The Failed Merger With Chrysler Corporation Finance Essay

This study analyzes the instance of Daimler-Chrysler is now Daimler AG – The failed amalgamation with Chrysler Corporation for the 2nd assignment in Strategic Management ( MAN3503 ) . The relevant chapter for this instance survey is ‘Acquisition and reconstituting schemes ‘ .

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The instance is about the failed amalgamation of Daimler and Chrysler the two big automotive giants from Germany and America. There were many grounds for the failure of this amalgamation. This study analyses and reexamine relevant theories and constructs related to the instance.

After analysing the relevant theories, I have described the history and the pre-merger state of affairss of the two companies. Then the grounds for the amalgamation and what the two companies brought into the amalgamation are specified.

Following I have done an external and internal environment analysis including a SWOT of DaimlerChrysler. I have used the Porters Five Forces of Competition Model in the car industry analysis. This subdivision will assist to understand the status of the industry and how DaimlerChrysler has responded.

Then the major grounds for the failure of Daimler-Chrysler amalgamation are discussed in deepness. And eventually, after analyzing all the countries described above and utilizing relevant theories and constructs I have suggested several recommendations and schemes which I believe that would hold saved the amalgamation.

To finish this study I have applied all the cognition I gathered form hebdomadal treatments and other resources including the text book. Internet was the chief beginning I used to garner information about DaimlerChrysler. I have used the APA citing manner as guided in the unit lineation and I believe that all the demands of this assignment are fulfilled.

Introduction

The two taking planetary auto industries, Daimler-Benz of Germany and Chrysler of United provinces merged to organize DaimlerChrysler in 1998. This was a $ 36 billion trade and was perceived to be a ‘merger of peers ‘ . Investors pushed Daimler Chryslers ‘ portions up to US $ 108 in early 1999 seeing the two companies as a perfect tantrum.

Robert Eaton was the CEO of Chrysler Corporation and Jurgen Schrempp was the CEO of Daimler-Benz at the clip of the amalgamation. Schrempp and Eaton led the company to grosss of $ 155.3 billion with a sale of 4 million autos and trucks. So the company ranked 3rd in the universe in footings of grosss and fifth in the figure of units sold.

But in 2000, unluckily the company faced losingss of approximately more than half a billion dollars. And they estimated a higher loss in 2001 with a cut of 26,000 occupations at the Chrysler division.

So after a period of hapless results, Daimler sold Chrysler to ‘Cerberus Capital ‘ , a private equity house for an sum of US $ 7.4 billion retaining merely 20 per centum of Chrysler assets in May 2007 and changed its name to Daimler AG. This amalgamation, which was supposed to be a ‘merger of peers ‘ proved to be a error for both companies. ( Daimler, Chrysler and the Failed Merger – Management Case Study, 2008 )

3.0 Amalgamations and Acquisitions

Merger – Two houses come to an understanding to incorporate their operations, resources and capablenesss on an equal footing to make a stronger competitory advantage. This is frequently referred to as amalgamation of peers and these are friendly minutess. There few types of amalgamations ; Horizontal, Vertical, Market-extension, Product extension and Conglomeration amalgamations.

Acquisition – In acquisitions one house buys a controlling or 100 % involvement in another house. This is a really hard and complex procedure and acquisitions are largely unfriendly coup d’etats. The connotation is to utilize core competency more effectual by doing the acquired house a subordinate concern within its portfolio.

Takeover – It is merely the purchase of one company by another. The four types of coup d’etats are ; friendly, hostile, contrary and backflip coup d’etats.

( Flecther, 2003 ) .

3.1 Advantages of Acquisitions and Amalgamations

Increased market power

Market power is the ability to sell goods & A ; services above competitory degrees or when the costs of its primary or support activities are below of its rivals. By acquisitions houses can achieve better market power. Market power is derived and affected by the size of the house, its resources and capablenesss and the houses ‘ market portion. Acquisition of a rival, provider, distributer or a extremely related concern will let deriving a competitory advantage.

Get the better ofing entry barriers

By geting an established house a new entrant may happen it easy and more effectual to confront entry barriers created by economic systems of graduated table and differentiated merchandises of presently runing houses. New ventures will happen it hard and dearly-won to come in in to a market which is captured by constituted houses. But acquisitions and amalgamations will give immediate market entree.

Reduced cost and hazard of new merchandise development

A immense sum of investings are required when internally developing and presenting new merchandises into the market place. Acquisitions deliver more expectable and faster returns giving entree to new merchandises and to current merchandises which are new to the house. It besides reduces the hazard of an internal merchandise development procedure.

Acquire new engineering and capablenesss.

