The DaimlerChrysler merger: One company, two cultures

Table of content

1. General background of the DaimlerChrysler merger
1.1 The merger announcement
1.2 The merger candidates
1.2.1 Chrysler Corporation
1.2.2 Daimler-Benz AG
1.3 The goal of the merger

2. The cultural clash: One company, two cultures
2.1 The new corporate structure: Daimler’s dominating position
2.2 Analysis of cultural differences
2.2.1 Hofstede’s Dimensions
2.2.2 COF-Mapping

3. Conclusion and Recommendation for DaimlerChrysler’s Future Course
3.1 Conclusion
3.2 Recommendation

List of Abbreviations

Sources

Appendix

1. General background of the DaimlerChrysler merger

1.1 The merger announcement

In May 1998 the German car maker Daimler-Benz AG and America’s third largest automobile company, Chrysler Corporation, signed a merger agreement to build the world’s No. 5 automaker. Juergen Schrempp, CEO of Daimler-Benz, and Robert Eaton, Chrysler’s then boss, saw a logical fit between the European luxury-car producer and the American maker of sport-utility vehicles, minivans and medium-sized vehicles. The complementing product and geographical match seemed to prepare the merged DaimlerChrysler AG for the future competition in the automobile industry.

1.2 The merger candidates

1.2.1 Chrysler Corporation

When the merger was announced by Schrempp and Eaton, Chrysler was the most efficient one of America’s Top Three car producers with a very strong position in the SUV and minivan market. Chrysler’s high profitability was mainly achieved by relatively low research and development expenses and a comparatively aged product portfolio with many popular, well-established models generating high profits.

Only a few years before the merger announcement, in the mid-1990s, Chrysler was very close to bankruptcy and survived a failed hostile buy-out attempt launched by Kirk Kerkorian, a corporate raider who had a big stake in Chrysler at this time. Chrysler’s advisers saw a need for the company to merge with another automobile maker in order to survive in the competitive car industry.

In 1998 Chrysler sold a record of three million cars and trucks the bottom of the price range was represented by the Neon model selling for $12,000. Chrysler had become the world leader in “low-cost, high-volume auto production”^[1], after all the financial difficulties it had faced in its history. More than 90% of Chrysler’s 120,000 employees worked in the USA and earned on average $22 per hour.

Chrysler was characterized by automobile analysts as daring, diverse and creative.

1.2.2 Daimler-Benz AG

Daimler-Benz was the world’s most profitable car maker in 1998, owning a brand with high international reputation, Mercedes, known for its high quality state-of-the-art engineering. Daimler-Benz sold about 920,000 cars in the year of the merger. The prices for Daimler’s cars ranged from $31,000 for the C230 model to $135,000 for the company’s top model, the S600. Daimler-Benz had some of the highest production costs in the industry, partly caused by the high labor costs in Germany, where the average salary was $28 per hour. Daimler-Benz had a work force of 320,000 employees, many of them in Daimler’s non-auto operations, like the aviation business and financial services.

Daimler-Benz was described by automobile analysts as conservative, efficient and safe.

1.3 The goal of the merger

Automobile analysts were expecting that only 10 out of the 30 car makers could survive in the increasing competitive global market and that companies either had to seek for a merger partner or would become an acquisition target in the long run. According to analysts, sales of at least 4 million cars would be necessary to become one of the future top players in the automobile business.

The merger was creating a company with more than 440,000 employees, a market capitalization of $92 billion and annual revenues of about $130 billion. DaimlerChrysler projected sales of more than four million cars in 1999 and expected cost-savings of about $1.4 billion in the first year after the merger and $3.5 billion a year within two to three years^[2]. Top-managers of both companies expected huge savings by combining purchasing and other operations, like distribution. Daimler-Benz saw the opportunity to share the costs of new technologies with a larger base and to reduce total research and development costs by joint developments of mid-sized cars. The reduction of costs relative to competitors would improve DaimlerChrysler’s competitive position in the market and strengthen the company’s financial position.

The managers of both companies were convinced that their employees would play an important role in the merger and that the success of the construct would mainly depend on their employees’ motivation of being part of a merged multinational company.

2. The culture clash: One company, two cultures

2.1 The new corporate structure: Daimler’s dominating position

The primary task of DaimlerChrysler’s management was it to bring together different cultures in order to conduct business efficiently and to achieve the ambitious cost-saving goals. Therefore, DaimlerChrysler set up a post-merger integration team, which analyzed failed mergers of other companies in order to avoid common failures in DaimlerChrysler’s integration process.

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^[1] TIME magazine, ‘Worldwide Fender Blender’, May 24, 1999

^[2] Human Resource Management International Digest, ‘DaimlerChrysler confronts the challenge of global integration’, Vol. 12, 2004