the daimler chrysler merger
TRANSCRIPT
By Guidance byAbdul Rahim A Dr M S JayamohanS 2, IEM
Mergers Literature review Premerger Daimler Chrysler Premerger Mitsubishi Towards the merger The merger To demerger The contrast The failures Inference
Global vehicle production has more than doubled since1975 , from 33 to
nearly 73 mn in 2007
New markets in China and India has helped to drive the pace of growth
Since the mid 1980s, automobile industry has been shifting from discrete
national industries to a more integrated global industry
On the production side, the dominant trend is towards regional integration
Major firms searched for a presence not just in all major geographic markets,
but in each market segment
Organic growth or Growth by acquisition and merger Mergers & Acquisitions are attractive as they create synergies and economies
of scale
A courtship can often assist in clarifying how much investment might be required to improve a weaker firm as the amount of investment needed might be underestimated and vitiate any post-merger strategy (Gomes et al., 2007)
Of the two key phases, post-merger implementation strategy is the most difficult to operate. No two mergers are alike and so implementation strategies vary accordingly, but in theory should reflect the rationale behind the merger (Mitleton-Kelly, 2004)
It could be argued that mergers and acquisitions have become a key method of firm growth and expansion as it is cheaper and quicker than organic growth. Mergers differ from acquisitions in so far as they are the product of mutual consent between the respective firms and often simply involve an exchange of shares.(Capron 1999)
There are three key stages in a merger process: target identification and selection; negotiation; and integration. (Howell 1970)
Timeline Benz & Company, 1883–1926 Daimler Motoren Gesellschaft AG, 1890–1926 Daimler-Benz AG, 1926–1998(Germany) DaimlerChrysler AG, 1998–2007 Daimler AG, 2007–present
Restructuring Jurgen Schrempp(Daimler) assumed leadership in 1995 Daimler merged with US based Chrysler in 1998 Third largest automaker(4.4 mn/annum)
In auto industry since 1917 (Mitsubishi ship building Co.)
Formed Mitsubishi motors in 1970
Alliance with Chrysler(1971-1993)
Produced 250000 vehicles/annum
Posted a debt of $14.2 bn by mid 1990s
Initiated restructuring
Daimler chrysler
Had aspirations for expansion into Japan and other Asian countries
Envisaged sales of $21 bn
Looked for cooperation in technologies leading to new models and cost
reduction(shared assets)
Mitsubishi
Wanted to survive the recession
Seeking new markets abroad
Daimler Chrysler purchased 34% stake($2.1 bn) of MMC in 2000
Rolf Eckrodt (Daimler) appointed as COO at MMC
Cut material cost(15%) and increased capacity utilization(20%)
Shifted from Engg Dominance to market view point
New manufacturing facility at Kolleda in Germany
The global manufacturing alliance(2 mn power train)
GS platform ("Project Global" by Mitsubishi) was a compact car platform co-
developed by MMC and DCX
Small car models(SMART) in western market
Opened a factory in Illinois, Mitsubishi produced vehicles for itself and for
Chrysler, differentiated mostly by name
Mitsubishi embroiled in accusations of covering up defects in their vehicles
MMC’s CEO was forced to resign
Daimler Chrysler renegotiated the financial terms.
Poor performance of the American wing were creating headaches
Less attention to the East
Three year Recovery plan($2.8 bn) by Schrempp failed
Mitsubishi’s US marketing team failed to properly establish the brand
Profitability remained out of reach for Mitsubishi, and enlarged losses in 2005
were forecast by the company
Daimler Chrysler
….
Mercedes had fallen to lower level in JDP reliability survey
Daimler lost $60 bn in stock market value in six years
Finally Daimler Chrysler extricated from its Asian holdings in November 2005
Production of Smart forfour a JV product ended
Jointly operated engine plant came to Daimler
Daimler-Chrysler split followed
In May 2007, a private equity firm Cerberus Capital Management LP bought 80
.1 percent of Chrysler, for $7.4 billion
Mitsubishi initiated a revitalization plan to return to profitability by 2006
DCX Less innovative in technology Hierarchical: traditional top-down
management Non-programmed decision Bureaucratic Stood for shareholders' satisfaction Luxury brand
MMC Emphasised technological
development Programmed decision-making Participative Secretive culture Low priority to compliance and
customer satisfaction Brand for the mass
The post merger integration strategy never worked
Partnership with an ailing Mitsubishi in 2000
MMC’s management culture is in sharp contrast to Daimler’s
Serious error in judgment in terms of timing
Poor evaluation of MMC before the merger
Focused on growing business than profit maximization
Unequal representation at the executive board
Facing the dual Challenge in the West and East
The ultimate lessons flowing from this case are the dangers in
not having fully thought out post integration strategies, the
importance of timing and the consequences of stretching
resources too thinly in times of economic crisis, especially
when the very existence of the dominant partner could be
threatened.
Begley J. and Donnelly T.(2011) ‘The DaimlerChrysler Mitsubishi merger: a
study in failure’, Int. J. Automotive Technology and Management, Vol. 11, No. 1
Sturgeon T.J., Memedovic O., Biesebroeck J.V., Gereffi G. (2009) ‘Globalisation
of the automotive industry: main features and trends’, Int. J. Technological
Learning, Innovation and Development, Vol. 2, Nos. ½
Dirk Vaubel, Carsten Herbes,(2007) ‘Mergers and acquisitions in Japan’
Mitsubishi Motors (1998–2004) Internet repository, Consolidated annual
financial results, available at http://media.mitsubishimotors.com