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The Fall of a Dream Merger

Back in 1998, experts called Daimler andtruly believed that Daimler could become
Chrysler's union a marriage 'made inan integrated powerhouse if Mercedes and
heaven.' But about a decade after, theChrysler shared more engineering costs
perfect union has reached a criticaland high-volume parts. He strived hard
juncture. How did the union hit thefor more cooperation, and initiated the
rocks?development of common platforms for
On Sept. 15, DaimlerChrysler AG's CEOsmall-car and SUV product lines.
stunned the world by forecasting a $1.5Nonetheless, the joint projects only
billion third-quarter loss for theunderscored the huge differences between
Chrysler Group. The executives know theya Mercedes and a Chrysler. While
are all in trouble but nobody has everengineers could unite, they could not
imagined how grave the trouble could be.change the fact that a small Mercedes
After a number of profitable quarters,car sells for double the price of a
Chrysler had collapsed inwardly. ItsChrysler compact.
erratic sales performance triggeredMany Mercedes auto parts were simply too
Daimler's decision to sell it off beforeexpensive to be part of a Chrysler
it capsizes the whole company. Chryslervehicle. Still, Zetsche insisted. One
would be sold for $7.4 billion toGerman exec recalled challenging the
private-equity giant Cerberus Capitalidea that integration could work. "Thank
Management.you for your opinion," Zetsche told him.
But with the said decision, pressure"I have a different one. We will go on
intensified. It does not only mark thewith the cooperation."
failure of a merger but also includes aWhile Daimler struggled to solve its
bunch of other struggles. Inventories ofChrysler problem, the company's
unsold product lines were suffocatingshareholders were swiftly losing
the dealers. Also, negotiations on thepatience. Influential shareholders
new company policies are chokingpressed Zetsche and Bodo Uebber,
workers. "It shows the problems of theDaimlerChrysler's chief financial
fusions of big companies," said Williofficer, to sell Chrysler. "Zetsche's
Diez, the head of the Germany-based Autopressure comes from so many different
Industry Institute. "You have culturalconstituencies telling him they're sick
differences. You have the problem of whoto death of Chrysler," said John Lawson,
really runs the company."a London-based analyst at Citigroup.
In interviews with a number ofIn private, Zetsche was ratcheting up
individuals close to Daimler tothe pressure on LaSorda and his team. No
reconstruct pivotal events leading up toone felt the pressure more than Joe
the May 14 sale of Chrysler, most spokeEberhardt, a former Mercedes exec who
on the condition of anonymity.was in charge of Chrysler sales and
When Zetsche became Daimler's CEO, nomarketing. Eberhardt had alienated many
one thought he would sell Chrysler. LikeChrysler dealers with his autocratic
power antennas, Zetsche was famed forstyle during the terrible summer of
efficiently leading Chrysler's path to2006. He resigned on Dec. 5.
solidify the merger. But Zetsche becameEarly this year, Zetsche appeared
ultimately disappointed by the lack ofreconciled that a sale was the best
synergies between Chrysler's mass-marketoption. "It took him awhile to get to
vehicles and the luxury product linesthis decision, that it was right for
built by Mercedes-Benz. As a result,Daimler and Chrysler to separate," said
Chrysler inventories became bloated anda person close to Zetsche. Valentine's
heavy incentives failed to push vehiclesDay 2007 was supposed to mark a fresh
off dealer lots. The warning on Sept. 15start for Chrysler simply because the
turned concerns about Chrysler into amarriage was officially headed for a
full-scale predicament.divorce.
People close to Zetsche said that he



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