A merger is the joining of two or more companies with the intention to achieve higher levels of productivity and efficiency. As well as this, mergers bring two existing companies and make them one. Daimler-Benz is German company in the automobile sector with operation in over 21 countries creating automobiles, vehicles, and engines. Daimler-Benz is a business that had strong financial foundations with most of their income coming from their operations within the luxury cars market. However, due to a lot of competition within the market they required diversification within its product range and so believed that the merger with Chrysler would help them do this. In the 1980s after the oil crisis as well as the increasing ecological movement, they came up with a new vision, which was “Integrated Technology Corporation” and as a result purchased lots of different companies including AEG, Telefunken, MTU, Dornier, Fokker, and MBB. Apart from this, they co-developed the smart car with Swiss, which helped them aim at lower volume segments. (Kohler, 2009, pg. 310)
Mercedes goal is to go beyond the needs of consumers by putting more effort in workforce and transportation technologies. Mercedes also focused on “high-tech quality profit strategies” (Kohler, 2009,pg312), which they believed, would help them have a lead within the global automobile market.
Chrysler, on the other hand, was a North American based group founded in 1925.In 1980 after they failed to internationalised Chrysler experienced near bankruptcy, however, were saved by state loans and by reducing 75,000 workers as well as closing 21 plants. However, in 1996,they were chosen ” car of the year” for their intervention success when it came to their minivans and light trucks, which helped them to become market leaders in the 1990s. They were also very successful with their four-wheel hydraulic brake systems, which allowed them to sell over 50000 cars.
The main differences between Mercedes and Chrysler business model before the merger were that when Mercedes faced an crisis they managed to overcome it by taking a new strategy like when their CEO in 1995 designed the globalisation and rationalisation strategy however when Chrysler faced a economic crisis their leaders reinvented the company. Apart from this Mercedes had high profits from their luxury cars and with their co-creation of the smart car they were able to lower volume segments. The Merger would help the companies to have access to different markets with Mercedes being the US and Chrysler being the German markets. It would also help Chrysler avoid another crisis and help Mercedes reduce cost of production. As a result, they wanted to succeed their traditional development constraints in the globalisation and open up new segments.
Alongside this both companies also had cultural differences, for example, Daimler was very hierarchical with a clear chain of command where they valued authority whereas Chrysler were more team orientated. Chrysler also had a more innovative approach to production as well as having low cost efficiency within their business activities however the Germans was more focused on quality and attention to detail.
Mercedes and Chrysler production processes and configuration of supply chain differed in a number of ways even though they both operated in the automobile industry. The merger was supposed to bring together two leading firms and make them more competitive and strengthen the earning power of the group. However after the merger, Chrysler lacked clear strategies and as a result still carried on making losses, which resulted in them, having a fall in market share and having to close down of six assembly plants.
When it came to emerging markets Mercedes were predominately in Asia and implemented the Completely Knocked-down assembly for their main market access strategy, which is a complete kit, needed to assemble a product. By implementing this strategy they were able to show a greater presence in these markets. As well as this Mercedes had a Greenfield plant in Tuscaloosa, a production site in the USA for their M-class and a production site in Brazil for their A-class. Leading on from this they assembled their C, E and S class models in countries like Vietnam, India and South Africa for the local and regional demand in these countries. This helps Mercedes keep up to date with the needs of the consumers in these countries.
Whereas Chrysler relied too heavily on outsourcing and diversification which lead to an almost ended up in a financial crisis. As a result of this, they changed their product line, which included minivans and light trucks. This reinvention brought a lot of success for Chrysler helping them to gain leadership in their segment. (Kohler, 2009,pg. 311). Furthermore, they were focused on high efficiency when it came to their production process and low costs and so were seen as one of the most profitable car manufacturers in the 90s. (Hollmann, 2010)
Apart from this both of the companies had cultural factors that affected the outcomes of the mergers, for instance, Daimler was a German company and so had more of a conservative approach whereas Chrysler was more diverse and daring. These factors resulted in Chryslers CEO resigning or being replaced by German workers. (Commisceo Global, 2016). As well as this Germans were more commanding when it came to the way employees worked which lead to trust issues by Chrysler employees as well as communication challenges.
