Daimler Divestiture of Chrysler Term Paper

Pages: 12 (4098 words)  ·  Style: MLA  ·  Bibliography Sources: 4  ·  File: .docx  ·  Topic: Transportation

Daimler-Chrysler Financial Debacle

In The Merger And Dissolution Of Daimler-Benz And Chrysler

History of the Participants: Differences and Similarities

Daimler-Benz

Chrysler History

Prior to the Merger Discussions

Daimler-Benz becoming a global conglomerate

Chrysler's growth and success in the 1990s

First error: from-the-top decisions

The early merger announcements: opportunities missed

Chrysler: What Eaton could have done better

Shortcomings on Daimler-Benz's side

HISTORY of the PARTICIPANTS: DIFFERENCES and SIMILARITIES

DAIMLER-BENZ

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If you travel to Stuttgart, you'll find the three-pointed star everywhere, from the main train station to the engine works in Unterturkheim on the Neckar River. Long the largest employer in the Stuttgart region, Daimler-Benz was started by two brothers in 1886 to produce independent, gasoline-engined vehicles in small numbers. From the very beginning, the Daimler brothers created new technologies, such as planetary gearboxes, which advanced the overall auto industry, and were adopted by many of the major automobile manufacturers. As early as 1903, Daimler-Benz produced a lightweight, 35-hp car which could travel 55 miles per hour, which gave rise to an early participation in auto racing (Cyber, 2007). Merged in 1921, Daimler-Benz continued to be a small manufacturer with high technology and excellent engineering: in 1927, DB sold fewer than 8,000 automobiles. The 1928 introduction of the Mercedes SS introduced the mark to the entire world of the wealthy: models of the SS and SSK of the 1930s now sell for millions of dollars, and are among the most valuable collectible automobiles of all time.

Mercedes' preeminence in automobile technology allowed it to emerge after World War II as a fully-integrated automobile and truck manufacturer and one of the leaders in Germany's post-war "Wirtschaftswunder," or economic miracle.

Term Paper on Daimler Divestiture of Chrysler Assignment

Unlike BMW, Audi and Volkswagen, Daimler-Benz positioned itself as a luxury brand, known for high-end engineering, quality and durability. DB cars were sold in Germany on a waiting-list basis -- Germans would frequently order their next car when taking delivery on their current one, with waiting lists of as much as two years. Rather than increase production, Daimler maintained an air of exclusivity through controlling demand and insisting that their cars meet stringent quality standards before leaving the factory

Daimler-Benz was the premier producer of high-end autos without parallel, as BMW was a niche player with smaller autos and Audi was rescued from bankruptcy by Volkswagen in the 1960s. Daimler used its image as a high-end manufacturer to power its exports throughout the world. Even before the 1999 merger, Daimler-Benz was the largest company in Germany, based on sales and market capitalization (MercedesBenzUSA, 2007).

CHRYSLER HISTORY

As at Daimler-Benz, Chrysler was founded by an engineer. Walter P. Chrysler was a penultimate engineer who introduced a number of innovations in the U.S. automobile scene. Chrysler was a railroad engineer who made a name at General Motors in the early days by rescuing the Buick Division. He took over Maxwell and purchased the Dodge Brothers' company in 1925 in order to form the Chrysler Corporation.

Unlike Daimler-Benz, Chrysler was a scrappy upstart in a U.S. auto industry where the two giants, General Motors and Ford, dominated the U.S. auto market based on model niche coverage (GM) and low-cost mass automobiles (Ford).

Chrysler's first moves in 1925 were to phase out the Maxwell and create the first Chryslers, based on new four-cylinder technology. Over the next ten years, Chrysler introduced the first automatic transmission, an innovative straight-eight engine and a number of engine and drive train innovations that cemented Chrysler, the "third leg" of the "Big 3" as the engineer's automobile.

According to Redgap:

Engineering held sway at Chrysler at the time. Walter P. Chrysler had gotten his start with a car that was designed and built by three engineers who had been working for Studebaker. Fred Zeder, O.R. Skelton, and Carl Breer made it possible for Walter Chrysler to be able to introduce the first true high compression in line 6 cylinder flathead engine in his 1924 Chrysler car. They also saw to it that the Chrysler had the new Lockheed hydraulic brakes on all four wheels (Redgap, 2004).

