Daimler-Chrysler Merger: A Cultural Mismatch?

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Themes: Mergers Acquisition / Takeovers
Period : 1998-2001
Organization : Daimler Benz Chrysler Corporation
Pub Date : 2001
Countries : India, North America, Europe
Industry : Auto and Ancillaries

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Case Code : BSTR009
Case Length : 07 Pages
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DCX in Trouble

Analysts were of the opinion that DCX should eliminate between 20,000 and 40,000 jobs at its North American Chrysler division and permanently close at least one of its 13 plants in the US and Canada because of huge financial losses in 2000. After third quarter losses of more than half a billion dollars, and projections of even higher losses in the fourth quarter and into 2001, Schrempp told employees that Chrysler had only 13.5% of the US market, but it was staffed as if it had a 20% share.

In early 2001, DCX announced that it would slash 26,000 jobs at its ailing Chrysler division. "No one wants this to happen. I personally wish it didn't have to happen," said Zetsche. He called the moves painful but necessary in the face of "brutal" competition and low US sales. Zetsche said a large part of the job cutting would be through retirement programs, layoffs, attrition and other programs. About three-quarters of the job cuts would be made in 2001, he said. In addition, production would be curbed at factories in Canada and four states in the US by slowing assembly lines and trimming the number of shifts.

However, analysts interpreted this move as a failure of the German and American automakers to live up to their promise. One of them said, "Instead of making the billions of dollars in cost savings and synergies at the time of the merger, they're making desperate cuts to get Chrysler back in the black."

Why the Merger Failed to Realize the Synergies

Analysts felt that strategically, the merger made good business sense. But opposing cultures and management styles proved to be a hindrance to the realization of the synergies. Daimler-Benz attempted to run Chrysler USA operations in the same way as it would run its German operations. This approach was doomed to failure. In September, 2001, Business Week wrote, "The merger has so far fallen disastrously short of the goal. Distrust between Auburn Hills and Stuttgart has made cooperation on even the simplest of matters difficult. Coming to terms with issues like which parts Mercedes-Benz would share with Chrysler was almost impossible. The Germans and the Americans had been out of sync from the start. The two proud management teams resisted working together, were wary of change and weren't willing to compromise. Daimler-Chrysler have combined nothing beyond some administrative departments, such as finance and public relations."