Moreover merging the production processes were seen to be very difficult as both companies were in different markets in the sense that Mercedes were producing cars in the luxury segment with high costs whereas Chrysler cars were more affordable and so were more likely to use mass production were as Mercedes used cell layouts. Due to Factors like this arising the merger between the two companies were not compatible and a lot of changes were required within the business to help strengthen this merger.
Labour politics is an essential part of corporate governance within the German automobile industry as well as the US. DaimlerChrysler had achieved consensual labour relations even though they had difficult restructuring as well as job-cutting plans, which had to be discussed with the German IG Metall and UAW. (Kohel.pg20-21) .The president at UAW Ron Gettelfinger of Zettsche’s changed the plans and as a result, a lot of Chrysler workers lost their jobs, saw a reduction in wages and saw changes in healthcare as well as pension fund costs. However in Germany in 2004 a scheme came into place due to job cuts and employee strikes, which meant that employees would not be able to get dismissed involuntarily. Similarly the German works council and labour representative dominate the international labour relations.
In 2002 World Employee Committee was set up which included different union representatives like American and Brazilian. The WEC were able to agree with the group management when it came to issues with the code of conduct on social responsibility. In 2005 they also had an issue arise where a public protest took place due to 3,500 apprentice jobs being cut. These protests had to be seen under the union and world council strategy to maintain high skilled German workers.
As a result, it can be seen that Chrysler workers lost a lot of jobs as the Germans wanted to keep their workers in higher tier jobs. This can be seen to be a result of cultural differences as the Germans liked to be organised and have hierarchy at the centre of all decision making. This cultural difference meant that there was a lot of clashes occurring within the business as well as them not being able to satisfy each other needs.
Fiat is the largest automobile manufacturer in Italy founded in 1899 by Giovanni Agnelli. The first car produced was the Fiat 4 HP, which was based on a third party design however over mainly years they have manufactured railway engines, military vehicles, aircrafts, farm tractors and military vehicles. Alongside this, they have also won a number of awards like ‘European Car of the year’ as well as being categorized as one of the companies with the lowest levels of carbon dioxide emissions when it came to cars sold in Europe. (Wiki, 2017) However, in the 2008 crisis, Chrysler was on the edge of bankruptcy and as a result of this, the American government directed that they could not carry on by themselves. (Profili.A.R., 2014) . As a result of this fiat and Chrysler integration took place.
In 2014 Fiat revealed that it would be taking over 41.5% Chryslers ownership. The takeover by Fiat would allow Chrysler stability, structural changes in manufacturing, new technology and an access to Europe’s market whereas this was a chance for Fiat to get access to North American markets as well as strong global presence. The strengths before the takeover for Chrysler were that it was well established, their products like minivans and jeeps were very popular in North America and they were a big manufacturer of utility trucks whereas Fiats strengths were that they were one of the biggest brands when it came to small cars in Europe. When it came to their weaknesses Chrysler was that they were badly impacted by 2008 recession and high oil prices which means they could face this problem and they have had a lot of financial difficulties resulting in a disappearing market share and having low influence in the global auto industry. Fiats weaknesses were similar to Chryslers in the sense they had financial problems and had to get rid of thousands of workers as well as having market share problems.
However, after the takeover, Fiat shares fell by 10% as well as Fiat taking over debt from Chrysler, which was expected to be $11 billion. (MacLennan, 2014). Nevertheless, when compared to the previous merger with Daimler-Benz this merger was seen as being more positive as both companies were concentrating on low costs and were trying to cater for the same market and as a result of this they were able to combine their production processes, which were the use of mass production. Chrysler was also able to grow when it came to factors like their sales and technology, which made them more competitive.
In addition both companies operation and market strategies were able to bring focus back to the small fuel-efficient cars as well as continue to expand within the small and mid-size automobiles sector using Fiats technology. Alongside this they were both able to find compatible goals and values. For example the Fiat 500 have seen to be one of the most recognised cars around the world. (Success Story, 2014) They have also considered factories such as social responsibilities and so the company holds competitions to award innovation as well as having a culture that is dynamic where they teach the team to embrace change, which was a big factor, that led to problems with Chrysler’s merger with Daimler-Benz.