Acquisitions will assist to derive capablenesss and engineerings that a house does non hold. A house can derive entree to new cognition and be competitory by geting another house with new capablenesss, accomplishments and engineering.

Increased velocity to markets

Acquisitions and amalgamations will assist houses an express market entry. It is considered the fastest manner to come in international markets and cut down the liabilities linked with such schemes.

Increased variegation

Companies find it difficult to develop and diverse merchandises which are different from their current line and for markets which they lack experience. Acquisitions can be used as agencies to successful involve in merchandise variegation. It is considered the easiest and quickest manner to diversify a house.

( Flecther, 2003 ) .

3.2 Disadvantages and jobs of Acquisitions and Amalgamations

Acquisitions and amalgamations will non ever be successful. Many disadvantages and jobs have to be faced as in the instance of DaimlerChrysler. Some of the common jobs that houses have to face are ; Integration jobs. The activities, civilization, employees, systems of the two companies may be hard to incorporate. The high cost of geting a house such as a hostile coup d’etat may be non profitable in the long tally and the debts taken to get houses can hold several negative effects. The returns may non be attractive. Lack of due diligence in funding, difference in civilizations, revenue enhancement effects will hold a negative consequence in the acquisitions and easy ensue in paying an inordinate premium. Another major job is that the inability to file away synergism. The value should increase by working together. And if the acquisition created a really big house, even if it achieved economic systems of graduated table, in some instances the cost required to pull off the larger house will transcend the benefits of economic systems of graduated table. ( Flecther, 2003 ) .

Company Profile

4.1 Pre-merger state of affairs

Daimler-Benz is the consequence of a amalgamation between Benz & A ; Cie and Daimler Motoren Gesellschaft which was founded in 1926 in Stuttgart, Germany. They agreed to utilize the trade name name Mercedes for the vehicles they manufactured. After some clip the company developed its engineering by fabricating aircrafts, armored combat vehicles and pigboat engines. Mercedes was popular and successful in the European upper category and in motor athleticss with its high quality and luxury autos.

Chrysler Corporation was founded by Walter Chrysler in 1925 United States. The company was popular at that clip for their well-engineered low-cost autos for the American working and in-between category with trade names like landrover, contrivance, Chrysler, Ram and Plymouth. In the mid-1990s it became one of the biggest and most profitable car industries in America.

( Martelin, 2008 )

4.2 Vision and Mission statements

Vision – ‘In order to safeguard our long term success and the hereafter of our company, while heightening societal credence for our operations, we have committed ourselves to a vision of sustainability ” ( Company profile, n.d. ) .

Mission – We intend to presume a prima function in the world-wide automotive industry. With respect to the quality of our merchandise and services, the placement of our trade names and our profitableness, we are endeavoring to accomplish the top place in the international competition ” ( Company profile, n.d. ) .

4.3 Why did Daimler and Chrysler do the amalgamation?

Forming a monolithic car fabrication company which would rule the car industry was one of the chief grounds for this amalgamation.

German maker Daimler had captured the premium and luxury auto market with its Mercedes trade name holding a good concern theoretical account and stable growing. They wanted to spread out their market portion in the US market.

American maker Chrysler had a strong clasp in the in-between degree auto market but it was financially weak because it had faced bankruptcy on few occasions. They looked for gross revenues in the European market and had the compulsion to achieve cost effectivity. So these single companies saw this amalgamation as a good chance and they intended to utilize their cognition and bask the resources owned by both companies in a concerted manner to increase their concern and add extra strength. After the amalgamation these two automotive giants supposed to increase nest eggs by cut downing research & A ; development costs, sharing resources and minimising procurance and outsourcing costs. ( Kandapa, 2008 )

4.4 What did they convey to the amalgamation?

Daimler Benz was renowned for its premium and luxury Mercedes autos. It was considered as a position symbol to have a Mercedes because of the trade name individuality and singularity as an sole auto. With trade name repute they brought in superior technology engineering, a strong aftersales web, a first category R & A ; D lab which was equipped to develop top of the line luxury public presentation autos with high degree of safety. ( Kandapa, 2008 )

On the other manus Chrysler brought its first-class selling scheme, expertness in managing recession struck economic systems, respectable trade name individuality, a huge gross revenues web and a adept work force of 121,000 associated to the American United Auto Workers. Chrysler had captured the in-between category Americans who appreciated value for money with autos categorized to cover a assortment of market sections. ( Kandapa, 2008 )

Critical issues ( why DaimlerChrysler failed )

5.1 Cultural clang

Cultural clang is a major issue when unifying cross lodger companies, which occurred in the instance of the DaimlerChrysler amalgamation. Disparities, misinterpretations and mistakes will happen in work attitude and systems in different civilizations from each state. Daimler had the eastern civilization of Germany and Chrysler had the Western civilization. So they had to confront organisational, working manner and compensation disparities.

