A Merger of Equal

A Marriage Made In Heaven

An Incompatible Marriage

The Perfect Union

Deal of The Century

BACKGROUNDEngland’s oldest

marque

Background of Daimler

Gottlieb Daimler, 1834-1900 1889 – Developed engines with

Wilhelm Maybach 1891 – Fredrick Simms Bought

UK patent rights to Daimler’s engine

1893 – Formed a company called ‘The Daimler Motor Syndicate Ltd.’

1924 – Merged with Karl Benz’s Benz & Cie to form Daimler-Benz. Built cars under the name Mercedes-Benz.

Gottlieb Daimler

Core Competencies high-valued, technically advanced cars, and focuses

on development of car engines Target Market

Daimler is an up-market brand The company targets a market niche with high-end

users, that focus on the luxurious trait of Daimler Strategic Intent The company aims to achieve

sustainable profitable growth through the development superior products, and customer-relevant technologies.

Source: http://www.just-auto.com/store/product.aspx?ID=60037

Daimler’s Company Profile

Current Chairman: Dr . Dieter Zetsche Business Divisions: Mercedes-Benz Cars,

Daimler Trucks, Daimler Financial Services, Daimler Buses, Mercedes-Benz Vans

Total Revenues in 2007: EUR 99.4 billion Total Sales in 2007: 2.1 million units Today is the 2nd of the Big Three

European Automakers (Volkswagen, Daimler AG, Renault)

Brands: Mercedes-Benz, Smart, Maybach, AMG, Freightliner, Sterling, Western Star, Mitsubishi Fuso, Setra, Detroit Diesel, Thomas Built Buses, Orion

Source: http://www.daimler.com/dccom/0-5-7155-1-12898-1-0-0-0-0-0-36-0-0-0-0-0-0-0-0.html

BACKGROUNDAll American

Background of Chrysler

Founded by Walter P. Chrysler on June 6, 1925

1924 – Launched Chrysler Six, designed to provide an advanced, well-engineered car, at an affordable price

1928 – Acquisition of the Dodge Brothers firm made Chrysler the third of Detroit’s “Big Three” (GM, Ford, Chrysler) automakers overnight

Source: http://www.chryslerllc.com/en/about_us/our_history/

Background of Chrysler

Core Competencies Well known for its product designs, process

design, marketing Target Market

Mass market

Chrysler’s Company Profile

Current Chairman and CEO: Robert Nardeli Business Divisions: Chrysler, Dodge, ENVI,

Jeep, Global Electric Motorcars (GEMCAR), Mopar, Chrysler Financial

Main Market: North America 90% of sales, 2.1 million units

produced annually Dealerships in US: 3,669 (as of

2007) Chrysler is considered today as the

most successful Detroit automaker

The MergerHow it all happened…

Motives for the Merger

Daimler’s Motives Their goal to become a global player with interests

outside its traditional West European base, led to its merger with the Chrysler Corporation.

Chrysler’s Motives To gain competence in product technology and

quality To expand beyond the North American market

In combining the two companies, you had the potential of gaining high volumes, participation in all segments, innovation, adaptability, and technology and quality excellence

Source: School of Economics and Management, Lund University

SWOT ANALYSIS

SWOT Analysis

Strengths Merger combined two strong companies. Savings resulting from economies of scale. Company does more than just autos. Daimler has outstanding reputation. Chrysler was a very cost-effective company. A leader in innovation. Record revenues and increasing market share. Lack of capital constraints. Strong existing product brands. $47 billion allocated for research and development. A wide array of corporate holdings. Leader in Fortune Global 500.

Weaknesses Merger combined two different company cultures

(European and American). Harder to inspire vision and direction for this large

global company. Employees have been leaving at a high rate. DaimlerChrysler brand is unknown and difficult to

define. Image campaign could distract from strong product

brands. DaimlerChrysler products do not bear the company

name. Company’s broad holdings are still seen as separate

entities, not as parts of DaimlerChrysler.

