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Old 6th March 2009, 11:11   #1
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Default Did Daimler accelerate or cause Chrysler's Ruin

I have read a lot here as to how the Daimler-Chrysler merger (or takeover in 1998) diluted Mercedes, imposed hardships on Daimler, benefited Chrysler more, and other such comments by Daimler advocates. Here are some facts and opinions (can be verified and commented upon). By no means should it be presumed that I am making an apology for Chrysler or an indictment of Daimler:

1. Following the 07-05-1998 announcement that Daimler and Chrysler would combine, many financial analysts (incl. from WSJ, FT, brokerage houses) openly speculated that the deal was more Daimler takeover than merger. Daimler was supposed to be interested because at that time Chrysler was generating cash. In 1998 and 1999, Chrysler had annual profits of around US$5 billion. Bob Lutz and his team had adapted AMC's innovative product development approach to create a "platform team" process at Chrysler.

2. Following the listing of Daimler-Chrysler on NYSE on 15-11-1998, the next morning, DaimlerChrysler co-Chairman Juergen Schrempp and Chrysler's Bob Eaton, met with a pair of reporters. Schrempp handled most questions, while Eaton puffed a huge cigar and occasionally added a remark. But when Eaton, who already had announced he would retire before Schrempp, was asked whether he would leave early, Schrempp intercepted the question, abruptly leaned forward, slammed both fists onto the tabletop, and growled, "I need him!" Eaton remained silent.

3. Slowly as Daimler dominated the merger and Eaton failed to defend American viewpoints, some veteran Chrysler managers got disheartened and left. Chrysler's inner circle was dissolving. Lutz had already retired in June 1998 while the new company was being formed. Executive Vice President Dennis Pawley also said he would leave by Day One. Pawley was an ex-GM plant foreman, and had established a Japanese-style lean manufacturing system at Chrysler. Although dissuaded by Schrempp, Pawley left before Day 1 to set up his own manufacturing consulting business. In early-1999, engineering Vice President Chris Theodore and manufacturing Vice President Shamel Rushwin also left to join Ford. As Chrysler's top management team left, Schrempp tried to rebuild German-American camaraderie at a February 1999 management retreat in Seville, Spain. As usual, Schrempp's wife was not there. But his longtime secretary, Lydia Deininger, was right beside him. Abruptly, Schrempp picked up the petite Deininger, slung her over his shoulder, said farewell to a startled cluster of executives and carried his secretary up the stairs. That was it for many more Chrysler execs. Eaton had picked Tom Stallkamp to replace Lutz as Chrysler president in late 1997. But before retiring in late 1999, Eaton fired Stallkamp, appointing Chrysler sales boss Jim Holden as the new president. In 2000, as Chrysler sales continued falling, Schrempp abruptly sacked Holden. In May 2000, Executive Vice President Tom Gale, Chrysler's highly regarded design chief, also announced he would retire by year end and open a design consulting firm. Thus, by 2000, two years after Daimler's takeover, the group that had created Chrysler's platform teams and six years of prosperity had quit, retired or been fired.

4. By end of year 2 (Nov. 2000), Schrempp appointed Dieter Zetsche, an engineer then running Mercedes' commercial-vehicle division, to replace Holden. By then, the US operation was no longer a cash cow. Chrysler had closed most plants and boosted incentives on unsold inventories. By the fourth quarter of 2000, the profits of 1998 and 1999 had disappeared to be replaced by a US$1.2 billion loss.

5. Following this loss, sales chief Ted Cunningham, chief administrative officer Kathleen Oswald and communications head Tony Cervone all departed. Zetsche also ordered his chief operating officer (COO), Wolfgang Bernhard (another German), to slash costs. Costs had increased as Chrysler's lineup of cars and trucks shared fewer parts. Under Zetsche, Chrysler ripped out stuff and consumers began noticing that Chrysler went back to making cheap interiors and noisy cars. Colleagues remember a Jeep platform team manager's embarrassment. Told to cut manufacturing costs on an existing model, he removed a low-washer-fluid warning light. His daughter bought one of the stripped Jeeps. On a rainy day, she called her father from her car: "Dad, I'm out of washer fluid and I can't see. What happened to the warning light?"

6. However, the losses continued. They damaged Schrempp's status with his own board and emboldened shareholders who had opposed the Chrysler deal. German financial circles believed Chrysler was a loser that was draining Mercedes' resources. When Schrempp was forced to step down in 2005, Chrysler lost much of its access to outside expertise for car development. As German investors increased demands to shed Chrysler, Daimler cut resources to aid Chrysler, and US product programmes lost focus or were shut down.

7. By the time Cerberus acquired the majority of Chrysler in 2007, industry critics rated most Chrysler cars below average. In Dec 2008 before a Senate hearing, Chrylser CEO Bob Nardelli admitted to this. When Sen. Bob Corker, R-Tenn., suggested Chrysler had few competitive vehicles under development, Nardelli agreed. Under Daimler, Nardelli said, Chrysler had been "somewhat hollowed out."