During World War II, Chrysler was known for its innovative engines, including a massive 30-cylinder tank engine and a 2,500 horsepower engine for the P-47 Thunderbolt. Unlike Daimler-Benz, Chrysler was not destroyed during World War II. Its manufacturing lines were converted to production of war materiel, and Chrysler emerged a strong competitor after the war. Unlike today, the U.S. auto manufacturing sector had a number of competitors with significant market share after the War, including Packard, Studebaker and Hudson. Although Ford and GM's future was secure, Chrysler was forced to fight with a number of other brands for its #3 position. The company continued its engineering leadership with the Torqueflite automatic transmission and the 1955 introduction of the Hemi (hemispherical combustion chambers) in the iconic C-300, which introduced the first 300 horsepower V-8 for a passenger vehicle (Redgap, 2004).

Unlike Daimler-Benz, Chrysler underwent a brush with near-bankruptcy. Chrysler Motors had drifted since the 1960's, the victim of imports' gains in the low- to medium-priced segments where Chrysler had been dominant. It had lost market share, and been relegated to price-sensitive parts of the market where it lost money for a number of years, despite its high-volume manufacturing plants. After several years of losses, Lee Iacocca, a former Ford manager, was brought in to 'save' Chrysler after the then-CEO, John Riccardo, admitted that the company was in dire straits. Chrysler at that time owed $4 billion in debt, and had lost $207 million in the second quarter of 1979 alone (Anastakis, 2007), and $1.2 billion for the year. Lee Iacocca went to Congress to secure a loan guaranty for $1.5 billion, which was matched by further private risk of $1.5 billion.

Iacocca brought back Chrysler in the same way that he pioneered the Mustang at Ford, through marketing. Taking the K-class platform, Iacocca turned it into an array of products from a Mercedes-Benz lookalike (the 600) to a minivan. By 1983, Chrysler famously paid off its federally-backed loans, 7 years ahead of schedule. Iacocca then brought in a series of "car guys," and reformed the doddering company by introducing market-led designs in the car, truck and minivan sectors. He and his successors worked to reduce design-to-introduction time, breaking down barriers and matching the Japanese with a total design cycle of less than 3 years by the mid-1990s.

PRIOR to the MERGER DISCUSSIONS

DAIMLER-BENZ BECOMING a GLOBAL CONGLOMERATE

Prior to Schrempp attaining the helm of Daimler-Benz, the company was headed by Edzard Reutter, a Berliner with political and global pretensions. He had led DB's diversification from auto, truck and bus manufacturing to a bewildering array of transportation- and data-based acquisitions. Based on strong continuing cash flow from the car business, Reutter acquired major stakes in aircraft industries, including a dominant share in DASA, the German participant in Airbus, aircraft engines (MTU) and even data and finance (debis). Reutter redefined Daimler-Benz from 'vehicle manufacturer' to an 'integrated technology group,' increasing investment in HQ R&D as well as acquiring a number of R&D-based organizations -- at DB they were called 'R&T,' or 'Research and Technology.' Like Chrysler in its history, DB regarded engineering as the source of its competitive strength. Unlike Chrysler at the time of the mid-1990s, DB felt that it could apply industrial engineering expertise among a large number of unrelated enterprises (Ngassa, 2000).

The predictable result of this conglomerate-chasing was that (1) DB's financial results begun to deteriorate during the 1990s as corporate spending grew out of hand, and (2) DB began to falter in its core auto "Modellpolitik," or model flow in comparison with its key competitors, Audi and BMW. What concerned many employees and DB watchers was that Mercedes' once-vaunted quality was beginning to slip.

Enter Jurgen Schrempp in 1995. The hyperactive manager came to the Chairman position from DASA, which was Daimler-Benz' aircraft division in Munich. He was hailed as "a doer, not a thinker. A power player, not a philosopher (Economist, 1995)." He was hailed as the opposite of Reutter, who was regarded as a big spender and not able to get his hands dirty in the operational details. Schrempp had come from successful stints running DB's car manufacturing in South Africa and managing DASA, which was the largest division outside of vehicle manufacturing. Schrempp was regarded in 1995 as active, operational and willing to make the tough decisions needed to merge, demerge and consolidate Reutter's previous mistakes.

Schrempp brought a new world view to DB's helm. Rather than reinforce DB's stance as the largest German company, Schrempp worried about DB being relegated to the sidelines, pushed out of the top 10 automakers in the world as Volkswagen, the Japanese and Ford and GM moved from acquisition to acquisition. Although he was able to stop the losses and sell off non-core divisions, Schrempp was looking for a move that would both propel DB to the top ranks of the global automobile industry and identify him as a builder, not a destroyer. His early move… [END OF PREVIEW] . . . READ MORE

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