Daimler organisation was hierarchal and bureaucratic and their undertakings were purely separated. The board members of this company got about a same compensation holding their ain helpers. They work late hours and at weekends. Geting a beer and a fume to their working desk was non an issue. Daimler considered them as an pioneer with rich technology and quality in the car industry and their concern civilization encouraged giving bids without discoursing with the lower degrees. Here you can see the summery of Daimler.

Culture

Structure

Merchandises

Formal

High authorization

High Quality

Traditional

Strong hierarchy

High Monetary value

Mannerly

Small payment disparity

Epicurean

Bureaucratic

Smaller Sized Cars

Meanwhile the unconventional Chrysler organisation was really flexible and had a short development clip. They were trendsetters for new designs and were an approaching company who challenged good established car manufacturers. But they faced rather a few near-bankruptcies. Chrysler ‘s executives had no position symbols and they worked on deadlines, face-to-face to Daimler executives. Lower degrees of the organisation were encouraged to do their ain determinations, it was cross functionally organized and squads worked self-responsible within platforms. But cost direction was rigorous at Chrysler.

Culture

Structure

Merchandises

Relaxed

Exceed down direction

Attractive

Informal

Thin staff

Very competitory monetary value

Flexible

Highly centralized

Comfortable drive

Hazard Taking

Team Work

Moderate velocity

Free signifier

These disparities developed assorted jobs in their regular activities. Mistrust and dislike arose between the employees and executives of the two companies. The American employees earned much more than the Germans and Daimler merchandises were perceived as the upmarket particular trade name while Chrysler were the working, in-between category Americans trade name. All these tensenesss led to jobs among both the employees and merchandises and they lost their intrinsic value. ( Habsjah, 2011 )

5.2 Mismanagement

Even this combination was named as a amalgamation of peers, the truth was that Chrysler was bought and was treated bad. Daimler dominated Chrysler and this directed the company into misdirection. So the employees and directors who built Chrysler ‘s success left and the staff who remained felt withdrawn and were unproductive. ( Habsjah, 2011 )

5.3 Lack of Due Diligence

Daimler lacked due diligence which is an indispensable measure prior to the amalgamation. So they could n’t acquire a clear thought about the hereafter. With Asiatic automotive giants come ining the U.S market the competition was really high and it was hard for Chrysler to afford to be competitory. ( Habsjah, 2011 )

5.4 Disparities in Wagess

This issue caused a immense tenseness in the interactions between the American and German staff. The US workers were paid a big sum compared to the Germans. As for an illustration ; the caput of Chrysler, Eaton was acquiring 11.7 million dollars while Schrempp, the caput of Daimler was acquiring merely about 2 million dollars. So this was a immense job to make up one’s mind whether to take a wage cut for the American staff or to give a immense wage hiking for the Germans. Americans wo n’t hold for any wage cuts while increasing the rewards of the big German work force will certainly take to fiscal prostration. But the company made some alterations by adding fillips to Germans while cutting down options given to the American staff after the amalgamation. This ulterior became a immense issue. ( Kandapa, 2008 )

5.5 Different Business Models

The Daimler used a high cost, low volume fabricating theoretical account supplying to the high terminal premium market section while Chrysler on the other manus used a low cost, high volume fabricating theoretical account with mass production techniques supplying to the monetary value medium, fuel economic system minded in-between category working clients. They failed to Join and manage these two theoretical accounts. ( Kandapa, 2008 )

5.6 Adverse Media Coverage

The media and the Hagiographas triggered choler and misgiving among the Americans and hastened the failure of the amalgamation. Everyone praised the amalgamation at the beginning. But subsequently on journalists and writers started knocking the amalgamation stating that Daimler is in control of Chrysler and Americans were taken for a drive by the craft Germans. ( Kandapa, 2008 )

5.7 Cost film editing steps

Reducing gross revenues and increasing operating expenses was the chief issue to command costs. There was extra capacity. Directors decided to shut down some workss and mills and cut down approximately 13,000 occupations. This Created many issues in the work force and labour brotherhoods. ( Kandapa, 2008 )

