BLOG 6: MERCEDES GOES TO MOTOWN

        When learning about the successful and failure of mergers, the Chrysler's merger with Germany's Daimler-Benz which were done in May 1998 should be considered as one of noticeable example. With the total revenues up to $130 billion, this is the largest merger in the car industry history. In fact, it was in expectation of both company management that the merger would enhance the production efficiency and the ability to gain the competitive advantage in the industry that are having more large competitors. Big Mergers usually fall especially without the effective management. While the merger makes sense on paper when investors and management can feel the good combination between the strong R&D of Mercedes and the impressive sales productivity of Chrysler, this cross-border deal was poorly managed. Indeed, from the point of view of Chrysler workers, this was more like a takeover from the German giant.

        The most noticeable problem of the deal is that it caused the lost in its shareholders’ value. The consolidated entity decided to have headquarter in Stuttgart rather than New York without noticed in earlier negotiations. Falling out of S&P500, the company share price dropped drastically on the stock exchange causing the lost to its shareholders. Things became worse when the company reported the zero bottom line profit one year after the merger. Plainly, the goal for “smooth operation”, which is the key for success, was not achieved due to various cross-culture mismatches and extremely poor handling of the human impact. It can be realized that the deal ended up to be a selling deal of Chrysler to the German. Further losses and the market downturn led to the significant job losses in Detroit alongside with the widened in the power gap lead to the domination from the German side.

        Considering from the root, this merger was controlled by the German company for its own interest rather than the mutual interest for both sides. Essentially, the merger and the process after that were done following the agreement of two CEOs in a very short period. It would be more fruitful for the both sides as well as for the shareholders if everything was done with a well-managed and transparent procedure.