Daimlerchrysler: the End of the “marriage Made in Heaven”
The nine years merger of Daimler-Benz and Chrysler AG is finally coming to an end as the German automaker hands over the control of its money-losing American arm to Cerberus. It can be remembered that the merger between Daimler and Chrysler AG was dubbed as a merger of equals and a marriage made in heaven—the merger was suppose to become the perfect model for the future of auto manufacturing worldwide. Sadly after nine years the merger proved to be neither.
Daimler-Benz the producer of top-of-the-line Mercedes trans mount has purchased Chrysler AG for $36 billion in 1998 and after nearly a decade of fluctuating earnings and repeated cost cutting, Daimler-Benz has finally come to a decision that it has to let go of Chrysler AG. Through it all there was the boiling resentment of German shareholders who felt that the American arm of Daimler-Benz has only stained the name of one of their country’s greatest carmakers.
And now with the company to split in a 5.5 billion euro deal which is only a fraction of Chrysler’s value nine years ago, the merger would just serve as reminder that large scale partnerships usually doesn’t succeed.
The separation of DaimlerChrysler is just one of the many auto partnerships that collapse in the past few years. Take for instance the case of GM that paid $2 billion in 2005 just to break off its alliance with Fiat SpA after the Italian company’s finances and market shares declines. Then in 1990 another partnership was formed but this time between BMW AG and Britain’s MG River in which the former has lost billions only to separate by 2000.
In the mid-1990, Daimler-Benz was really searching for new markets and new opportunities at the dawn of what many would consider as the age of global consolidation. Chrysler during that time happens to be an ideal target with its line of cleverly designed, efficiently built minivans, Jeeps, and pickups. Plus the fact that US is a rich country with lots of car aficionados…somehow a partnership with Chrysler make sense at that time.
At the start of the merger the two automakers have made it clear that their partnership is a “merger of equals” which was later dismissed by Juergen Schrempp in an interview which caused him a lawsuit from billionaire investor Kirk Kerkorian. He lost and it was just obvious that the center of power is in the favor of the gentleman from Stuttgart.
The company tries to recover out from a brutal 2001 restructuring and launched hits like the 300C but even this didn’t help and earnings have continued to slip. The problem didn’t stop there after the declining sales and the numerous recalls over defects DaimlerChrysler dumped its cross-border venture with Mitsubishi in Asia in the year 2004.
The increasing gas prices have also taken its toll on Chrysler especially since most consumers have shifted to purchasing small cars with better mileage. Competition has also become more difficult for Chrysler with Japan’s Toyota entering the main stream not to mention its other two strong rivals GM and Ford still getting a big bite off the market share. All these have contributed to the crippling of the US arm of Daimler.
The losses at Chrysler would have not been so pronounced if not for Mercedes posting its first quarterly loss in ten years in 2005 which was attributed to poor quality and high cost. Shareholders began to doubt the relevance of Chrysler as a partner saying that it is damaging the reputation of the company’s jewel, Mercedes-Benz. They began to compare Daimler with the rest of the purely German automakers such as BMW and Porsche which is sustained by only high margin luxury cars. They started clamoring for the sale of Chrysler. And then finally it was announced that DaimlerChrysler is considering all options for the sale of Chrysler.
There is one partnership that remains strong after seven years of merger—the Nissan Motor Co. and France’s Renault SA which according to some analysts is a cooperation that works. According to Nissan and Renault Chief Executive Carlos Ghosn, the merger has become profitable for both companies as a matter of fact Renault’s market value has tripled while that of Nissan has grown fivefold. The French automaker also own 44 percent stake in Nissan.
About the Author
Dwyane Thomas is a part time cook and full-time auto-enthusiast. This 31-year old Civil and Environmental graduate is a consultant at one of the engineering firms in Pennsylvania.
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