6.0 Environment Analysis

6.1 Internal analysis

Strengths

DamilerChrysler has several strong makes such as Mercedes, Jeep, Dodge and Chrysler runing from assorted monetary value scopes, theoretical accounts, economic system, luxury and ultra-luxury theoretical accounts which are demanded and recognizable in most parts of the universe. Sports autos such as the contrivance viper increased the image, manner and power of DaimlerChrysler. So DaimlerChrysler can vie straight with most of the other industries. The amalgamation gave DaimlerChrysler a immense planetary presence with the usage of a strategic partnership with Mitsubishi and was considered to be one of the most well-thought-of companies worldwide. Another major strength which had the ability to revolutionise the industry is that DaimlerChrysler was the leader in H fuel engineering. ( Highfill, 2004 )

Failings

A chief failing of the DaimlerChrysler is that though they have captured the American and European markets, they are non strongly represented in the Asiatic markets. It is really of import to be present in all the large and rising universe markets since the automotive industry is traveling towards globalisation. The partial interest in Nipponese Mitsubishi Company was non an reply to this Asiatic job because of the beads in Mitsubishi motors. Another failing is that the turning demand and increased fabrication of loanblends by rivals. DamilerChrysler merely focus on H engineering which left them behind. ( Highfill, 2004 )

6.2 External analysis

Opportunities

There are a figure chances in the fast growth and altering Automotive industry. Chinas consumerism and fast turning vehicle industry is a good chance for the company. DaimlerChrysler ‘s Jeep trade name has a high demand in China and the scheme to construct Mercedes Benz workss in China are immense chances for them to force their merchandises to the market. Another chance can be identified as the DaimlerChrysler ‘s H power engineering because of the current addition in monetary values of oil and gas. ( Highfill, 2004 )

Menaces

The downswing of the Mitsubishi motors caused many jobs to the confederation with DaimlerChrysler. They had to confront jobs in the presence in Asiatic market and if Mitsubishi continues to fall, DaimlerChrysler will hold to confront even fiscal losingss. This will set DaimlerChrysler far behind in the race with other major car manufacturers. Another menace is that DaimlerChrysler put immense investings in the H fuel engineering. If this engineering did n’t work out and the increasing tendency of intercrossed engines continues DaimlerChrysler will lose a immense market portion and they will non be able to gain from the immense investings made in H engineering. ( Highfill, 2004 )

6.3 Industry Analysis

Porters Five Forces of Competition Model

Menace of new entryway

The car industry is matured and reached economic systems of graduated table. So the menace of new entrants is really low. If they want to vie, they need a immense sum capital and mass produce to accomplish economic systems of graduated table. The distribution channels are besides a barrier to new entrants. Finding franchises and acquiring a infinite in franchise tonss is really hard and competitory.

Dickering Power of Suppliers

There are infinite providers to the car industry. So the bargaining power of providers is really low. Industries can merely switch to another without any hurt.

Dickering Power of Buyers

The bargaining power of the purchasers is reasonably high. If a maker can non fulfill the consumer, he might travel to another maker. The shift costs of the purchasers are low and makers have to maintain them without losing in order to last.

Menace of Substitute Merchandises

This largely depends on the geographic location of the consumer. In some countries, metros and other public transit methods are really popular. But in most instances it is really necessary for a individual to hold an car to go. So the menaces of replacement merchandises are low.

Intensity of Rivalry among Competitors.

There is a high and strong competition among rivals in the car industry. The elephantine rivals are really closely balanced and there is a small chance for distinction. Industries need to vie and take the market portion from rivals. Buyers ever compare the rivals because all these industries make indistinguishable autos, trucks and SUVs with really similar and standard options. It is really of import to surpass the rivals in some manner to acquire to the consumer.

( Highfill, 2004 )

7.0 Recommendations

Cultural clang was one of the major grounds for the failure of the amalgamation. The company should hold eliminated inconsistent maps and activities which causes struggles in cultural integrating. Determination of the extent to which cultural clangs are likely to happen is really of import. The employees should be clear about the new schemes of the new company and the direction should discourse about the cardinal acquisition of the civilization and efficient procedures. A scheme should hold been applied to successfully fall in the two civilizations acquiring the best from both which will guarantee the cultural integrating were successful. ( Post-Merger Analysis, n.d. ) .

The top direction keeping and engaging the right people is important in the scenario of Chrysler. After the amalgamation Most of the Chrysler ‘s top direction and employees who built Chryslers success left. So without a proper leading the employees of Chrysler were lost in the new environment. Chrysler ‘s leading should hold non taken the back place in the freshly merged company. ( Post-Merger Analysis, n.d. ) .

Planing and carry oning mentoring plan for employees to develop people on to travel the company to the new country. Teaming, preparation, integrating and public presentation measurement should be included in the plan. ( Post-Merger Analysis, n.d. ) .

The strengths of the two companies should be identified and utilize them together in possible chances to spread out the concern and to avoid menaces and failings. ( Post-Merger Analysis, n.d. ) .

