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Article #281: The Fall of a Dream Merger

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Back in 1998, experts called Daimler and People close to Zetsche said that he
Chrysler's union a marriage 'made in truly believed that Daimler could become
heaven.' But about a decade after, the an integrated powerhouse if Mercedes and
perfect union has reached a critical Chrysler shared more engineering costs
juncture. How did the union hit the and high-volume parts. He strived hard
rocks? for more cooperation, and initiated the
On Sept. 15, DaimlerChrysler AG's CEO development of common platforms for
stunned the world by forecasting a $1.5 small-car and SUV product lines.
billion third-quarter loss for the Nonetheless, the joint projects only
Chrysler Group. The executives know they underscored the huge differences between
are all in trouble but nobody has ever a Mercedes and a Chrysler. While
imagined how grave the trouble could be. engineers could unite, they could not
After a number of profitable quarters, change the fact that a small Mercedes car
Chrysler had collapsed inwardly. Its sells for double the price of a Chrysler
erratic sales performance triggered compact.
Daimler's decision to sell it off before Many Mercedes auto parts were simply too
it capsizes the whole company. Chrysler expensive to be part of a Chrysler
would be sold for $7.4 billion to vehicle. Still, Zetsche insisted. One
private-equity giant Cerberus Capital German exec recalled challenging the idea
Management. that integration could work. "Thank you
But with the said decision, pressure for your opinion," Zetsche told him. "I
intensified. It does not only mark the have a different one. We will go on with
failure of a merger but also includes a the cooperation."
bunch of other struggles. Inventories of While Daimler struggled to solve its
unsold product lines were suffocating the Chrysler problem, the company's
dealers. Also, negotiations on the new shareholders were swiftly losing
company policies are choking workers. "It patience. Influential shareholders
shows the problems of the fusions of big pressed Zetsche and Bodo Uebber,
companies," said Willi Diez, the head of DaimlerChrysler's chief financial
the Germany-based Auto Industry officer, to sell Chrysler. "Zetsche's
Institute. "You have cultural pressure comes from so many different
differences. You have the problem of who constituencies telling him they're sick
really runs the company." to death of Chrysler," said John Lawson,
In interviews with a number of a London-based analyst at Citigroup.
individuals close to Daimler to In private, Zetsche was ratcheting up the
reconstruct pivotal events leading up to pressure on LaSorda and his team. No one
the May 14 sale of Chrysler, most spoke felt the pressure more than Joe
on the condition of anonymity. Eberhardt, a former Mercedes exec who was
When Zetsche became Daimler's CEO, no one in charge of Chrysler sales and
thought he would sell Chrysler. Like marketing. Eberhardt had alienated many
power antennas, Zetsche was famed for Chrysler dealers with his autocratic
efficiently leading Chrysler's path to style during the terrible summer of 2006.
solidify the merger. But Zetsche became He resigned on Dec. 5.
ultimately disappointed by the lack of Early this year, Zetsche appeared
synergies between Chrysler's mass-market reconciled that a sale was the best
vehicles and the luxury product lines option. "It took him awhile to get to
built by Mercedes-Benz. As a result, this decision, that it was right for
Chrysler inventories became bloated and Daimler and Chrysler to separate," said a
heavy incentives failed to push vehicles person close to Zetsche. Valentine's Day
off dealer lots. The warning on Sept. 15 2007 was supposed to mark a fresh start
turned concerns about Chrysler into a for Chrysler simply because the marriage
full-scale predicament. was officially headed for a divorce.






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