Daimlerchrysler Post-Merger Integration

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Team D-Killers: Erika, Echo, Nurlan, Roman, Michael

DaimlerChrysler Post-Merger Integration

 “A merger of equals made in heaven”. Given the background and the situation of both companies by late ‘90s, was such a target only a dream or really feasible? Do you find among the 2 a major potential beneficiary of the merger process?

Chrysler:

• Best practice for the U.S. car industry
• Cost reduction program SCORE cut suppliers by half
• Target costing allowed the company to significantly reduce R&D costs (500 USD vs 2000 USD Mercedes)
• Lowest vertical integration and highest platform sharing among its brands
• Most productive carmaker
• Least diversified and even within the vehicle segment
• Too much focused on the North American market.

Daimler Benz

• premium profitability through restructuring efforts and a refocus on the automobile sector
• High-quality luxury vehicles based on German engineering and technology
• Huge global sales and dealership network
• Highest costs in the industry resulting from inefficient production methods and processes and high labor costs.

Very complementary on paper:

Who is the major beneficiary?

• Both companies rushed into the merger given the pressure from globalization.
• The back-end merger is an unefficient way of merging in a production environment as it excludes all synergies resulting from economies of scope and scale.
• Fundamental different viewpoints on strategy (productivity versus technology leadership)
• Integration only among 300 top-leaders and through compensation
• Tax-Benefits for both companies
• Lack of cultural due-diligence destroyed employee engagement
• Shareholders did not understand the investor story – Shift from U.S. investors towards European investors

In the end, both companies lost (market capitalization, investors, employee trust and credibility). This merger had the potential to become successful based on targets from shareholders of both companies. The fact that it did not happen demonstrate the existing inequality which did not allow overcoming the cultural and management mismatches.

Which were the merger’s main challenges, and how did Eaton and Schrempp address them?

The Challenges: