Mergers And Acquisitions Of Daimler And Chrysler Management Essay

“Mergers and acquisitions can be value creators or value destroyers”, According to Mirvis and Marks (1997), most companies executing M&As perform a perfect job arranging the relative economical and financial traits, providing the fact that they do a remarkable job in managing the upcoming change thereafter. Before conducting an M&A analysis, it is important to understand what is meant by the word ‘change.’ Although there is no universal definition change, as Hughes (2006) says it has been explained in terms of guises, transformation, metamorphosis, evolution, regeneration and transition. The generic definition of change as defined by Hughes (2006) is “any alteration in the status quo”.

“The leadership and direction of the process of organizational transformation – especially with regard to human aspects and overcoming resistance to change”

According to Hughes definition and Lwin’s change model (1951) (Figure 1), the change process will be explored by specifically analysing a famous car industry M&A case: Daimler-Chrysler (DCX) [i] merger, one brand, two cultures.

Figure 1: Lwin’s change stages

[Source: Higgs & Rowland, 2005]

DaimlerBenz AG of Stuttgart, Germany, and the Chrysler Corporation of Auburn Hills, Michigan, surprised the business world at a press conference in London on May 7, 1998, when they announced their “merger of equals made in heaven.” This major cross-border transaction, with an equity value of $36 billion, was the largest merger of its kind to date. [ii] Robert Eaton and Jürgen E. Schrempp, co-chairmen of DCX, announced their expectation that this deal would be “not only the best strategic merger or the best prepared merger, but also the best executed merger.”Whether or not this statement came to be true, is yet to be analyzed in this paper.


The Mercedes famous three-pointed star that represents ‘its domination of the land, the sea, and the air’ is now one of the world’s most recognized brands that symbolizes class, style and personality. On the other side, stands Giant yank, Chrysler, carrying the fame of being among the “big three” in U.S., famously known for producing “muscle cars”.

Pre-merger situation: Daimler

In 1926 was founded in Stuttgart, Germany Daimler-Benz, a manufacturer of automobiles, motor vehicles, and engines. Unknown to many, it is already the result of a merger between Benz & Cie(founded by Karl Benz) and Daimler Motoren Gesellschaft(founded by Gottleib Daimler and Wilhelm Maybach). ‘The new entity rapidly made its name in motor sports as its cars were regarded as high end race automobiles’. [iii] [Appendix A]

Pre-merger situation: Chrysler

The roots of Chrysler Corporations go back to 1925, when the American car manufacturer, Maxwell Motor Company is recognized into Chrysler Corporation by Walter P. Chrysler [iv] . Along with GM and Ford, Chrysler made the powerful triangle of the biggest car manufacturers in U.S.

The Corporations was- back in mid 1990s- nothing less than the most profitable car producer in the world. [v] In 1997, the company even reached a peak in terms of market shares in the U.S., at an impressive figure of 23%. [Appendix A]

Chrysler had always known itself to be a blue collar, bold Yank. It was able to survive a bankruptcy during the Second World War, and this state was stabilized by its boom- bust cash flows.


‘In order to maintain with the speed of an external change, the easiest way that an organization should adopt is to take advantage of internal change accordingly. It must increase its intercommunication by putting out as many feelers as possible to bring a collective view of the constantly shifting situation into the organization. Getting ready for a change, ‘Unfreezing the present situation’ is the first step recognized by Lewin, it is described as the state of preparation for change and preventing any possible resistance [vi] .

Taking into account the “push” factors for change, Chrysler CEO, Eaton, convinced his empire that they need a partner to blow the caution in this dog-eat-dog market, by telling a story. Yet, his mental cognitions in making sense of his environment and ending up in merge decision, was one of its own kind, owning one fourth of the whole American market share, Chrysler was among the “big three” is U.S., and the position was royal enough for Eaton not to buy more troubles for the company, however, international reach was his goal in this story, this is how he made sense of the merger:

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Bob Eaton, Chrysler CEO, gave the speech of his life at company headquarters in Auburn Hills, Michigan on July the 17th. 1997 [vii] . Instead of revelling in four years of rapid growth, he warned of trouble brewing on the horizon. His urgent oratory, adapted from the nonfiction bestseller The Perfect Storm [viii] , a tale of three fishermen caught at the confluence of three potent storms off the Canadian coast, warned that a triad of identical elements posing a threat to demolish Chrysler. [ix] 

Daimler-Benz, meanwhile, standing on the reverse position, was looking for a soul-mate. Despite a booming U.S. economy, its luxury vehicles had captured less than 1% of the American market. [x] Its vehicle production method was particularly labor intensive – requiring nearly twice as many workers per unit produced over Toyota’s Lexus division. It recognized that it could benefit from an economy of scale in this capital-intensive industry. With $2.8 billion in annual profits, remarkable efficiency, low design costs, and an extensive American dealership network, Chrysler appeared to be the perfect match.