The communicating manner differences should hold been identified and a communicating preparation awareness plan should hold been promoted throughout the amalgamation. The leaders should hold been less important and communicate on a regular basis allowing the employees maintain a sense of their yesteryear with Chrysler. They should hold besides better communicated the grounds for the different compensation between the two companies. This could hold built a better apprehension among the employees from the two civilizations. ( Post-Merger Analysis, n.d. ) .

Finally, downsizing which is considered as restructuring scheme can be used. DaimlerChrysler can cut down the figure of house ‘s employees and units which are non effectual and efficient. As mentioned above in the analysis of the study, big companies are hard and dearly-won to run. Even if they can accomplish economic systems of graduated table, in some state of affairss the cost of running the company will be higher than the net incomes. And assorted issues such as misdirection can happen. So by downsizing, DaimlerChrysler could hold cut down costs and the direction could hold been in full control of the incorporate house.

8.0 Decision

A big figure of amalgamations and acquisitions fail due to inefficient planning and assorted other troubles. Above is one of the universe ‘s largest and strongest amalgamations in history. It is mentioned that prosecuting in amalgamations and acquisitions is a hazardous affair and proper planning and research should be conducted. If DaimlerChrysler was successful, the strength of the two companies would hold been ruled the car industry. However issues like cultural clang, misdirection, deficiency of due diligence, disparities in rewards, different concern theoretical accounts, cost film editing steps and inauspicious media describing initiated the failure of DaimlerChrysler amalgamation. These two sides did n’t desire to accept alteration and work corporately to do the amalgamation successful. It is really of import to see every facet before the amalgamation happens. The study has defined some recommendations and schemes which could hold been used by DaimlerChrysler to do the amalgamation a success.

9.0 Mentions

Company profile. ( n.d. ) . DaimlerChrysler. Retrieved September 17, 2012, from www.csrglobe.com/login/companies/daimlerchrysler.html

Daimler, Chrysler and the Failed Merger – Management Case Study. ( 2008, March 10 ) . Business and Management Case Studies, Case Study Resources. Retrieved September 16, 2012, from hypertext transfer protocol: //www.casestudyinc.com/daimler-chrysler-and-the-failed-merger

Flecther, J ( 2003 ) . Strategic Management 111 Study Guide. Edith Cowan University, Australi.

Habsjah, I. ( 2011, July 6 ) . Daimler-Chrysler Merger Failure. Scribd. Retrieved September 16, 2012, from hypertext transfer protocol: //www.scribd.com/doc/59790315/Daimler-Chrysler-Merger-Failure

Highfill, D. , Baki, M. , Copus, S. , Green, M. , Smith, J. , & A ; Whineland, M. ( 2004 ) . Automotive Industry Analysis GM, DaimlerChrysler, Toyota, Ford, Honda. Open Sharing of Academic Unpublished Papers & A ; Research Papers. Retrieved September 18, 2012, from hypertext transfer protocol: //academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-industry-analysis.html

Hinterhuber, H. , & A ; Stadler, C. ( 2007 ) . ScienceDirect.com – Long Range Planning – Shell, Siemens and DaimlerChrysler: Leading Change in Companies with Strong Values. ScienceDirect.com | Search through over 10 million scientific discipline, wellness, medical diary full text articles and books.. Retrieved September 19, 2012, from hypertext transfer protocol: //www.sciencedirect.com/science/article/pii/S0024630105000786

Kandapa, S. ( 2008, December 23 ) . Change Management Analysis of Daimler – Chrysler Merger – Yokel! Voices – voices.yahoo.com. Yahoo! Voices – voices.yahoo.com. Retrieved September 15, 2012, from hypertext transfer protocol: //voices.yahoo.com/change-management-analysis-daimler-chrysler-merger-2351208.html? cat=27

Martelin, N. ( 2008 ) . Amalgamations and Acquisitions. Daimler – Chrysler amalgamation instance ( pp. 11-17 ) . Norderstedt: Books on demand.

Post-Merger Analysis. ( n.d. ) . jaybrownonline.com | Information to assist you win. Retrieved September 18, 2012, from hypertext transfer protocol: //jaybrownonline.com/sites/jaybrownonline.com/files/post-mergeranalysis.htm

Woodyard, C. , & A ; Healey, J. R. ( 2007, February 15 ) . Will 2 icons go their separate ways shortly? – USATODAY.com. News, Travel, Weather, Entertainment, Sports, Technology, U.S. & A ; World – USATODAY.com. Retrieved September 19, 2012, from hypertext transfer protocol: //www.usatoday.com/money/autos/2007-02-15-chrysler-cover-usat_x.htm

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