100 + 10: Daimler/Chrysler Merger

In the spring of 1998, one of the largest business transactions of any time took place as Daimler-Benz took the first steps in a $40 billion dollar acquisition of the Chrysler Corporation. The move, initiated by Daimler- Benz Chairman Juergen E. Schrempp, promised to make the new DaimlerChrysler Corp. one of the world’s biggest automotive players. Prior to merging into DaimlerChrysler AG, Daimler-Benz was a leader in premium passenger cars and trucks above six tons. Chrysler was the third largest manufacturer of cars and trucks in the U.S. and market and was a consistent sales leader in the minivan segment.

Mercedes-Benz Chairman Juergen E. Schrempp made his company into a world player.

The new combined company became the third largest manufacturer of motor vehicles worldwide. Together, Daimler-Benz’s position in Europe and Chrysler’s in North America created a market performer with substantial global reach. The company offered a wide range of products and brands: Mercedes-Benz, Chrysler, Smart, Dodge, Plymouth, Sterling, Freightliner, Setra and Jeep, selling more than 4.9 millions vehicles in 1999. Chrysler brands accounted for 42 percent of 1999 revenues while the Mercedes-Benz brand accounted for 24 percent. The remainder of the company’s profits came from diesel engines, aircraft, space and defense systems, vehicle financing services, electric and electronic engineering solutions and insurance brokerage.

The “merger” wasn’t a success right out of the gate. DCX posted a loss of $4.7 billion in 2001, as the company attempted to refresh its vehicle lineup.

To add to the problems, DCX was sued by Kirk Kerkorian, Chrysler’s biggest shareholder, who alleged the “merger of equals” (as it was termed by top executives, namely Schrempp and Chrysler Chairman Robert Eaton) was actually a takeover by Daimler. Kerkorian was seeking $1.2 billion dollars in damages. The outcome of the trial is still pending.

The Chrysler Group will be challenged by new products from GM and Ford in the coming year, not to mention continued competition from imports. One of the Chrysler Group’s biggest challenges will be overcoming its longheld reputation for subpar quality.

The company on Dec. 10 agreed to recall 600,000 Dodge Durango SUVs and Dodge Dakota pickups from model years 2000 through 2003. The issue was the faulty front ball joints on the trucks could break, causing the wheels to fall off.

Consumer Reports, suspicious of the Chrysler Group’s quality over the years, won’t recommend its new products in their first year of production. In efforts to change that perception Thomas LaSorda, a former General Motors manufacturing overseer, was brought on by the Chrysler Group.

LaSorda has helped Chrysler’s quality improve with reported eight percent productivity gains in each of the past two years, the most of any U.S. automaker.

DCX also lost Wolfgang Bernard, their chief operating officer, who left the company in a management dispute with DaimlerChrysler Chairman Jurgen Schrempp, earlier this year, landing at Volkswagen.

While GM and Ford Motor Co. have watched their market share drop in 2004, Chrysler has enjoyed a slight gain. Through November, the automaker has captured 13 percent of the U.S car-and-truck market, up from 12.8 percent last year. Through the first nine months of this year, the Chrysler Group has earned $1.26 billion, compared to a loss of $637 million for all of 2003.

Much of the recent momentum is attributed to the success of the Chrysler 300C, chosen by many consumer magazines as Car of the Year. The 300, like other recently launched Chrysler products, benefits greatly from Mercedes’ technological expertise.

The reintroduction of the HEMI has also been a great boon to the upswing of DCX this year. The HEMI is currently featured in the 300C, Dodge Magnum Wagon, Jeep Grand Cherokee and the Dodge Ram Pickup. There is also a forthcoming redux of the famous Charger which will, naturally, also feature a HEMI.

While the HEMI has been wildly successful, Chrysler is also trying to keep up with other powertrain initiatives prevalent in today’s automotive market. The Chrysler Group embarked on a joint venture this month with GM to jointly develop gasoline-electric hybrid powertrains. Analysts say the two automakers have been lagging Japanese competitors in hybrids. This should put them back on track if only a little behind the competition, in this segment.

While the initial years may have been a bit perilous, the recent momentum of Daimler- Chrysler has been very positive. Continued positive product launches and the increased perception of initial quality, are steering the company in the right direction.