Serious efforts to integrate the operations of Daimler and Chrysler foundered on lack of trust clashes between the mid-market cowboys of Detroit and the high-end knights of Stuttgart. And there were unbridgeable differences in the cultures of the two organizations. As is too often the case in acquisitions, the synergies were all on the surface. In theory, the Daimler-Chrysler combination should have yielded two very potent sources of competitive advantage.
The first was a cohesive global brand architecture. Consider Toyota. Its brand structure is extremely clear and logical: Lexus for the high-end buyer, Toyota for the middle-income family, and Scion for the hip young. The segmentation makes sense and the progressions between segments are natural ones. Young people find partners, have children, and buy minivans; people with money move up to luxury vehicles. The second potential source of competitive advantage lay in creating a coherent platform strategy built on the economic logic of parts sharing.
They also try to share parts between platforms to drive economies of scale in manufacturing. It seems only fitting that DaimlerChrysler is dumping its stricken Chrysler subsidiary onto a firm called Cerberus Capital Management, which is named for the mythical three-headed dog that guarded the gates of hell.
That's because when it comes to deals from hell, Daimler-Benz's purchase of Chrysler ranks close to the top of the list. Now, like the owner of an old junker, Daimler has to pay to have Cerberus cart Chrysler away. Some deals—such as Time Warner's disastrous decision to swap its shares for AOL stock at the height of the Internet bubble in —cost investors more money than Daimler's ill-fated acquisition of Chrysler.
Other famous failures that Bruner analyzed, such as the merger of the Pennsylvania and New York Central Railroads, helped accelerate the collapse of the combined firm. But when it comes to what Bruner calls "loss of value, loss of strategic advantage and loss of brand franchise," the Daimler takeover of Chrysler is right up there with the leaders.
Or the losers. Here are the numbers. But thanks in large part to stiff competition from Asian carmakers, Chrysler fell short. The real impetus for the merger, however, may have been more elementary. At the time of the deal, billionaire investor Kirk Kerkorian was trying to gain control of the company.
Soon, control of the combined company fell to Daimler Chairman Schrempp. And Daimler was an all-too-willing, if uninformed, partner, analysts said. The company underestimated the competitive forces that would invade the North American car market and take market share from the domestic carmakers. Daimler-Benz never did due diligence before it bought Chrysler, never looked into the future to see whether Chrysler could afford to be competitive with the others in the industry," insists George Peterson, president of Global Insight.
Chrysler sales skidded, prompting Daimler to dispatch Zetsche to Detroit in to turn the Chrysler Group around. Having returned Chrysler to profitability by the time he went back to head the parent in Germany in , Zetsche said Monday that the sale "was a difficult task personally. But like other domestic carmakers, the company misread the market. Most of Cerberus' investment won't go to DaimlerChrysler, but to bolster Chrysler's automaking operations. We don't think about the next quarter.
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