Index
1. History of Chrysler Corporation
2. History of Daimler-Benz Corporation
3. Short Summery of Current Position of DaimlerChrysler
4. Reasons for Merger and New Opportunities
5. Opportunities in New Markets
6. Decrease in Price of Materials Bought from Suppliers
7. Decrease in R&D Expenses per Production Unit
8. Confluence of Technologies of Both Corporations
9. Double Strength of the New Corporation
10. Market Concerns
11. New Corporation
12. Achievements of the New Corporation
13. Survey of Recent Stock Performance
14. Comments on some of Financial Ratios of the New Corporation
15. Government Concerned that…
16. Environmental Issues in the New Corporation
17. Conclusion
History of Chrysler Corporation
It would be true to say that Chrysler Corporation was born long ago before the year 1925 (when it was officially established). It was started as a result of Walter P. Chrysler’s efforts to create a car that would be affordable and competitive in the market. The first car would incorporate four-wheel hydraulic brakes and a high-compression six-cylinder engine.
In 1924, New York for the first time saw a car that became the ancestor of all generations of Chrysler’s cars. It was the Chrysler Six. The car was not allowed to be presented at the New York Automobile Show, because it was not in production. But to put it in production Walter Chrysler needed to raise external funds. Eventually he came up with a very inventive idea—to park his car in front of the building in which the show took place. Going to the show, exhibitors and investors had a chance to see the Chrysler Six. Chrysler’s efforts led to success—a Chase Security Banker underwrote a five million dollars issue of Maxwell Motor Corporation (the company of which Walter Chrysler was a chairman) debenture bonds to finance future development.
In a year Walter Chrysler purchased Maxwell Motor Corporation, renamed it to Chrysler Corporation and became the only owner of it. The new company was growing very fast. By the end of the year Chrysler Corporation had 3800 dealers in the United Stated alone. The profit that year was about $17 million.
In 1934, the company introduced Airflow to the market. This car was a result of engineer Carl Breer’s and Orville Wright’s work. They had been working on a new generation of cars with a teardrop front. Unfortunately this car did not match customers’ tastes. However the company recovered thanks to innovations like ball bearings treated with Superfinish, a forerunner of the automatic transmission (fluid Drive), and the color-coded “Safety-Signal” speedometer. The company continued this success in 941, when it introduced the luxury-oriented Town & Country wagon. This was the company’s first minivan with nine-passenger seating and a rear hatch. Besides that, it was the first minivan with genuine wood exterior panels. This model was in big demand.
On August 18, 1940, the company was shaken by grief: Chrysler Corporation’s founder, Walter P. Chrysler, passed away.
In 1955, Chrysler Corporation debuted its “master piece”—Chrysler C-300. This car was the most powerful full-size car in the world, and soon won twenty out of forty races conducted in 1955.
Chrysler Corporation played a big role in production for military service during World War II. The company’s full capacity was directed toward production of tanks and 40mm trailer-mounted anti aircraft guns. In total, Chrysler participated in sixty-six military projects that were worth of more than 3.4 billion dollars between 1940 and 1945.
With the beginning of the era of space conquest, the Chrysler Corporation actively participated in the construction of powerful engines used to launch astronauts into orbit. NASA chose Chrysler to construct the Saturn 1 and Saturn 1B launch vehicles, which were assembled at its plant in Louisiana.
In May of 1998, an event took place that led to huge changes in the auto world. Two of the world’s most profitable car manufacturers, Daimler-Benz and Chrysler Corporation, agreed to combine their businesses in an equal merger.
History of Daimler-Benz
On October 1, 1883, Karl Benz started his own company, which was called Benz & Cie, Rheinishe Gas Motor Enfabrik. Benz’s cars increased in popularity after he started to build multiple cylinder engines with 16 horsepower, which increased the speed. The sale of automobiles was increasing every year. In the single year of 1901, Benz & Cie sold 2,702 vehicles. By that time, Benz was selling his vehicles in France, England, Russia, United States, and Singapore. Two years later at the age of 60, Karl decided to retire from the car business and the company was taken over by his sons, Eugen and Richand. On April 4, 1929, at the age of 84, Karl Benz passed away at his house at Ladenburg. At the present time, Karl Benz is considered to be a pioneer in car building in Germany and worldwide. In Germany, Benz is a history figure and often there are signs at Mercedes dealerships, which say, “Father Benz."
