Business with Management

Module Code: BU6002

Module Title: Strategic Management

Module Tutor: Ian McDonald

Assessment Number: F13773

Word Count: 1200

Contents
Introduction ............................................................................................................................................. 3 "Merger of Equals" .................................................................................................................................. 3 Financial Outcomes ................................................................................................................................. 3 How happened? ....................................................................................................................................... 4 Decrease of Shareholders Value ............................................................................................................... 5 Bigger vision than opportunity ................................................................................................................. 6 Wrong Industry Wrong Partner ................................................................................................................ 7 Conclusion .............................................................................................................................................. 7 Bibliography............................................................................................................................................ 8

Introduction
Many envisioned that Chrysler and Daimler to have the potential to be ideal complements based on their needs. Their product lines almost did not overlap; with German quality, attention to details, American low cost efficiency, and innovativeness complementing each other. Unfortunately, in spite of these factors this merger turned out to be unprofitable for Chrysler Corporation. (Bill Vlasic, 2000) This assignment seeks to identify and analyze Chryslers strategic failure. Below is stated the information about what happened? (Strategic outcomes after merger) How happened? And why happened?

"Merger of Equals"
According the agreement, Daimler-Benz and Chrysler was touted as a "merger of equals", while after some time it became apparent that it was nothing more than an outright acquisition of Chrysler by the German automaker. This merger was defined as German authoritarian vs. American creativity This fact was confirmed by the words of Juergen Schrempp, The merger of equals statement was necessary in order to earn the support of Chrysler's workers and the American public, but it was never reality (Matthew C. Keegan, 2005)

Financial Outcomes
The results of the merger for the first years were awesome: Sales had risen by 12% to $146.5billion, operating profit had grown by 38% to 96 Billion. According to these results DCX was the most profitable company in 1998. Unfortunately, DaimlerChrysler has been hit by concerns about its financial health. In November 1998, the percentage of DaimlerChryslers shareholders fell from 44% to 24% in U.S.A after merger closed. Later, in Q4 of 2000, it reported an operating loss of $1.3 Billion, that decreased units overall income about $500million.for the year. The North American unit lost $512 million in the third quarter and whats crucial once an independent company became fully concentrated on Stuttgart.

In Contrast to 2000, in 2001 Chrysler Company lost $3 billion, its market share in U.S dropped to 14%, (compared with1997 when market share climbed to 23%), and earnings have decreased by 20%. The results werent desirable. Due to The above mentioned expenditures, Chrysler Corporation reduced 26000 jobs, (20 percent of its work force) and number of plants were closed in U.S (CNN Europe, (03/26/2001)

How happened?
One of the key factors, which led Chrysler Corporation to the loss, can be considered noncompetitive actions against competitors. The company was spending a lot of money on development, but demand and reputation of its product were decreasing time to time. Also its key revenue generators -the minivan, the jeep SUV and the supercharged pickup truck have all come under tough pressure from Toyota, Honda, General Motors and Ford. Demand from market was on Technology, design and quality levels from which suffered U.S.As leading car manufacturer. (Grant, R, 2003) Chryslers plan was to consume Daimlers parts components and even vehicle architecture to reduce the manufacturing cost of upcoming vehicles, but problems surfaced when Daimler's Mercedes-Benz luxury division was averse to contribute all of these possibilities to Chrysler. Moreover Mercedes-Benz decided not to include Chrysler into its distribution channel, because German vehicle manufacturer wanted to protect its brand image as uncompromising quality in contrast with Chryslers price-targeted vehicle. This resulted in fundamental disconnect in supply-procurement tactics, what caused huge expenses. (Keller, M 1998) The loss has been caused by incorrect distribution of funds. For example: increased payment to suppliers by 15 %, no effort to saving funds on minor engineering resources. Chrysler had insufficient knowledge how to provide better cost control. For this reason Chrysler Corporation closed number of factories and cut thousands of jobs in order to reduce unreasonable costs. These factories could be used for more production that would give it possibility to produce economies of scale. (CNN.Europe, (01/29/2001)).

Decrease of Shareholders Value

Shareholders value decline was influenced by the fact, when standard & poors announced its decision, not to include DaimlerChrysler in the S&P500 Index. The S&P is the organization in U.S.A, which includes leading companies in leading industries and has a big impact on United States Economy. After the merger DaimlerChrysler would pay taxes in German not in U.S.A, for this reason S&P refused to include this merger in its corporation. The market reaction to Chrysler shares upon this announcement was negative, because American investors loss confidence in DaimlerChryslers strength and Companys reputation was going down. S&P index is like a defender of share prices from variation, and shareholder feels safety, when his/her company is unified in such organization and its shares are defended. Due to this reason most of shareholders sold their shares. Also European shareholders increased by 19% in one year, when American shareholders decreased by 19%. In the beginning, when the merger was announced, everyone felt

comfortable to invest money in Chrysler, because many envisioned that the new company would quickly capture a bigger slice of the global market. But day to day Chrysler financial situation was going down, it was losing Billions. Otherwise European company, Mercedes-Benz amassed Chryslers distribution channel, which resulted in sales growth. Also the fact that German manufacturer was going to acquire Chrysler created the fear in American investors, otherwise European shareholders used to feel more comfortable for their German company.( Matej Blasko, J. M. (2000)