Having Chrysler, looking for his share from the European market pie, on one hand, and Daimler, seeking for attractive U.S. market on the other hand, the merger between two giants made sense.

On May 7th. 1998, Eaton announced that Chrysler would merge with Daimler-Benz. Daimler-Benz CEO Jürgen Schrempp hailed the merge as ‘a merger of equals, a merger of growth, and a merger of unprecedented strength’. [xi] 

When he rang the bell at the New York Stock Exchange to inaugurate trading of the new stock, Daimler-Chrysler (DCX), Eaton predicted, “Within five years, we’ll be among the Big Three automotive companies in the world”. [xii] 

Only three years later DCX’s market capitalization stands at $44 billion, roughly equal to the value of Daimler-Benz before the merger [xiii] and Chrysler Group’s share value has been descending by one-third, compared to the pre-merger situation. Chrysler was bleeding cash unlike the Mercedes. [xiv] 


(Post-merger issues-The rationale for the failure)


M&As in this scale are inherently complicated, Kiefer (2004) asserts changes of greater complexity are likely to generate more negative and more intense emotions and more resistance (George and Jones, 2001), and therefore require more careful management. Seemingly, DCX underestimated this matter.

Only 2 years before Daimler-Chrysler divorce a journalist declared: ‘One of the greatest unions in history burst inward soon after the merge.’ [xv] 

Why? Unlike what has been communicated to both parties’ staff, it has not been the merger of equals from the start, the kick start negotiations best proved this fact. Eaton, settled huge agreements and compromises all the way of negotiations. The residency, brand, he even agreed to be a co-chairman which led to a massive crisis in the history of American leadership. German won more bonuses and their dominance were clear which was opposing the virtue of a merger, making it more sound like an acquisition. They were not negotiation the compromises, Chrysler have been compromised only. [Appendix B] Later, Schrempp did not hesitate to state in the German Press: “What happened to the dynamic, can-do cowboy culture that I bought?” [xvi] 


On paper, Daimler-Chrysler was the perfect match: German engineering with American marketing, but German culture and American culture dilemma took over the success scenario. [Appendix C]. Burnes (1996) reconfirms Schwartz and Davis cultural risk approach design in attempting to warn the managers and the change leaders that if risk is underestimated it could become dangerous.

If one is aware of American pride and German authoritarian, he would know the worse can be expected. Daimler had systemically decision making process, whereas Americans were inspiring creativity. The Stress on effectiveness, fair staff treatment, and empowerment made Chrysler famous for adoptability and flexibility; whereas Daimler seemed more autocratic and bureaucratic. All these cultural variations soon became visible in both companies daily activities. As an example, Daimler managers were concerned a lot about daily trivial cases which disappointed Chrysler executives, cases such as the shape of a pamphlets and etc. Meanwhile, Daimler leaders were frustrated by Eaton’s emotional actions during the speech.

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In a nutshell, Daimler-Benz had been the symbol of German power whereas Chrysler has been entitled as the most economical and nimblest car manufactories worldwide. [Appendix D]


Another key issue at DCX was the differences in par structures between the two pre-merger entities. Germans disliked huge pay disparities and were unlikely to accept any steep revision of top management salaries. But American CEOs were rewarded handsomely. Chrysler could cut pay only at the risk of losing its talented managers.

Germans and Americans also had different working styles. The Germans were used to lengthy reports and extended discussions. On the other hand, the Americans performed little paperwork and liked to keep their meetings short. Americans favored fast-paced trial-and-error experimentation, whereas Germans drew up painstakingly detailed plans and implemented them precisely. In general, the Germans perceived the Americans as “chaotic” while the Americans felt that the Germans were stubborn “militarists.”

Post merger, Americans were trapped in the German style of planning, constantly being told what to do, gradually damping their creativity and autonomy.

James Holden, Chrysler president from September 1999 through November 2000, explained that ‘Mercedes is famous for being a high end luxury brand, whereas Chrysler, Dodge, Plymouth and Jeep were serving a lower market, it was a marrying up, marrying down event ‘. [xvii] This fueled an undercurrent of tension, which was amplified by the fact that American workers earned appreciably more than their German counterparts, sometimes four times as much.


German over-representation is also apparent in the board structure, [Appendix E] they approve all major company decisions, including the firing of executive management .In 2000, two successive Chrysler presidents, Holden and Stallkamp, both American, were fired.

The Daimler-Benz management presence permeated every important function at Chrysler USA. By the end of 2000, there were only 128,000 Chrysler employees still working in the US operations, all anxious and demoralized. Ex-Chrysler managers felt that Daimler-Benz was steadily leading Chrysler into a state of chaos.

