Globalization and Technological Influences
On International Mergers: DaimlerChrysler as a Case Study
One of the most interesting international manufacturing mergers of the 20th century was the 1998 negotiation between the Daimler auto company headquartered in Germany and the struggling Chrysler corporation, headquartered in the U.S. Daimler's buyout of Chrysler resulted in a merger that ultimately failed to benefit either party, and may have seriously damaged both organizations' capacity for future growth. Below, I will discuss how the merger proceeded -- as it was covered in U.S. And international business media -- and how the negotiations for the merger and the 2007 spinoff of Chrysler were facilitated by technological developments and global business practices. I will also discuss motivations for international mergers in general and how they applied specifically in the case of the DaimlerChrysler merger.
As a horizontal merger, DaimlerChrysler followed a popular movement towards consolidation in the international auto industry (Qiu & Zhou, 2003). Other firms like Ford and Mazda, GM and Saab, and Renault and Nissan also merged around the same time, creating a streamlined auto industry that placed different demands on international trade and manufacturing infrastructure. In the late 1990s, labor unions in the U.S. had been weakened by legislation and outsourcing of heavy industry, particularly the manufacture of auto parts. The economic environment was such that American auto companies were ripe for takeover by outside buyers. American auto buyers had been empowered by the internet to find competitive prices that drove down manufacturers' profits and threatened the dealership distribution structure (Finkelstein, 2002). Chrysler's leadership was riding a wave of profits from newly-developed vehicles and improvement of old standards like the Jeep Cherokee, but they were not willing to...
In order to stave off the "perfect storm" of changes in consumer behavior, chronic overcapacity, and peak oil, Eaton recommended a merger of equals with Daimler-Benz.
Daimler was looking to increase its American market share in the luxury market with its Mercedes line, which had lagged behind Lexus for several years due to labor-intensive manufacturing practices (Finkelstein, 2002). However, when the formal partnership with Chrysler started, both parties realized that they needed to overcome a culture clash that ran much deeper than originally thought. Meetings between top brass at both firms had not revealed that the underlying class differences between the Mercedes and Chrysler (Jeep, Dodge) brands would translate into worker resentment about the "marrying up/marrying down" character of the merger (Landler & Maynard, 2007).
This phenomenon plagued DaimlerChrysler's 9-year partnership: notions of "quality at any cost" from the Daimler team were seen as old-fashioned and counterproductive to the fast-moving, high-risk, lean "cowboy culture" practiced at Chrysler. One of Daimler's main motivations in pursuing the merger was to gain better information about American consumption patterns in order to use this market knowledge to reinvigorate the Mercedes brand and later launch the Smart brand in the U.S. (Qiu & Zhou, 2003). This aspect of the merger was a reasonable expectation and a common practice in international mergers and acquisitions; however, it did not play well in the American press, and is roundly decried in the book Taken for a Ride which describes the merger and the actions of Kirk Kerkorian, a major shareholder (Vlasic & Stertz, 2001). Daimler was thought of by Chrysler executives as unwilling to share power and stuck in their ways, as using Chrysler's cachet with the American market to turn…