Last edited by vasudeva : 6th March 2009 at 11:12.
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Old 6th March 2009, 11:22   #2
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I don't think Daimler had any hand in Chrysler's sad demise. If you look along with GM and Ford, its been the common bane that has hit the U.S car makers.
I think Daimler's intention was to get the profits from the U.S market. When the U.S automakers themselves started going down (with all the trucks and SUVs that they were clinging on to) they chose to abandon them.
The merger did not help each others since there was little joint development.
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Old 6th March 2009, 12:25   #3
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There is a book titled:

TAKEN FOR A RIDE: HOW DAIMLER-BENZ DROVE OFF WITH CHRYSLER by Bill Vlasic and Bradley A. Stertz (2000).

In Mar 2005, Fortune rated it amongst the 75 smartest business books ever.

In December 2003, Schrempp took the witness stand to defend himself in a $1 billion shareholder lawsuit filed by Kirk Kerkorian, who owned 11% of Chrysler stock. Schrempp had publicly characterized the Chrysler deal as a "merger of equals." But he imprudently told a Financial Times reporter in 2000 that he had always intended to make Chrysler a division of the new company. That was enough to provoke a lawsuit accusing him of misleading investors. And the explanation Schrempp offered on the stand was tortured: The merger united two equal legal entities, he said, but Chrysler's business was treated as a division for operating purposes.

Over the years, Fortune's Alex Taylor (a magazine that rightfully deserves its place at the very top of business mags) has written some very insightful articles on Daimler and Chrysler. One particularly prescient article was in 30.04.01 issue of Fortune:

Can the Germans rescue Chrysler?

It said in 2001: T
he outlook for Chrysler is hardly sanguine. The company that emerged stronger from its previous near-death experiences-in 1979-81 and 1989-90 will find recovery much more difficult this time. After several exceptionally strong years, sales of cars and trucks seem poised to slow along with the U.S. economy. Demand for Chrysler's highmargin minivans and SUVs is already
cooling, and competition from Toyota, Honda, and Volkswagen is eroding its customer base. During the second half of 2000, Chrysler lost $1.8 billion and went through $5 billion in cash. It was a stunning collapse-made all the more so because GM and Ford were still doing well.

Another article in Jan 1999: The Germans take charge

Despite the initial story put out about the merger's being one of equals, the Germans are in charge-period. The new company is incorporated in Germany, 58% owned by former Daimler shareholders, and run mostly by former Daimler executives. Daimler Chairman Schrempp will share the title of co-chairman with former Chrysler Chairman Robert Eaton for three years or until Eaton retires. But Schrempp's allies got most of the top jobs in the new company and are likely to further consolidate their power during the next year or two.

So clearly, who was running Chrysler as it transformed from profits to staggering losses.
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Old 6th March 2009, 23:39   #4
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Didn't Daimler aquire Chrysler share for about 32 billion dollars in 1998 and then sell it off for 7 billion in 2008? That's a 25 billion loss in 10 years and 0 profits. Why would Dailmler want to do that?
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Old 8th March 2009, 06:41   #5
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Quote:
Originally Posted by Mayavi View Post
Didn't Daimler aquire Chrysler share for about 32 billion dollars in 1998 and then sell it off for 7 billion in 2008? That's a 25 billion loss in 10 years and 0 profits. Why would Dailmler want to do that?
Doesn't matter for Daimler Benz. When they acquired Chrysler in 1998, they got access to Chrysler's huge cash reserve at that time (which would have made up for the losses anyway) and more importantly, access to all of Chrysler's suppliers and customers in North America.

Due to the reshuffle in the upper management, Chrysler was forced to incorporate (or integrate) Mercedes parts from Daimler's suppliers into their vehicles, which is fine except when you're asked to put a Mercedes based transmission on a Dodge Neon.

For sake of product integration, a lot of Chrysler's own models were forced with Daimler's redesigns which reduced the profit margins since they couldn't raise the prices anyway.

Also despite using similar platforms, Daimler ran separate assembly lines for Daimler's and Chrysler's products, which meant that Daimler was functioning as before but Chrysler was forced to use Mercedes platforms (usually the outdated ones) and parts for sake of product integration.
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Old 8th March 2009, 13:30   #6
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I think Chrysler pretty much took care of their own (near) demise.
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Old 8th March 2009, 18:17   #7
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actually i think that chrysler acquisition caused daimler-benz's ruin. they were the top luxury car maker until they started to send their best luxury-car sales/marketing/design/r&d executives to run chrysler.

without the best brains behind their mercedes range of products, the mercedes range has floundered until 2008. now it appears that revival is in sight for the mercedes brand.
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Old 10th March 2009, 00:17   #8
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There seems to be some truth in the facts, because Schrempp's involvement also coincided with quality/reliability problems of Mercedes cars, they were no longer "engineered to be the best in the world".
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Old 4th March 2012, 20:07   #9
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Default Re: Did Daimler accelerate or cause Chrysler's Ruin

Maye Daimler did accelerate Chrysler's ruin, but make no mistake, Chrysler was doomed to failure, just like our wonderful HM. The bail outs for the big three manufacturers has given them a lease of life is all. GM is the biggest manufacturer because essentially they have spun off all their bad debts to the government and kept the cash cow and production part of the business. That is the deal every private company looks for. Heaven
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