Schrempp openly said that he never intended the merger be one of equals, and when he began replacing several American executives with German ones, Chrysler must have felt a little humiliated. Even though honesty and directness are welcomed and encouraged in Germany, several Americans do not appreciate such boldness. Consequently, reputations have certainly been damaged during the process. With Chrysler being “taken over” by Daimler, with regard to that, mostly Americans were feeling betrayed – “How could you let Daimler make you a mere subsidiary?”

The managers who had built Chrysler’s “cowboy bravado” were no more there. Some remained on staff, feeling withdrawn, ineffective and eclipsed by the Germans in Stuttgart. Others left for a more promising future at G.M. or Ford. The American dynamism faded under subtle German pressure. According to a Daimler-Benz executive, “Eaton went weeks without speaking with Schrempp. Schrempp, meanwhile, was afraid of being labeled a takeover artist. He left Chrysler alone for too long”.

After the merger, many people observed that Bob Eaton seemed cold-eyed, withdrawn, and uninterested. According to then-president Peter Stallkamp, ‘Eaton had really checked-out about a year before he left’ [xviii] . The managers feared for their careers, and in the absence of assurance, they assumed the worst.

The dislike and distrust ran deep, with some Daimler-Benz executives publicly declaring that they “would never drive a Chrysler”. ‘My mother drove a Plymouth, and it barely lasted two-and-a-half years’, commented Mercedes-Benz division Chief Jürgen Hubbert to the [xix] Suddeutsche Zeitung. Irate Chrysler managers responded with jabs of their own. Bob Lutz, then Chrysler vice-chairman, pointed out to the Detroit Free Press that “The Jeep Grand Cherokee earned a greater rate of customer satisfaction in comparison with M-Class”. [xx] 

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The culture clash has been obvious. Much of this clash was intrinsic to a union between two companies. Their corporate structure, culture and wage systems were thoroughly different. In depth, this union was seemingly the source of trouble: Daimler-Benz and Chrysler’s brand images were founded upon diametrically opposite premises.

From holding language classes to cutting idioms in conversations, from dinner parties to Post Merger teams, DCX put in ample effort to bridge the chasm, but due to deep uncertainty, and lack of trust, they failed to accomplish the remedy.



(Lewin’s refreezing stage that never happened)


What seemed to be a perfect match, the largest trans-Atlantic merger ever, sank unexpectedly. What was supposed to be the leading car manufactory in the world became the chief failure in the M&A industry.

The disruptive change was inevitable, however, by assuring the staff about the stability of condition, they would loosen their faith and trust on the managers, they know change is coming but they are eager to know what would be the consequences for them. Nadler (1993) ascertains that changes threaten an individual’s sense of stability and can present anxieties while reducing the sense of autonomy. Resisting change may function as a survival mechanism where change is perceived as a threat creating a type of organisational autopoiesis, exhibiting a strong resistance when something valuable is under threat (Goldstein, 1988).

As it has been seen in every stage of the story, talented managers and engineers left due to the fact that they were feeling withdrawn and flooded.

Consequently, the expected synergies never happened and on May, 2007, Chrysler has been sold to Cerebrus Capital Management [xxi] , and they failed to accomplish the last phase of lewin’s change model (Refreezing stage).

In summary, the Germans and the Americans were not in sync since the beginning. Different management teams with heavy prides, resisting from compromise and unaware of change would never create a team. DCX have combined nothing beyond some administrative departments, such as finance and public relations.

Learning from analyzing the case, a number of recommendations are outlined further on.


Firstly, there would never be a partnership of equals happening in any international extents. There would always be a stronger part in terms of finance or market share, thus the resulting arrogance on either side of the merges would imperil the business joint.

The Daimler-Chrysler merger should have begun with a strategy, to decide if they wanted to combine the two different cultures, or start off with one brand new one. To do this they should have analyzed the existing cultures, to establish the similarities and the differences. Culture must be blended rather than changed.

Moreover, balancing the need for change with the motivation to preserve existing identity, determine the elements that contribute to the development of change capacity. Meanwhile, building a series of interventions such as creating an understanding, building skills, gaining commitment enhances people’s motivation and consequently a favourable and sustainable change. A further important factor is communicating the urgency for change in depth, as is in maintaining momentum, following Kotter’s (Ch1) words stating that successful large scale change involves momentum.

Considering the uncertainty and negative emotions that accompany change, the ability to discern the emotional reactions to change of employees and board members enhances influence levels and provides the necessary support to the change process (Kiefer, 2004). Displaying an autocratic fashion behaviour by failing to address the concerns of people in the organisation and not devoting ample time and energy in building commitment, inhibits effective change implementation.

That it is not about which approaches and best practices are chosen by the manager. The main thing that should be kept in view by the managers is that what is to be changed, what is the circumstance and what is the choice of adopted approach. Was this the failure of planning and executing productive change? Absolutely!

“People don’t resist change. They resist being changed!”

(Peter Senge)

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