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MERGER BETWEEN CHRYSLER CORPORATION & DAIMLER-BENZ.
Term Paper ID:29959
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Essay Subject:
Discusses challenges faced by both automotive companies for a successful merger.... More...
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12 Pages / 2700 Words
15 sources, 18 Citations,
APA Format
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Paper Abstract:
Discusses challenges faced by both automotive companies for a successful merger. Impact on corporate culture. Day-to-day management at the combined organization. Makeup & situation of both companies at the time of the merger. Government subsidies to the automotive industry. Role of competition in the auto industry. What each company has to gain from the merger. Effect on Human Resources (HR). Internal structure. Union culture. Management of multinational organizations. Divesity programs.
Paper Introduction:
Introduction
In early 1998, Chrysler Corporation, one of the three leading American automakers, and Daimler-Benz, one of Germany's largest industrial companies (and a leading European car manufacturer), announced a planned merger. Mergers and acquisitions in the 1990s differed from those during the 1980s in that the emphasis had shifted on building stronger organizations in the latter decade while mergers and acquisitions during the 1980s focused on improving short-term profits for the acquiring company. The merger was, in part, the result of participating in a mature industry where expanding profit margins depended on expanding market share, and where globalization played an increasingly important role. The decision for Chrysler and Daimler-Benz to join forces was generally seen by analysts as a positive move for both com
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Conclusion Any merger brings together organizations which believe that each canbenefit from some of the characteristics of the other. Secondary issues, such as shifts, arenegotiated on a company-by-company basis between management and workcouncils (not the union). Much of the information available isanecdotal, with the result that human resource managers are left trying topull together the successful elements of a diversity program without strongresearch to support their decisions. International Business. Doing business overseas has become increasingly common in recentyears, and some companies have become well-attuned to helping employeesadapt to day-to-day problems such as taxes, compensation and logistics ofcommunicating with the home office. 532).Daimler-Benz, on the other hand, participated not only in the automotiveindustry, but also in aerospace, defense product and space systems. (2 , June 12). (1994, March 28). S16-S17. Grosse, R., & Kujawa, D. The Transition is over. Auto workers union likely to get seat onDaimlerChrysler board. (2 , April). It is not immediately clearthat such a structure could be implemented at Daimler-Benz after themerger, but it is clear that considerations such as these, particularlywhen viewed from the inside as successful, need to be taken into account asthe companies struggle to create their own new culture (Minahan, 1998, p.S3). With the departure ofEaton, the company has taken on a distinctly German culture, but thecompany has recognized that with its international management team andinternational workforce, a new corporate culture is necessary for long-termsuccess, and a diversity training program is critical to helping thecompany develop that corporate culture. These classescan include rudimentary language instruction, and also information ondifferences in cultures, both within the office environment, and in societyas a whole. Harrison, J. Chrysler's internal efficiencyshould be taught to Daimler employees in order to sharpen the financialperformance of the firm. (1998, May 18). In early2 , the former head of Chrysler, who had served as co-chairman ofDaimlerChrylser, announced his retirement, suggesting that the transitionwas complete. However, so-called "soft" issues maypose an even greater block to employee productivity and long-term successwith the organization. The same issues confront a company which is determining how toadd new products to its product line. Some companies try tomaintain a standard of living commensurate with the home country for theexpatriate, and many analysts agree that over-compensation can be a problemfor companies (Derderian, 1993, p. New markets, such as China, also open up additionalmarket opportunities, but also introduce the risk of new marketparticipants which may well receive subsidies from the government in orderto compete. One way to solve this problem is throughthe use of diversity trainers, who come to the job site and communicateboth what diversity is and how it affects the employees directly. Chrysler, on the other hand, gained access to Daimler-Benz's Europeandistribution and entrance into the luxury vehicle and heavy truck market.Chrysler also gained from Daimler's reputation for craftsmanship andquality while Daimler can benefit from Chrysler's efficiency within itsorganization. Joseph, C. Nonetheless, DaimlerChrysler successfully negotiated thefirst labor contract with the UAW in 1999 (the lead company generally setsthe tone of negotiations in the United States for the other majormanufacturers), and did so both without a strike and by successfully addinga year to the contract's length. Chrysler's stock rises while Daimler'sfalls. Helping employeeslearn the tools of day-to-day social and business interaction can help themfeel more comfortable more quickly, and thus help them improve theirproductivity during the foreign assignment (Harrison, 1994, p. American employees are increasingly feeling threatened as they seemany of the productivity gains made by Chrysler lost to the labor-intensiveDaimler products. Typically, similar contracts arenegotiated with all companies within the automobile industry, but there