The Fall of a Dream Merger

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