Daimler-Benz Buys Chrysler Summary

  • Last updated on November 10, 2022

The so-called merger of equals between Chrysler Corporation and Daimler-Benz marked the beginning of a wave of global consolidation in the automobile industry. The merger brought together one of the “Big Three” American automakers with a German economic powerhouse, uniting two companies with complementary product lines and geographic markets.

Summary of Event

The 1998 merger of Chrysler Corporation with Daimler-Benz was remarkable in terms of scale and scope. It brought together a “Big Three” auto firm established by Walter P. Chrysler during the 1920’s with a venerable German organization with nineteenth century origins that consisted of far more than Mercedes-Benz Mercedes-Benz[Mercedes Benz] automobiles. Daimler-Benz also had under its umbrella aerospace and electronics operations. Chrysler Corporation had been known for engineering excellence and innovation from its earliest days, while Mercedes-Benz was a legendary brand in terms of performance and quality. Chrysler had a significant influence on the American market, especially in terms of its less expensive cars, while Mercedes-Benz was actively involved in markets in Europe, South America, and Asia. While the merger’s main architects were Robert James Eaton of Chrysler and Jürgen E. Schrempp of Daimler-Benz, numerous other executives from both firms played critical roles in the negotiations that led to this supposed union of equals. Nevertheless, within a few short months of the signing of the agreement, the notion of equality was supplanted by German managerial dominance. Chrysler DaimlerChrysler[Daimlerchrysler] Automobiles;manufacture Mergers, business [kw]Daimler-Benz Buys Chrysler (May 6, 1998) [kw]Chrysler, Daimler-Benz Buys (May 6, 1998) Chrysler DaimlerChrysler[Daimlerchrysler] Automobiles;manufacture Mergers, business [g]Europe;May 6, 1998: Daimler-Benz Buys Chrysler[09990] [g]United Kingdom;May 6, 1998: Daimler-Benz Buys Chrysler[09990] [g]England;May 6, 1998: Daimler-Benz Buys Chrysler[09990] [c]Business and labor;May 6, 1998: Daimler-Benz Buys Chrysler[09990] [c]Manufacturing and industry;May 6, 1998: Daimler-Benz Buys Chrysler[09990] Eaton, Robert James Schrempp, Jürgen E. Kerkorian, Kirk Iacocca, Lee Lutz, Robert

The merger can be understood only within the context of both firms’ individual histories, along with that of the global automobile industry. As historian Charles K. Hyde has observed, Chrysler’s history was characterized by a roller-coaster journey that had both stunning highs and dark lows. For example, in the mid-1920’s Chrysler brought with it refinements that were unmatched in its day; a decade later, Chrysler Airflow pioneered mass-production streamlining but “flopped” in the marketplace. In the post-World War II era, Chrysler experienced success in terms of styling and engineering innovation. However, this golden era made possible by the designs of Virgil Exner was followed by poor market planning and quality issues that ultimately led to bankruptcy by the late 1970’s.

After being unceremoniously fired by Henry Ford II, Lee Iacocca came to Chrysler in 1979, negotiated a government bailout, and then turned around the company with innovative products that included the K-car and the minivan. As he showed with the Mustang during the 1960’s, Iacocca had an uncanny knack for reading the market. However, by the early 1990’s Chrysler was in financial trouble a second time, in part because of Japanese automakers’ market penetration in the United States, along with unfair measures that protected the Japanese home market. The decline in market share coupled with ferocious price competition and perceived quality advantage of the Japanese imports led to Iacocca’s departure.

Chrysler, now led by chief executive officer (CEO) Robert Eaton and Robert Lutz, totally revitalized the company, implementing new organizational and manufacturing practices that included the formation of platform teams and fresh products. One major investor in Chrysler, however, was not satisfied with either its stock price or dividends. In 1995, billionaire Kirk Kerkorian, owner of 36 million shares of Chrysler stock, with the assistance of Lee Iacocca, attempted to purchase Chrysler for nearly $23 billion. This takeover attempt was resisted by Eaton, who contacted New York financial institutions and threatened to pull accounts if they did business with Kerkorian. It was during his tense time that Eaton had brief talks with then Mercedes-Benz CEO Helmut Werner, although nothing of substance materialized as the Kerkorian threat fizzled.

