DaimlerChrysler Merger Failure and Lewin's Change Model
This paper examines the failed merger of Daimler-Benz and Chrysler Corporation through the lens of Lewin's Change Management Model. It argues that the merger collapsed primarily because neither organization was able to complete the first stage of Lewin's model — the "unfreeze" phase — due to incompatible business models, conflicting labor union demands, divergent market segments, and deep cultural differences. The paper traces the merger's trajectory from its 1998 launch through the 2006 restructuring attempt and the 2007 sale of Chrysler to Cerberus Capital Management, demonstrating that the failure to unfreeze precluded any meaningful change or successful refreeze into a unified corporate identity.
- Introduction: Lewin's Model and the DaimlerChrysler Merger: Thesis and overview of Lewin's three-stage model
- Stakeholders, Brand Identity, and the Unfreeze Challenge: Brand differences and stakeholder roles in merger
- Labor Union Conflicts and Wage Disparities: Union clashes and wage gaps between U.S. and German workers
- Incompatible Business Models and Market Segments: Divergent market strategies blocking organizational change
- The 2006 Restructuring Attempt: Late restructuring effort and why it failed
- Conclusion: Lessons from a Failed Merger: Key takeaways and sale of Chrysler to Cerberus
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What makes this paper effective
- Maintains a consistent, clearly stated thesis throughout — that the merger failed at the "unfreeze" stage of Lewin's model — and returns to it in each section, giving the paper strong argumentative coherence.
- Uses concrete, specific evidence (wage disputes, market segmentation, the 2006 restructuring, the 2007 sale to Cerberus) to illustrate each phase of Lewin's abstract framework, making the theory feel grounded and applicable.
- Acknowledges competing explanations (Japanese competition, operational inefficiency) without abandoning the central argument, which demonstrates analytical nuance appropriate for undergraduate-level work.
Key academic technique demonstrated
The paper demonstrates the technique of applying a theoretical framework as an analytical lens. Rather than simply narrating the merger's history, the author maps each development — labor conflicts, business model clashes, the delayed restructuring — onto a specific stage of Lewin's model. This approach shows readers how abstract management theory can generate concrete explanatory power when applied systematically to a real-world case.
Structure breakdown
The paper opens by introducing Lewin's three-stage model and stating the thesis. Body sections move chronologically and thematically through the merger's key failure points: stakeholder and brand differences, labor disputes, business model incompatibility, and the belated 2006 restructuring. The conclusion synthesizes these threads, confirms the thesis, and draws a broader lesson about pre-merger compatibility assessment. This structure mirrors the logical sequence of Lewin's own model — unfreeze, change, refreeze — reinforcing the argument at the structural level.
Introduction: Lewin's Model and the DaimlerChrysler Merger
Mergers and acquisitions are often the spark that creates the need for change management within an organization, or between two organizations that combine. The merger of Daimler and Chrysler is an example of a partnership that did not work. This paper explores that merger using Lewin's model for organizational change to explain why the relationship failed. The central argument is that the failure of DaimlerChrysler originated in the initial stage of Lewin's model — specifically, the inability of the two organizations to "unfreeze."
Lewin's change model is built on the concept that an organization recognizes its current shape and wishes to transform it into a different one. In the case of Daimler and Chrysler, two companies of distinct shapes sought to combine into a larger, new entity. To achieve that final shape, both organizations needed to acknowledge their existing forms and institute changes to reach their shared goals. However, it is not enough simply to make these changes; in order for changes to become part of organizational culture, they must be "refrozen" into the new shape (Mindtools, n.d.). Unless two organizations are able to unfreeze, the initial change will never take place, and therefore the changes will not be permanent. This was precisely the situation with the DaimlerChrysler merger.
Lewin contends that change often means some individuals will benefit while others will be genuinely harmed. It is important for people within an organization to feel highly connected to the organization and its goals throughout the transition; otherwise, they will be less likely to accept the changes (Mindtools, n.d.). In the DaimlerChrysler merger, stakeholders played an important role. Major shareholders within the two companies included the workers' unions and majority shareholders (Kadapa, 2008).