canbe some concessions worked out depending on the financial position of thecompany in question at the time the contract is negotiated. It divestedits Gulfstream Aerospace (a manufacturer of corporate jets) in the early199 s, and in 1997, received more than 96 percent of its revenues and 87percent of its profits from its automotive sales (Levy, 1998, p. In the years leading up to the merger, Daimler-Benzstruggled with its profit margin, which hovered at approximately 2.6percent. Compensation is also a primary concern to both the expatriate and tothe company which is funding his activities. Aside from providing direct employment totheir workers, automotive manufacturers also provide a considerable numberof ancillary jobs and require additional services which support entireother industries. In addition, the new company mustbring together two distinct corporate cultures which, while influenced bytheir country cultures, can be quite different. Family acceptance ofthe assignment is a critical factor for success (Harrison, 1994, p. Woodyard, M. Some companies use specialized training classes to help employeesadjust to the cultural changes they will be encountering. In some cases, the family will travel with theemployee; this is most often the case in long-term assignments. It is not clear in any case how much influence the United AutoWorkers' representative has had on the direction of the combined company.German corporations do not have to yield to the recommendations of thesupervisory board on issues such as where to locate new plants, an issuewhich is of particular interest to the American union representative.However, having input from the American union is generally considered tohave made the company aware of issues which confront the American worker,and should make the company better able to blend the cultures of two vastlydifferent organizations (Jewett, 2 , p. In this way, the German auto manufacturer gained access toChrysler's American markets and distribution system for its high-endvehicles and adds light trucks and mid-range cars to its product offerings. (2 , January 31). Chicago:Irwin. Such issues include how families are treated whenan employee is relocated. (1998, May 2). Daimler-Benz was listed on the New York Stock Exchange, and has beensince 1993 when it agreed to use Generally Accepted Accounting Procedures(GAAP), which were used commonly in the United States but not throughoutthe rest of the world. 71. 532. German law requires that companies have a 49percent representation of labor on their supervisory boards; theDaimlerChrysler board had 1 labor representatives and 1 managementrepresentatives. Levine, M. International success lies in cross-cultural training. Design News, pp. OKRB98128 6B. Sales for the five years leading tothe merger increased at an average annual rate of only one percent (Joseph,2 , p. Knight-Ridder/Tribune Business News, p.OKRB98128 65. OKRB98128 63). It is in such classes that Americans learn that Australians donot tip and that English cars have bonnets, not hoods. Jewett, D. This research examines the merger, the impact on corporateculture, and day-to-day management at the combined organization. HR Focus, pp. OKRB98128 6B). 71). Ifthe organization simply tries to impose one culture on the other, or doesnot recognize the contributions of both cultures, the result will be long-term failure and a continued drop in productivity and morale. There isincreased emphasis on building cars that are not only fuel efficient, butwhich also meet stringent emission standards. This means that potential employees must beconsidered not only because they possess the right technical skills for theassignment, but also because they are flexible enough to adapt to a foreignwork environment and willing to take on the challenges that a long-termassignment represents. HR Focus, p. 9. Somediversity programs are simply ignored by participants after initialtraining, but there are also cases where there was a long-term negativeeffect due to the perceived backlash that members faced as a result of thetraining. Knight-Ridder/Tribune Business News, p. Nonetheless, diversity training is an important new role for thehuman resource department. Diversity Programs While the business community as a whole recognizes that diversity is away of life in the workplace, particularly in the international workplacewhich characterizes today's business environment, there is no clear-cutagreement as to how to communicate that reality, or the ramifications ofthat reality, to the workforce. 8). Such an approach can helpthe family adjust better, which decreases the stress that the family as awhole faces and improves the employee's productivity. Global staffing. (1999, October). Such a policy can also be harmfulto the employee, since it is simply impossible to maintain the samestandard of living to which the employee is accustomed in all countries.Because of this, companies must carefully put together compensationpackages which take into account the inconvenience of being away from home,but which are also realistic in light of the target country. Evolution of the Industry Individual governments are likely to continue to subsidize nationalautomotive manufacturers because of the significant role that suchcompanies play in the economy. Platform teams pair with suppliers todrive Chrysler to better designs. However, it is much more difficult to scale back anoverly generous compensation package once the employee has accepted it. 8-9. (1996, June). However,such a consequence can cause upheaval in the household, particularly if thespouse has a job in the United States, or if there are children. Analysis of Merger Managing a multinational organization requires that companies takeinto account differences in the regions in which they operate. Brennan, M. There is general agreement that diverse refers to womenand minorities; there is a growing emphasis on the aging work force, aswell. This union structure differs from the American system where