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Daimler Chrysler Merger Essay

1101 words - 4 pages

Daimler Chrysler Merger

Daimler Chrysler is the result of merging Daimler-Benz and the Chrysler Corporation in late 1998. The merger was to be one of the largest on record, and the beginning of a new wave of mergers sweeping through the automotive industry.

Although the companies were manufacturing generally similar products, the differences between those products could not be wider. Chrysler was known for a product line consisting of mini-vans, light duty trucks, and four-wheel drive off-road vehicles; Daimler-Benz was known for its luxury brand of Mercedes-Benz vehicles and medium and heavy-duty over-the-road trucks. Merging the two companies entertained the idea of one entity possessing a product line covering nearly every type of wheeled vehicle.

Daimler Chrysler’s strategy was to maintain separate brands and images, following its internal book, “Guidelines for Daimler Chrysler Brand Management.” This book outlined a strategy consistent with a clear separation of Mercedes-Benz and Chrysler brands. No sharing of common platforms, factories, or dealership networks was allowed.
In effect, the two companies were to be run as separate entities; even the headquarters were to remain separate. It would appear a strategy consistent with these goals would severely limit any anticipated synergies of the merger.

Upon completion of the merger, an industry wide overcapacity existed, and economic conditions suggested a further slowdown in auto sales on the horizon. Medium and heavy-duty truck sales were slowing down, Mercedes-Benz was facing stiff competition from the luxury Japanese car market, Chrysler was experiencing lackluster sales, and clearly, costs needed to be cut. The result was Daimler Chrysler’s announced layoffs of 26,000 employees and the idling of several assembly plants in North America.

It became apparent to those outside the organization that the merger was more of a takeover by Daimler-Benz than a “merger of equals.” Clearly, Daimler-Benz emerged as the leading entity and named many of its executives to the board of directors. Chrysler’s management took a back seat, and the former Chrysler CEO was given a lesser role in the new organization.

Since the completion of the merger, Daimler Chrysler stock (DCX) has suffered over a 55% decline. The fundamentals of the company trail its rivals in nearly every category. Daimler Chrysler’s net profit margin of 1.5% lags both that of Ford, at 2.0%, and GM, at 2.4%. Revenues have increased sequentially more than that of rivals GM and Ford, but gross margin, 16.98% lags both GM, 20.07%, and Ford, 20.24%. Return on Equity, 5.8%, lags Ford’s 18.6%, and GM’s 14.8%. Return on Investment, 2.01%, trails the industry average of 2.91%. Return on Assets, 1.2%, is in line with GM and Ford, 1.5% and 1.2%, respectively. Market Value Added was over €65B for FY ’98, dropped to €42B in FY ’99, and by FY ’00 was (€1.2B).

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