Blog #7: Mercedes Goes to Motown (Documentary)

This week's blog post is going to be about the M&A of Daimler-Benz and Chrysler.

In November 1998, Daimler-Benz merger with Chrysler were probably the most famous of all international mergers then ended in failure. Daimler-Benz is one of Europe's largest automobile company. On the other hand, Chrysler was based on the US. At first, I thought the merger was a great idea. But no, there were so many problems. In the documentary, it shows obvious cultural differences as the main part of their problem. There were also different problem regarding their management- the different management thinking (closely relates to cultural differences) and other factors.

The merger deal was $56 billion for Chrysler to join the German Daimler Benz. Both Chrysler and Daimler saw the need to come together at first, but has now find it really difficult to remain competitive in this century as there are more and more competitors.

The companies also had different cultures. Daimler was quite a hierarchical company with a clear chain of command and respect for authority. Daimler Benz effectively operated as a holding company for a series of autonomous subsidiaries. Each subsidiary had their own management and structure. Though only one subsidiaries was profitable- Mercedes. While Chrysler was a more team-oriented one and also risk takers.

The manager chose its headquarter to be at Stuttgart rather than New York. Why would they do that? The share price fell after that. This had not been foreseen in negotiations. With further negotiations, their headquarters were not allowed in US and Germany. It was already a problem but there were more. They aren't making any profit- poor performance. Other than that, poor press were released with Detroit newspapers running anti German editorials. There were seemed to be poor handling case which were overlooked.

In year 2000, the company began to produce losses especially on Chrysler. They even had to reduce operations and also cut their number of employees. The merger wasn't even beneficial. Daimler Benz held the position of power from the start and made key strategic decisions with their own self-interest in mind. Then what "equal merger" meant to them? They also had no plans to power share with their American counterparts. Chrysler's workers even saw the deal as a takeover rather than a merger. I think there was an issue of trust because the employees on both sides felt reluctant to work with each other. I guess this is also the reason why they fell apart.

In my opinion, the cultural factor cannot be ignored on a global level, especially not within merger and acquisitions. Other than that, the merger of two companies cannot succeed without proper management. If they had good management, I guess things would turn out differently due to the synergies they could achieve from the M&A (such as revenue enhancement, higher bargaining power, lower costs and higher productivity).