There's No Such Thing as A Merger Chapter 3: Daimler Chrysler

Daimler Chrysler: a tragic love story.

Just because you’ve named it “equality,” doesn’t make it so, and just because you are joining two companies, doesn’t mean they will actually unite.  The short-lived marriage of Daimler and Chrysler is actually the story of a takeover measure and corporate cultures that failed to integrate.  Daimler and Chrysler married in 1998 and created the German-American car manufacturer known as Daimler-Chrysler, in what was decidedly a “merger of equals.”  For Chrysler CEO, Robert Eaton, an equal partnership was a nonnegotiable condition.  Among other terms, Eaton and  Daimler’s CEO, Jürgen Schrempp, would co-CEO the merged company for three years, and the Board would be split 50-50. 

Daimler, however, had other plans and immediately commenced aggressive takeover orders: the headquarters would be in Stuttgart and the combined company would be a German legal entity, not an American “Inc.” Soon after, German leadership reigned.  While Eaton’s aspiration of equality was admirable, it was not entirely realistic.  Daimler contributed 57 percent of the stock market value to the merger and Chrysler contributed 43 percent.  The two companies were not on even footing. 

Over the nine year romance, Daimler-Chrysler failed to integrate, failed to achieve any of its purported synergies, and ultimately split up.  In the case of Daimler and Chrysler, Daimler was an acquiror in a merger of equal’s clothing.  While the two companies set out to merge, it was never actually realized.  The integration that Daimler and  Chrysler so desperately needed was precluded by the cultural clash.  

What eventually surfaced is that Schrempp never had any intention of actually merging with Chrysler.  His courtship of the American automaker was based in deception.  Daimler wanted to acquire Chrysler - plain and simple.  Schrempp masterminded a “bait and switch” approach regarding the equality and cooperation the two companies would enjoy.  In 1998 Schrempp eagerly said that “of course” the union would be equal.  But by 2000, Jürgen Schrempp had brashly remarked to The Financial Times that the deal was only pitched as a “merger” for “psychological reasons” -- in order to sell the deal to the Chrysler team. 

The power imbalance endured as Daimler leadership began occupying the combined company’s top spots.  One year in, and former Chrysler CEO, Robert J. Eaton, was the only Chrysler senior-leader remaining; and by 2000, Eaton retired early, leaving the company exclusively in the hands of Daimler-Benz executives.  Attempts to remediate and replenish Chrysler leadership and to maintain a balance did not occur.  The Board of Directors was more of the same.  By 1999, the American Directors held only five of the 14 seats.  Co-leadership of the new entity was almost non-existent and the mindsets of the constituents struggled to keep pace with the rapidly revealing disillusionment of the business combination. As American leadership jumped ship, so did the trust of U.S. investors.  Compounding the trust issue was the geographical separation of the two parties.  Long distance relationships are really tough and without trust, unity will not follow.  In addition to Daimler’s renege on the merger offer, the companies began abandoning efforts to integrate.  

The cultural differences between the two companies proved frustrating and ultimately insurmountable.  Any merger scenario invites a slew of cultural struggles, but a cross border combination is a special breed.  In this case, Daimler and Chrysler reportedly clashed at every juncture - from what language should be spoken in meetings to which management style should be adopted.  Management was discovering major differences in work habits and in the way executives received and exchanged information and made decisions. For example, in America, the managers could make instant decisions, but in Germany, the underlings would prepare extensive reports and hold formal meetings before decisions could be made.   These two approaches could neither be merged nor adopted uniformly.  Eventually, the two sides decided to stop attempting to blend their immensely different management styles and let Daimler be Daimler and Chrysler be Chrysler - even where operations had been merged.  The alternative was that each side was imposing its work style on the other, which only served to create conflicts, misunderstandings and confusion, and moreover, it really didn’t fit with the culture of either company.

It soon became apparent that the synergies used to justify the Daimler-Chrysler merger were merely pretenses.  After all, Jürgen Schrempp would have been hard pressed to conjoin companies he later claimed to have intentionally deceived, and synergies cannot be realized without integration. 

Theoretically, the business combination should have yielded a cohesive global brand strategy.  For example: segmented customer bases served by a fleet of vehicles at varying price points or perhaps a parts sharing arrangement.  To elaborate, car companies create “platforms” from which families of vehicles can share parts to drive economies of scale in manufacturing.  However, parts sharing between vehicles necessitates cohesive operations, and even more so if the parts are designed and manufactured by engineers on two different continents. 

This romance came to an end in 2007 when Daimler-Chrysler split up.  That Daimler was able to sell Chrysler as a nearly intact entity to a private equity firm almost a decade later is a testament to just how separate these two companies remained.  While neither company really “won” in this scenario, perhaps the overall win was that they didn’t force a broken marriage.  Both companies exist today, and enduring a dysfunctional situation could have created long lasting damage. For example, employees can become disenfranchised when attempts to alter their assumptions, values and beliefs are imposed in the workplace.  Fighting to enforce cross-cultures undermines the shared understanding of every element of the organization - from how to communicate to expectations for performance.  We could argue that Daimler and Chrysler never should have gotten married, but at least they didn’t stick together. 

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