Bigger vision than opportunity

Bob Eatons dream to survive The Perfect Storm with partner or alone has failed. He made correct analysis of industry environment that rapidly changing market needs large amounts of money to keep product line up to date as well as to take their product to emerging and lucrative new markets. However, the main fact he didnt take into consideration was to choose right partner with properly planned strategy. When he decided to merge with Mercedes-Benz he was thinking only about how to survive through tough competition and forget crucial fact to consider what Benz wants from Chrysler? Bob Eaton didnt take into consideration that his vision was bigger than real opportunities of the company. (Tuck School of Business, 2002). Well defined strategy plays a crucial role on companys success. Leader of company must have capabilities to define an appropriate strategy for corporation and then facilitate its implementation (Burgelman, R. A. (1983)). Unfortunately ,Bob eaton overestimated the future performance.Hewas very-optimistic about synergy gains or simply do not foresee post-merger problems. His mistake was not to survey new industry,threats and opportunities associated with Mercedec-Benz.He made decision about
6

merger based on his thoughts, and companys needs were not taken into account. (Lauren woods,2007) Effective leadership was decisive in this merger.it was obvious that Chrysles leadership was weaker than Mercedes-Benzs.Take two simple example: Jrgen Schrempp and Bob Eaton. Mercedes-Benzs CEO had full control on Bob. Daimler-Benz was characterized by methodical decision-making while Chrysler encouraged creativity. This fact has led Chrysler to immediate bankruptcy. (Bill Vlasic, 2000) Concepts for integration werent detailed enough. Responsibility was shared unequally among managers that give possibility to Schrempp sent Chryslers management team in Stuttgart and then made pressure on them. After that some of them left Chrysler and finally Bob Eaton had only one way to concentrate on Stuttgarts decision.(Karren Lowry Miller)

Wrong Industry Wrong Partner

The biggest mistake was made by Chrysler because company didnt evaluate its partner strength and position in auto market industry. Their brand images were founded upon diametrically opposite premises. Chryslers image was one of American excess, which was operating on cost-controlled atmosphere. Mercedes-Benz, in contrast, was disciplined, experienced German engineering company with uncompromising quality. Benzs credo Quality at any cost proves this assumption. (Tuck school: 4, 5, 6) Chrysler group couldnt foresee what negative effects would have cultural differences on these companies relationship such reasons were: different wage structure (for example: Eatons salary in 1997 ($16 million) estimated to be 8 times that of Schremps), corporate hierarchies and values. Also one of the most significant roles played diametrically opposite management and Lack of governance. (Shelton, C.D,2003).

Conclusion
Based on the above provided information, it can be concluded that the merger of automakers companies Daimler and Chrysler couldnt be considered as merger of equals. It was direct acquisition from German manufacturer. This unpleasant fact was caused by ineffectively defined strategy of Chrysler Corporation, which led the company to lose.
7

Bibliography
Finkelstein, Sydney. (2002). The DaimlerChrysler Merger. Published business case: Tuck School of Business at Dartmouth College. No. 1-0071. (pp: 2, 6, 7)

Grant, R.M. & Neupert, K.E. (2003). Case 4-DaimlerChrysler and the world automobile industry. In Cases in contemporary strategy analysis (pp. 60,61,65). Oxford: Blackwell. Vlasic, B., Stertz, B. (2000). Taken for a ride: How Daimler-Benz drove off with Chrysler. New York, NY: HarperCollins Publishers Inc (pp 92)

Keegan, M. C. (2005). DaimlerChrysler: Merger or Acquisition?:An article. Retrieved from for: http://www.thearticlewriter.com/daimler-chrysler-merger-or-acquisition.htm

CNN Europe, (03/26/2001). Daimler to repair Chrysler .London. Article retrieved from: http://europe.cnn.com/2001/BUSINESS/02/26/daimlerchrysler/ CNN.Europe, (01/29/2001).Chrysler to cut 26000 jobs. London: Article retrieved from: http://money.cnn.com/2001/01/29/europe/daimler/index.htm

Keller, M. (1998). Why DaimlerChrysler might not work :An article. Retrieved from :Interactive Business Network resourse Library : http://findarticles.com/p/articles/mi_m3012/is_n6_v178/ai_20846032/?tag=content;col1

Matej Blasko, J. M. (2000). Value Creation and Challenges of an International Transaction.The daimlerChrysler merger. Terry College of Business,Univeristy of Georgia,Athens: Elsevier Science Inc.(pp320 -323).

Burgelman, R. A. (1983). Corporate Entrepreneurship and Strategic Management: Insights from a Process Study. Management Science , Vol. 29, No. 12. (PP 1349.) Retrieved from: http://www.jstor.org/pss/2631021 (Shelton, C.D., Hall, R.F., Darling, J.R. (2003), "When cultures collide: the challenge of global

integration", European Business Review, Vol. 15 No.5, pp.312-23

Woods, L. (2007). How Daimler Chrysler Merger Failed. Press release about Business.Retrived from : http://www.pressbox.co.uk/detailed/Business/How_Daimler_Chrysler_Merger_Failed_122434.html

A.Stertz, B. V. (2005). Taken for a Ride.How the DaimlerChrysler ''marriage of equals'' crumbled . Article Business week: Retrieved from : http://www.businessweek.com/2000/00_23/b3684147.htm

Miller, K. L. (1998). The Auto Baron. Business week.number3604(pp:2,3,4)