each tradehas a union. The fact that the United Auto Workers was successful athaving a member on the supervisory board, indicated that the deal was infact a merger rather than an acquisition, and could signal a shift amongAmerican manufacturers Ford and General Motors to take similar actions attheir own companies. Both of these tasks must also take into accountthe cultural differences not only of the two countries where the companiesare based, but also the internal cultures of the companies themselves(Bott, 1998, p. 1 3. Derderian, S. The decision for Chrysler andDaimler-Benz to join forces was generally seen by analysts as a positivemove for both companies; however, merging the two corporate cultures wasexpected to present challenges to the combined management team. 32). DaimlerChrylser must avoid a program which simply "forces" one cultureonto the other, and recognize that the strengths which brought the twocompanies together continue to be the joint company's greatest assets. Standard & Poor's StockReports, p. 23). OKRB98128 65). Managing the Expatriate Daimler-Chrysler will shortly discover what other multinationalorganizations have learned through experience: successful expatriateoperations begin with the selection process. Setting realistic expectations of the living situationcan be important in helping employees adapt to their new livingenvironment. Miller, C. What made this mergerdifferent from many is that the product lines of the two companies do notreally compete against each other. A company can take on the cost andburden of introducing new products on their own and offering the marketingsupport for this, or a company can use the expertise of anotherorganization which has already laid the groundwork to accomplish the sametask (Levine, 1998, p. The company was able to decrease its development cycles by morethan 4 percent by forming teams which include representatives frompurchasing, finance, manufacturing and suppliers in addition to engineers.The result is that the teams have all of the input they need in order tomake design decisions and can immediately see the effect that thosedecisions have throughout the organization. Just as not every individualis right for every job, not every employee is right for expatriate work(Miller, 1994, p. S3-S5. (1998, May 8). Other companies mayor may not apply the terms. The merger was, inpart, the result of participating in a mature industry where expandingprofit margins depended on expanding market share, and where globalizationplayed an increasingly important role. In the case of Chryslerand Daimler-Benz, they determined that the mutual benefits were so diverseand so great that a merger of the two organizations was the most effectivestrategy. Levy, E. (1994, September). (1993, April). Some companies help spouses find work overseas and provide classes forthe entire family on adapting to their new home. These work councils have the legal standing tocodetermine worker safety procedures and other in-house practices, and arecomposed of both management and labor (Grosse & Kujawa, 1998, 426). There are significant differences between the German and Americanways of doing business, and these came to the forefront as the new companytried to build a new corporate culture. 2). References Bott, J. Introduction In early 1998, Chrysler Corporation, one of the three leading Americanautomakers, and Daimler-Benz, one of Germany's largest industrial companies(and a leading European car manufacturer), announced a planned merger.Mergers and acquisitions in the 199 s differed from those during the 198 sin that the emphasis had shifted on building stronger organizations in thelatter decade while mergers and acquisitions during the 198 s focused onimproving short-term profits for the acquiring company. These would be attractive not only because of the lack ofemissions, but also because they are quieter to operate and do not rely onfossil fuels directly. In the automotive industry, the United Auto Workers is thelargest union and typically the one which negotiates contracts at the BigThree manufacturers. Chrysler has put considerable effort into improving its internalstructure with its cross-functional design process introduced in the late198 s. 19). Developing successful expatriatemanagers. Minahan, T. AutomotiveIndustries, p. Marketing News, pp. Electric vehicles,for example, may provide a serious alternative to gasoline-poweredvehicles. PR Newswire, p.511DEM 16. Daimler-Benz had a strong reputation in luxury cars andcommercial trucks complemented by a significant European presence and awell-known commitment to craftsmanship. 32). Value LineInvestment Survey, p. The art of thesuccessful merger is in being able to bring out the strengths whileeliminating, or at least minimizing, the weaknesses. M. Another barrier to establishing an effective diversity program is thatthere is difficulty determining which employees should be covered by the"diverse" label. Eaton is leaving. This would give individualcompanies the opportunity to negotiate a contract which takes into accounttheir current situation (Bott, 1998, p. DaimlerChrysler. 9). The company posted losses in 1993 and 1995, and had a net profitmargin of only .8 percent in 1994. Leaders figure out puzzle of brandmanagement. In doingso, they must determine whether it is more cost effective to enter a newregion by simply going in directly, or whether a new region can be enteredbest by forming a partnership with another company which is alreadysuccessful. (1998, April 6). (1998, May 8). J. Union membership in Germany is strictly voluntary, and there is asingle union for all workers in major industries. 71), it maybe more prudent to have internal DaimlerChrysler staff members trained indiversity responsible for the training of the overall organization. These contracts are negotiated on a company-by-company basis, not across the industry. 32. 4). 