At Daimler-Benz, a new CEO was appointed in 1995, Jürgen Schrempp. Schrempp had previously served the firm in South Africa and then as chief executive of Daimler-Benz Aerospace (DASA). He had a reputation as a cost-cutter and organizational “change agent.” In short order, Schrempp had forced out Werner as head of Mercedes and then set his sights on expanding into the American market. First making contact with Lutz, Schrempp began a series of negotiations with Chrysler and found a willing ally in Eaton. While basking in the glow of success between 1996 and 1998, Eaton did not want to play it safe. He had been concerned for some time with Chrysler’s future, in particular the lack of presence in foreign markets, especially Asia and South America.

Thus, beginning in February of 1998, with an ever-increasing involvement by lawyers, bankers, and second-level executives, negotiations proceeded to a point that ultimately led to the signing of a merger agreement in early May. Numerous obstacles had to be overcome, from the most formidable, such as different organizational structures, patterns of acceptable cultural behavior, and language, to the more trivial, such as headquarter time zone differences. Would the company be called ChryslerDaimler or DaimlerChrysler? In the end, the Germans got their way in terms of the new firm’s name, and indeed that decision foreshadowed the ascendancy of the Germans within the organization in the years that followed.

Significance

For someone living in America during the 1950’s or 1960’s, it would have been inconceivable to think that a Big Three automobile firm, even its smallest and most vulnerable member, would be purchased and absorbed by a German company. However, the status of the Big Three would all change by the end of the twentieth century, the consequence of a trend that perhaps began with the oil shocks of 1973 and 1979 and the rise of the Japanese automobile industry, first with its imports and then later with its transplanted assembly plants. With foreign competition and plummeting market shares, the automobile industry in America came to a crossroads by the end of the twentieth century, and this is reflected in the Chrysler-Daimler-Benz merger. This event marked the beginning of a period of global industry consolidation, as Ford purchased AB Volvo in January of 1999; later in the year, Renault acquired 37 percent of Nissan.

For almost a century, the global automobile industry was centered in “Motown,” Detroit. The industry’s focus changed in the late twentieth and early twenty-first centuries, diffused perhaps, but with a decided shift overseas, with the opening of new markets in China and South Asia and Eastern Europe to a lesser degree. With this shift, American manufacturing jobs disappeared, as the machine that did more than any other technology to change twentieth century America began to change the world. Chrysler DaimlerChrysler[Daimlerchrysler] Automobiles;manufacture Mergers, business

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Hyde, Charles K. Riding the Roller Coaster: A History of the Chrysler Corporation. Detroit: Wayne State University Press, 2003. A scholarly monograph on the history of Chrysler Corporation. Draws on several important archives, including the DaimlerChrysler Historical Collection, the National Automotive History Collection, and the Walter P. Reuther Library, all located in Detroit. The author argues that Chrysler Corporation had an up-and-down, roller-coaster-like history; his final chapter summarizes events that led to the 1998 merger.
  • citation-type="booksimple"

    xlink:type="simple">Lutz, Robert A. Guts: The Seven Laws of Business That Made Chrysler the World’s Hottest Car Company. New York: John Wiley & Sons, 1998. As president of Chrysler at the time of the 1998 merger, Lutz had unique insights into the personalities and dynamics involved. In the early 1990’s, he was also a critical player in the company’s resurgence in terms of organization, marketing, and products.
  • citation-type="booksimple"

    xlink:type="simple">Vlasic, Bill, and Bradley A. Stertz. Taken for a Ride: How Daimler-Benz Drove off with Chrysler. New York: HarperCollins, 2000. Written by two reporters for the Detroit Free Press, Taken for a Ride is the definitive account of how the Chrysler-Daimler merger took place. Drawing on numerous interviews and insider knowledge, this work chronicles the most complex international merger of recent times. Additionally, the authors do an excellent job of describing the key personalities and their thoughts as this drama unfolded.

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