SWOT Analysis

Opportunities Merged company should be able to expand markets,

particularly into Asia. Safety failures at Ford should open door for

DaimlerChrysler. Innovation will lead to new products on the market. A hybrid car, which is very environmentally friendly, will

be launched soon. Creating a DaimlerChrysler corporate brand identity. Over 68 percent of the company's profits come from

automotive brands. Can reach opinion leaders and existing customers with

similar communication plans. Innovative car ideas.

SWOT Analysis

Threats Has been an extended period of time without corporate

communications. Globally, the general population knows little about this

corporate merger. DaimlerChrysler does not yet have a corporate brand

identity. Over 68 percent of the company's profits come from

automotive brands; this is a threat if the market takes a downturn.

Behind in the research and marketing of hybrid autos. Size of company will demand a varied marketing program;

a cookie-cutter approach will not work.

SWOT Analysis

Alliance Design

Alliance with Other Companies

CEO, Schrempp attempted to enter Asia by forming an alliance with Nissan but was turned down by board members.

Hyundai of South Korea in June 2000 DCX purchased 10 percent of Hyundai share in

June of 2000 for $428 million, later increase its holding to 10.5%

S old share of Hyundai in 2004 for $912 Million

Mitsubishi of Japan From March 2000- Nov 2005 Hold 34% of Mitsubishi equity stake

(purchased for 2.1 Billion Euro) Lasted 69 months The deal was costly – it was a disaster!! Mitsubishi was loss-making partner rather

than good merger target. Shortly after a sale of the final portion of

share, Schrempp was forced to step down and replaced.

Alliance with Other Companies

Mitsubishi Performance

Following the alliance…

1999

"The first full year of DaimlerChrysler has been a great one.

Our sales revenues for 1999 are up about 12 %. We sold 3 .2 million Chrysler, Dodge, Plymouth, and Jeep products - more than any other year history.

We also sold more than a million Mercedes-Benz passenger cars, and 550,000 commercial vehicles - also a record."

2000

2-years after merger, DaimlerChrysler's US arm stumble.

Chrysler US loss for 3rd Q at $530M-$550M Problems: US exec flight due to German

“intervention“, abandon of Jeep/Dodge Ram up styling, failure to deliver on cost savings

(unwelcome by US execs) Investments in Mitsubishi and Hyundai for "global" market projects

2001-2002

Late 2000: Dr. Z, then head of Chrysler, proposed a massive reorganization of the US subsidiary: the closure of six plants and the loss of 26,000 jobs .

A poor performance in 2001 DaimlerChrysler's revenues for 2002 ($148.15

billion) decreased 6% from 2000 Chrysler cars generated a decreasing revenue,

down 7% from 2000 and Chrysler accounts for 41.5% of company revenue

On the opposite, Mercedes Benz generated an increasing revenue of 9%, only accounted for 31% of the total revenue.

2003-2005

After that…

Late 2005: shareholders forced Jurgen Schrempp to step down as the chairman. After the Chrysler unit of DaimlerChrysler made a big loss in 3Q of 2005,.

Dr. Z, Dieter Zetsche, took over. $1.5 billion loss for 2006 DaimlerChrysler's operating profit in 2006

rose .3 billion euros from the previous year . However, Chrysler division suffered a large

financial loss of 1.5 billion euros and has plans to lay off over 13,000 jobs in the future.

1. Stock Price shrank…

Overall results

Stock Price 1998-2002

Comparison Stock Price

2000-2005

2. Chrysler Total Market Share Drop…

Overall results

3. Total Market Share

Overall results

4. Net Operating Profit

Reasons for Failure

“How do you pronounce the name

of a German-American

automaker?” Daimler.

Chrysler is silent.

--DC headquarters joke Auburn Hills, MI

1. Cultural Clash

DaimlerChrysler did provide cultural workshops for employees and had post-merger integration team.

During the deal making process, meeting of the minds was met at senior management level.

However, there are several components causing this clash.

