The head honcho at Daimler-Benz said, “This is much more than a merger. Today we are creating the world’s leading automotive company for the 21st century.” Juergen Schrempp had in mind, the way for Daimler Benz to expand in the US with the acquisition of a more moderately priced brand. For Chrysler, the merger was seen as a way to get a leg up on GM and Ford.
The new corporate entity could conceivably dominate the marketplace, enabling it to sell in all the segments of the industry from low priced subcompacts to $100,000 Mercedes sedans. The combined, corporate structure would be the largest cross-border deal in history. The $38,000,000,000 deal was announced on May 7, 1998.
The automotive and business communities were somewhat skeptical of the plan. Chrysler had a spotty, diverse history while Mercedes-Benz has long been stodgy and efficient. Germany’s less stringent antitrust officials appeared unlikely to object to the deal, but the US government was expected to pay much closer attention to the merger.
Internally, the blending of two entirely different corporate approaches appeared troublesome. Daimler-Benz was very hierarchial with an almost authoritarian structure. Chrysler was more egalitarian with a modern, team-oriented style of management. Other differences would also need to be ironed out. Daimler valued the highest levels of quality and reliability, while Chrysler got by with more competitive prices by cutting corners and offering popular styles. The two companies’ different value systems appeared to present a serious tug-of-war.
Just as troubling was the issue of internal employee attitudes. The American and German employees were hesitant about working with each other. Workers on both sides of the Atlantic knew that the catch-phrase “merger of the equals” was for public consumption, only. It was no secret, that during the first months of the merger, large blocs of key Chrysler executives either quit or were “downsized” by their German colleagues.
In addition, Daimler was more monolithic, assertive, and dictatorial regarding corporate policy. Daimler’s attitude rankled the Chrysler workers, who were more familiar with egalitarian ethics. At the same time, Mercedes workers were more comfortable with their conservative, hierarchial corporate managers. At their hearts, the two corporate cultures couldn’t be more different. This presented core communication problems and major difficulties with overall coordination.
These obstacles presented huge productivity challenges. When all is said and done, the culture clash was a major critical flaw that troubled nearly every aspect of Daimler-Chrysler. The culture clash was probably at the heart of the failure of the mega-corporation.
At the outset, in 1998, Daimler-Chrysler ranked fifth behind General Motors, Ford, Toyota, and Volkswagen in vehicle’s sold to customers. Two years later, Daimler Chrysler lost over $500,000,000 with even worse losses on the horizon for the 2001 fiscal year. The company canned over 26,000 employees at the crippled Chrysler division. In 2009, Daimler-Chrysler reported a loss of €12,000,000.
Even before the American and global financial disaster of 2008, car buyers were reluctant to purchase new cars and trucks. Despite lame attempts to combine elements of both halves of the company like the Chrysler Crossfire, based on the Mercedes SLK and the Dodge Sprinter, based on the Mercedes-Benz Sprinter van, potential customers weren’t buying. A split appeared inevitable.
In May of 2007, Daimler finally dumped the Chrysler Division to Cerberus Capital Management for only $6,000,000,000. Daimler’s American misadventure resulted in a loss of $32,000,000,000. The agreement further called for Daimler to pay $650,000,000 to Cerberus to remove Chrysler and its liabilities out of Daimler’s hands.
In 2009 the newly split Chrysler filed for bankruptcy in the US. It has since come under control of the Italian manufacturer Fiat. Meanwhile, without the Chrysler burden, the renamed Daimler AG reported profits of €1,700,000,000 and sales of Mercedes Benz vehicles increased.
American opinions, following the split, were that people connected with Chrysler felt deceived. From the start of the merger, Daimler “high command” issued orders to Chrysler about every detail, from the style of business cards to where the corporate headquarters would be located (Stuttgart, Germany).
The merger clashed quickly and badly. The American employees at Chrysler expressed frustration and disgust. Most of them felt demoralized. American employees alleged that not only was there a culture clash, but the dealings were “just plain dishonest”. The mess led Chrysler’s biggest shareholder, Kirk Kerkorian, to sue Daimler AG for fraud, as he asked for $9,000,000,000.