During World War II both companies, Benz & Cie and Daimler-Mototern-Gesellschaft, were ordered to change their production lines for military purposes. Both companies stopped making cars and began the production of Benz & Cie aircraft engines. DMG was building the aircraft. 1916 was a dramatic increase the number of employees in Benz and DMG factories. The number of workers of the Benz factories increased from 7700 to 12,000 and DMG’s workers increased from 3750 to 16,000. When the war was over, thins became very difficult for the German car builders. Many car-building companies had stopped production and had to close down their factories. Both Benz and DMG were greatly affected by the war and by 1924, the presidents of both companies signed a merger agreement, “Agreement of Mutual Interest,” which made them into one company.
During this time, the Mercedes model became very famous and recognizable around the world. Due to the increased popularity of the model Mercedes, the new company was named Mercedes-Benz. The name Daimler-Benz was used also. For the next decade, the Mercedes-Benz dominated the German automobile market. Mercedes sales were much higher than the other German car companies, such as BMW and Opel.
In the early 1930’s history repeated itself with the rise of Adolph Hitler. The management of Mercedes-Benz began gradually to lose control of the company. The new government brought the vehicle under strict regulation. The whole German car industry was taken over by the National Socialists. Hitler announced that the production of German cars would be “drastically reduced” (Kimer, p. 276, 1986). In the mid 30’s the Mercedes-Benz factories were beginning to be used for military purposes. This idea was given by Jakob Werlen, the former manager of Mercedes–Benz, who later became Hitler’s personal advisor of transportation. An interesting fact is that Hitler had many kinds of cars, but whenever he was photographed in a vehicle, it was a Mercedes. One of Hitler’s favorite models was his parade car, type 770, the “Grosser Mercedes” (Kimer, p. 282, 1986).
Wilhelm Kissel was a general director of the company in the mid and late 30’s. He tried to keep his company free from government involvement, but this proved to be too difficult. By wartime, the Mercedes-Benz factories were basically making military products. By the time Hitler started the war with the U.S.S.R., Mercedes-Benz was making all kinds of army equipment. The German army needed the best machines and Mercedes-Benz factories were producing planes, trucks, tanks, and various kinds of engines. The most famous Mercedes war product was a military plane called Msserschmitt. This plane made the Luftwaffe the best airforce in the world. The Msserschmitt was considered the best plane at that time; it had a Mercedes DB 600 engine, which made this plane much faster than any other planes in the world (Kimer, p. 283, 1986).
In 1945, after the end of the war, all of the Daimler-Benz factories, much like the rest of Germany, were ruined. An American reporter wrote about what he had observed in Germany right after the war - “Cities were dead, factories idle bridges down, rails gone. Rubble was everywhere” (Kimer, p. 283, 1986). World War II completely destroyed Daimler-Benz, at one time the world’s largest automobile company.
It took more than three years to rebuild the factories. However, many divisions of the company were lost because they ended up in East Germany. At first the company was rebuilding U.S. army vehicles. By 1949, over 6,000 cars had been built and the main focus of Mercedes-Benz was again the production of luxury cars (Kimer, p. 290, 1986).
Within the next two years, the company was completely rebuilt and the number of employees since the beginning of the war was doubled. Now the number of workers was almost 40,000. By the year 1952, Mercedes-Benz had built 100,000 cars and 250 in the United States. In 1955, the new models 220, 300, and 300S were introduced in a Frankfort Auto Show and the model 300S was named the car of the year. From that time, Mercedes started to export more cars around the world. However, most of the cars were sold in Germany (Consumer Guide, p. 32, 1986).
By 1960, the Mercedes was the number one selling car in Germany, but at the same time, the BMW became a very close competitor. Mercedes lost a large share of the market to BMW. This was a time when the company started to look for new markets. The United States was a promising market for the Mercedes. In the early 60’s the company increased its sales to 50,000 cars sold in the U.S. (Consumer Guide, p. 46, 1986)
However, in the mid 60’s, the sales went down. The new 190D four-cylinder diesel model did not sell well in the U.S. and Europe. It took the company three years until it became one of the leaders of the market. In 1970, Mercedes introduced three new models, which they called the “New Generation.” The new models were 280S, 280SE, and 280SL. By that time, the Mercedes became the number one imported car in England, France, Belgium, Holland, Switzerland, and Austria (Consumer Guide, p. 48, 1986).
Another reason why the Mercedes became one of the most popular cars in the world was its participation in auto racing. In the late 60’s, Mercedes cars participated in nine races and won seven of them. After tremendous racing results, people around the world wanted to purchase the C-111 model which would set up three new world records; however, Mercedes would not make this available to the public for sale. The company was receiving a thousand letters a day with offers buy the C-111 model and in 1976 the similar model C111-11 was introduced at the Geneva Automobile Show. The new model had tremendous power. It had 350 horsepower, and it could get from zero to sixty mph in six seconds. Its top speed was 190 mph. Also, the C111-11 Diesel set a new record in durability by running at a speed of 156 mph for 10,000 miles straight (Consumer Guide, p.55, 1986).
