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The Fall of a Dream Merger

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



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