Stakeholders, Brand Identity, and the Unfreeze Challenge
Both companies brought something unique to the table before the unfreezing process could begin. Daimler brought a strong brand identity as an exclusive car manufacturer considered to be a status symbol (Kadapa, 2008). The Chrysler Corporation brought well-engineered cars targeted toward the middle class (Kadapa, 2008). Applying Lewin's model, both car manufacturers had a distinct shape at the outset of the merger. The idea was that they could capture both market segments by unfreezing and combining into a single new organization. The merger promised to create one of the largest car manufacturers in the world.
The merger was not only a union of two major car manufacturers but also a union of two labor organizations. Daimler-Benz had its own labor union, and Chrysler was affiliated with the American United Auto Workers (Kadapa, 2008). In order to achieve a successful merger, both car manufacturers would have had to "unfreeze" their labor unions as well as their manufacturing operations.
Labor Union Conflicts and Wage Disparities
One of the key disparities in the merger involved wages between U.S. and German workers. The German workers felt that their U.S. counterparts were receiving a larger share of compensation. They also felt that U.S. executives were receiving a disproportionately large share of the company's wealth (Kadapa, 2008). U.S. workers, for their part, would not agree to pay cuts. Yet increasing wages for a combined workforce of 440,000 workers was not financially feasible and would have led to serious economic harm. The inability to unfreeze the two labor unions became a key factor in the failure of the merger.
Conclusion: Lessons from a Failed Merger
The DaimlerChrysler merger is an example of how two technologically advanced and financially strong market leaders managed to fail in a deal that would have made them a global giant. They were a cultural mismatch, and neither one could unfreeze its business model in order to meet the demands of the other. The two companies were too entrenched in their respective markets to unfreeze and align their operations in any functional way. The lesson of this merger is that when two companies are deeply embedded in their markets and have working models tailored to those markets, if the two markets are not compatible, the companies will be unable to unfreeze and combine in a way that is functional. Not every merger is a good idea, and the leaders in this case should have recognized that the divergent market segments would prevent a successful merger regardless of the decisions made at the top.
The merger might have offered significant economies of scale had both companies been able to work through their differences and make the necessary changes. According to Lewin's model, however, the two companies never got past the first stage — and therefore were never able to make changes in the first place. A merger requires that both companies unfreeze their business models and other organizational elements. Unless they can complete the first stage, they cannot reach the second or third. This is one of the key lessons of the failed DaimlerChrysler merger.
In 2007, the failed restructuring attempt led to the decision by Daimler AG to sell Chrysler to Cerberus Capital Management (Szczesny, 2007). One of the key reasons for this move was that the German division felt it would be far stronger without Chrysler and its dependence on the North American market. Daimler decided to focus on emerging markets in India and China, opening a plant to produce Mercedes-Benz cars in China. It abandoned the strategy of becoming the world's largest automotive manufacturer and returned to its core focus of becoming one of the most respected (Szczesny, 2007). This led to a reorganization of its divisions and a management structure closer to its original model.
As early as the year 2000, there were signs that Chrysler would prove to be the downfall of the merger. The combination of Chrysler and Daimler was never a merger of equals (Knowledge@Wharton, 2000). In the end, these differences resulted in clashes of corporate culture. Lewin's model would have been an excellent framework to apply in this case — particularly the imperative that when two companies with different cultures wish to merge, they must first unfreeze those cultures before a new, unified corporation can emerge. This step was never taken, and that omission is a key reason for the failure. An examination of the failed merger confirms the importance of the early stages of Lewin's model and supports the thesis that the failure of the DaimlerChrysler merger was, at its root, a failure to take the initial step of unfreezing both organizations.
References
Daimler. (2006). DaimlerChrysler creates new management model. January 24, 2006. Retrieved February 22, 2011, from
Kadapa, S. (2008). Change management analysis of Daimler-Chrysler merger. Retrieved February 22, 2011, from
Knowledge@Wharton. (2000). Has DaimlerChrysler hit the breakdown lane or just stopped to fill up? Retrieved February 22, 2011, from http://knowledge.wharton.upenn.edu/article.cfm?articleid=290
Mindtools. (n.d.). Lewin's change management model. Retrieved February 22, 2011, from http://www.mindtools.com/pages/article/newPPM_94.htm
Muller, J. (2001). Can this man save Chrysler? Business Week, New York, September 17, 2001, Iss. 3749, p. 86. Retrieved February 26, 2011, from
Szczesny, J. (2007). Daimler-Chrysler divorce final with name change. Edmund's Auto Observer. October 5, 2007. Retrieved February 22, 2011, from
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