Daimler-Benz and Chrysler merger

Résumé du document

In 1998 Daimler-Benz and Chrysler merged to become DaimlerChrysler, a leading carmaker group that was supposed to benefit from significant synergies between the two companies. Actually this industrial combination aimed at preserving, strengthening and expanding the different brands of the former German and American manufacturers on a global scale. The USD 36 billion deal took place in an industry characterized by a large consolidation trend at the end of the 1990's when both companies were looking out for new markets and opportunities. Chrysler seemed to be an ideal target for Daimler-Benz due to its specific product line made up of minivans, sport utility vehicles and pickups that were particularly successful in the North American market. Chrysler's financial results had lowered the performances of the group for a decade as a result of which Daimler decided to sell a major stake of its weak partner in 2007. Indeed the US carmaker went through a severe financial crisis rapidly after the merger that prevented the newly formed group from obtaining the expected results from the combination. First we will focus on Chrysler's operating performance and issues faced between the years 1998-2007. Then we will highlight the post-merger problems that the US car manufacturer had to face and finally we will critically examine the timeliness, relevance and effectiveness of the measures taken by Chrysler's managers.

Extraits

[...] It must be expecting "synergy." Certainly "synergy" is the word on the lips and the word processors of everyone who has commented on the deal. But not all these commentators seem to understand what synergy means. For instance, there's very little overlap between the product lines of the two companies. Chrysler sells SUVs, minivans, trucks, and mass-market cars. Mercedes sells luxury sedans and sports cars. This doesn't mean synergy is automatic. All it means is that the two companies are complementary, that there are no redundancies. [...]

[...] Normally higher decreases in capital expenditures and R&D expenses could have been expected because of the promising synergies put forward at the time of the merger. Accordingly it must be highlighted that these expenditures improved neither the financial situation nor the operating efficiency of the American division for the years 1998-2006, as it is well reflected in the ROS and ROA ratios. Segments: Chrysler has been a leader in the minivan, Sport-Utility Vehicles (SUV) and pickup markets over the last twenty years. [...]

[...] Consequently many measures were not relevant or not implemented at a proper timing. If the trend was towards consolidation in the automotive industry at the end of the nineties, the recent experience shows that most deals failed following the example of DaimlerChrysler. Thus many car manufacturers now give priority to more pragmatic and specific projects, instead of grand partnerships or combinations. In the DaimlerChrysler case, it is difficult to precisely know if the failure could have been seriously envisaged at the time of the merger. [...]

[...] Moreover car prices were falling and interest rates were low. However the market conditions in the United States radically changed in 1999-2000 with the crisis, and the impact of the “September 11th” in 2001. Indeed interest rates increased, the economy slowed down and unemployment rose; therefore the automotive market was directly hit by fall in demand. Undoubtedly, Chrysler's management was not prepared to face up to the slowdown of the US car market; actually the American division could not offset the decline in sales on the domestic market with an increase in international sales. [...]

[...] It can be highlighted that the Chrysler division drove the group's ROS down. However Chrysler's ROS was relatively high in 1998 and 1999; actually several factors could give some explanations to justify the marked deterioration of the ratio. Indeed the decrease in operating profits or revenues due to lower sales in volumes and price incentives, an increase in costs - more particularly labour costs due to an agreement with the United Auto Worker a powerful US trade union high inventories and stock losses. [...]