Daimler --a conglomerate with 21 different business

Hierarchical: tradition top-down management

Bureaucratic Detailed decision

making Disciplined

1.1 Corporate Structure

Chrysler--highly centralized car and truck manufacturer

Fast and lean decision making: allow mid-level employees to make decision

Relatively informal Team-orientated Success Driven

1.2 Corporate Culture

Daimler

Management processes of planning, organizing and controlling

More conservative, efficient, and safe

Formality, hierarchy Well-structured

decision making process

Beer brakes - smoke and alcohol in the workplace

Chrysler

Setting goals, directing and monitoring implementation

The risk-taking underdog

Innovative Free-form discussion Less formal but strict

about issue like alcohol and smoking in the workplace

Daimler Codetermination: equal representation of workers

and supervisors Union have much more power Lesser salary but high expense budget

Chrysler No codetermination Toothless Union: struggle between union and

management Higher salary and bonus

1.2 cont. -- Corporate Governance and lifestyle

1.3 Customer Proposition & Product development philosophies

““Mercedes was universally perceived as the Mercedes was universally perceived as the fancy, special brand, while Chrysler, Dodge, fancy, special brand, while Chrysler, Dodge, Plymouth and Jeep were the poorer, blue Plymouth and Jeep were the poorer, blue collar relations”collar relations”

James Holden, President of Chrysler --From September 1999

to November 2000

Daimler – Quality At Any Cost The brand image and experience associated

with the highest quality available in the market and uncompromising

1.3 Customer Proposition & Product development philosophies

Chrysler – Price Targeted Vehicle Attractive, eye-catching design at a very

competitive price, assertiveness, and risk-taking

Daimler Use handful of close suppliers Brand bias: Dodge Neon and Jeep Grand Cherokee

were sidelined in favour of less cost-effective and troublesome Mercedes A-Class and M-Class SUV.

Chrysler Several sources of suppliers Chrysler’s European market penetration was

affected from this brand bias

1.4 Purchasing, distribution and sales

Daimler Emphasis on engineering, design, quality, and

after-sales service

Chrysler High volume, low cost manufacturing, and

distribution

1.5 Values

2. Mismanagemen

t Failure to inform all stakeholders

accurately about the terms of the mergers.

Oct 2000, Schrempp, Daimler CEO, confessed that it was never meant to be merger of equal – Chrysler was to be a subsidiary of Daimler-Benz.

This caused “Deep Mutual Distrust”.

“Deep Mutual Distrust”

Were the Germans at point of dominating? Schrempp’s public announcement in Germany

--This rather be an acquisition, not a merger. Employees’ and US buyers’ felt they were betrayed.

Unequal representation at the executive board Closing out of Plymouth brand Later on, almost all of Chrysler key executives

and upper management personals were either left, resigned, or replaced by the German ones.

Late 2000, an American president of the Chrysler Group, Jim Holden, was replaced by a German appointee, Dieter Zetsche during the time when Chrysler experienced difficulty in the marketplace

Other American executives were either replace or left as well-- Now the German was solely in charge of Chrysler.

“Deep Mutual Distrust” cont.

Communication challenges

No clear message and communication about answer to current problems and who is going to run the entity. The German? Will facilities of Chrysler have to close down?

DaimlerChrysler’s communication strategy was not effective enough to meet this challenge.

Less than 2 years, it had lost the confidence of the media and credibility it had with US management staff and shareholders.

Soon DaimlerChrysler was referred to as acquisition rather than merger.

3. Changes in US Auto Industry Rapidly changing world market…large

amounts of cash would be needed to keep product lines up to date as well as to take products to emerging and profitable new markets.

In US, the challenges from Japanese brands during 1998-2000 which Chrysler responded with little innovation and competitive price reduction.

Current Situation

The Divorce May 2007, a private equity firm Cerberus

Capital Management LP is buying 801. percent of Chrysler, for 7 .4 billion.

Far from the $38 billion Daimler spent to acquire Chrysler back in 1998.

Not all money goes to DaimlerChrysler, the money actually goes to paying off Chrysler's outstanding loans, ensuring the new Chrysler Holding company begins life debt-free.

Just A Plain Daimler -- Back to Daimler

AG

Chrysler LLC

Thank You For Your Attention