguarding and nurturing each brand‘s unique image and position was given the highest priority. [...]

[...] The restructuring plan, which Zetsche and his team developed, consisted of three key components: Reducing material cost and general services; in a first step by until 2003 and then by another reduction over two years. Downsizing the workforce, which meant laying off 26.000 employees, and adapting the factory structure by closing six assembly plants. Enhancing revenues through a dealer incentive program as well as the launch of new models. In an interview with the Los Angeles Times Zetsche stated: would like to see ourselves as dolphins among the whales and sharks. [...]

[...] August 27, 1998: Daimler-Benz and Chrysler management teams meet in Greenbrier, West Virginia to discuss post-merger plans. September 18, 1998: Chrysler shareholders approve merger with approval. September 18, 1998: Daimler-Benz shareholders approve merger with approval. November 1998: Chrysler issues 23.5 million shares to corporate pension plan to qualify for pooling-of-interests accounting treatment. November 1998: Daimler-Benz receives 98% of stock in exchange offer. November 12, 1998: DaimlerChrysler merger transaction closes. November 17, 1998: DayOne: DaimlerChrysler stock begins trading on stock exchanges worldwide under symbol DCX. [...]

[...] In the short-term substantial cost synergies were expected as well: Figure Expected Synergies from the DaimlerChrysler Merger Expected Synergies 1999 from 2001 bill.) bill.) Purchasing Integration/financial services Research and technology/platform technologies Sales/distribution infrastructure Higher sales Total Source: Appel, H., Hein, C., Der DaimlerChrysler Deal (Stuttgart: Deutsche Verlags-Anstalt, 2nd ed., 1998) p Part II: The Post-Merger Integration Process The Post-Merger Structure When deciding about the future legal structure of the merged companies, several models (the German, Dutch corporation and U.S. corporation) were analyzed. [...]

[...] It's much better to move fast, and make mistakes occasionally, than to move too slowly.”[12] In line with the proverbial German efficiency, a detailed post-merger plan was set into motion focusing on tight process control and close involvement of the Integration Council at every stage of integration. Technically the integration process achieved impressive short-term results. By the end of 1999 most projects had been completed - something which was supposed to take until summer 2000. Benefits from integration amounted to $ 1.6 bill. [...]

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