9). Selecting a diversity trainer.HRMagazine, p. Thecompany was also a significant participant in the Airbus consortium. The Realities of the Merger Although the combination of Chrysler and Daimler-Benz was originallyto have been a merger, Chrysler employees are of the opinion that they weresimply acquired by Daimler-Benz. S16). 1 3). The lack of empirical information available to human resourceprofessionals faced with developing a diversity program can be asignificant issue for many companies. The structure of the compensation and the standard of living which theemployee can expect should be carefully explained to employees who may bemoving overseas. When multinational companies set out to develop diversity programs,they must confront diversity in their own culture as well as diversityamong cultures, a particularly challenging situation. One of the most difficult challenges that companies must overcome whenimplementing a diversity program is making sure that it will work. The Merger and Its Effect on Human Resources The newly merged company was not able to continue to do businesseither the traditional Chrysler way or the traditional Daimler way.Instead, the company must shape a new culture for itself which builds onthe strengths of both and which seeks to minimize the weaknesses of both.If Daimler is renown for craftsmanship, then quality should be passed on toChrysler in order to build quality cars. Chrysler Corp. K. However, even the most successfulmergers are fraught with difficulty, and this one was no exception.Mergers can be difficult when the companies involved are based in the samecountry. Once thecompensation package has been established, upward modifications can bemade, if necessary. At this point, the corporateculture would be shaped by the German managers, a fact not lost on otherkey executives, several of whom also announced career changes (Jewett,2 , p. Diversity Program Development While Rogers suggests using an outside trainer (1999, p. On the other hand, there are some analysts who believe that the Germanautomotive industry would like to move away from industry negotiations andtoward the "American" way of negotiating. In someorganizations, diversity trainers are consultants while in otherorganizations, they are added to the staff and diversity is dealt with onan ongoing basis (Rogers, 1999, p. Recognizing that the union culture is different in the two countries,and also recognizing that labor is a critical element in the success of theindustry, the new company had a representative of the United Auto Workerson its board of directors. In addition, line workers receive profitsharing bonuses which were previously not part of their compensationpackages, an innovation introduced by Daimler management (Woodyard, 2 ,p. (1998, May 11). The Two Companies at the Time of the Merger In addition to manufacturing automobiles and light trucks, Chrysleralso sold defense-related products to the American military. In general, however, the merger was seen as more beneficialto Chrysler than to Daimler-Benz (Brennan, 1998, p. Automotive News,p. (1998). This is the underlying problem thatmanagers face when trying to develop a diversity program: there is littleempirical research which can help guide them in setting up a program thatwill be worth the time and expense that the company will put into theproject. The merger between Chrysler and Daimler-Benz moved the company intothe top-tier of world auto manufacturers. Human Resource Planning, pp. The combined company was theworld's fifth-largest automotive manufacturer with combined 1997 sales of$13 billion. Thiswould enable the company to tailor a training program to meet its uniquerequirements, and would allow it to establish certain guidelines fordiversity training that would enable all employees to receive the samequality of training regardless of whether they are located in Germany, theUnited States, or a third nation. Advertising Age, pp. If employees have realistic expectations before they arrivein the country, they are less likely to be unpleasantly surprised aboutworking conditions, living conditions, or other factors affecting theirdaily lives (Miller, 1994, p. 1-4. McNerney, D. Chrysler Corporation announces digital manufacturing application thatfurther reduces manufacturing lead times. 4. Going overseas requires marketers tolearn more than a new language. Collective bargaining isperformed on behalf of all laborers, and all companies who are federationmembers apply the terms negotiated to their workers. California, in particular,has strong guidelines for control of emissions; since it is one of thesingle largest markets in the world, the regulations in that state can havean impact on the types of cars which are manufactured. 17-25. The company's new name, DaimlerChrysler,reinforces this idea, and in early 2 , both Thomas Stallkamp (presidentof Chrysler) and Robert Eaton (Co-chairman of DaimlerChrysler) announcedthat they were leaving the organization. When multinational enterprises decide that a partnership offers themost benefits, they also recognize that some compromise will be necessary.Some companies use a licensing arrangement to enter markets or introducenew products; others enter into joint ventures. These skills are important regardless of how longthe assignment will last, and business trips lasting only a few days mayhave long-term consequences which should not be dismissed (McNerney, 1996,p. Chrysler, on the other hand, had astrong presence in the American market (although it was not the dominantmanufacturer) and a global presence in mid-range cars and light trucks.Its internal organization was also considered highly efficient. The next decade may well see an increase in the number of competingproducts, as well, and with more differentiation among them. Rogers, B. In the case of long-term assignments, companies may want tointerview the spouse of the employee; this is important when the spouse isalso relocating, but can also be important if the employee will be gonefrom home for an extended period of time.
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