In 1982, the 190 series was one of the best selling models in the world. The 190 model was a small sized car which opened for Mercedes an entirely new market. In Germany, this model became a best selling car in 1985. This was a very important establishment for Daimler-Benz because the 190 model became the number one selling small car in Germany, leaving the long-time leader, BMW, in second place (Consumer Guide, p. 64, 1986).
In the early 1990’s, the Mercedes market share in the United States was greatly decreased. The reason for this was that the Japanese car companies started to produce luxury cars. For example, Toyota was manufacturing Lexus, Honda was manufacturing Acura, and Nissan was manufacturing Infiniti. These cars today are becoming increasingly popular among Americans. However, German management found a way to overcome the competition by building a Mercedes factory in Alabama in 1994. Now, a large share of Mercedes cars sold in the U.S. are produced by American labor. Producing Mercedes in the U.S. has solved many problems for the company. Many people in the U.S. have an opinion about buying American-made cars with the purpose of supporting the American economy. The second problem was that tax on imports was greatly reduced. The cost of a German laborer was 50% higher than an American laborer in Alabama. By building cars in the United States, all these problems were solved (Fortune, p. 150, 1997).
Similarly, Mercedes used the same strategy in South America. It built a new plant in Brazil. This plant decreased the prices of the cars and made the purchase of a Mercedes more affordable for the South American region (Motor Trend, p. 123, 1997).
In the past five years the demand for 4x4 vehicles has been increasing. Two years ago, Mercedes came up with a new M-class jeep model. The price of the is jeep is around $34,000, which is competitive with the American-made Chevy Blazer, Ford Explorer, and Grand Jeep Cherokee. By making a jeep, Mercedes is keeping up with its competitors for this share of the market. The new jeep is a success because it was named the 4x4 truck of the year for 1998.
Company ownership: European, U.S. and other international investors own DaimlerChrysler; there are approximately one billion shares outstanding. 65% is made up of European investors.
Global Stock: DCX ordinary shares are traded on the New York and Frankfurt stock exchanges as well as nineteen other major stock exchanges worldwide.
Group Headquarters: Stuttgart, Deutschland, and Auburn Hills, Michigan, USA.
Chairmen: Robert J. Eaton and Jurgen E. Schrempp
Management Board: Consists of fourteen members, including the two chairmen and the heads of the operation and functional divisions.
Supervisory Board: Consists of ten shareholders’ representatives and ten employees’ representatives. The Supervisory Board appoints the Board of Management and approves major company decisions.
Market Capitalization: Currently about EUR 80 billion (March 1999)
Investments: 1999-2001: EUR 46 billion to be invested in the future of DaimlerChrysler
Automotive Sales: 4.5 million units in 1998 (Passenger Cars and Commercial Vehicles)
Employees: 466,900 at the end of 1999
Manufacturing Facilities: in 34 countries.
Global Brands: Mercedes-Benz, Chrysler, Plymouth, Jeep, Dodge, Smart, Freightliner, Sterling, Setra, Airbus, Eurocopter, Ariane, Debis and others.
Product sold: More than 200 countries
Financial Reporting: US-GAAP accounting with earnings reported quarterly.
Reasons for merging and new opportunities.
In 1998, at the Detroit Auto Show, the idea of cooperation of Daimler-Benz and Chrysler Corporation was born. Schrempp, Chairman of Daimler-Benz and Eaton, chairman of Chrysler Corporation, began negotiations about possible combination of two large automobile manufacturers. “We are leading a new trend we believe will change the future, the face of the industry,” Eaton said five months later when the deal was announced.
The two chairmen acknowledged that the merger would not be easy. Their own study of transnational mergers suggested that 70 percent failed to achieve the kind of success that had been anticipated.
As a result of the long series of negotiations, a new company named Daimler-Chrysler was established. The company would manufacture not only cars, but commercial trucks, trains and rockets as well.
The goal of the merger was to create a company that would be able to stand better against other world leading car producers like General Motors, Ford, Nissan, Volkswagen, Toyota and so forth.
With the creation of a new company, both of the old components were going to benefit from the following:
· Decreased R&D expenses per production unit
· Confluence of technologies of both firms
· Double strength in total
· Opportunities in new markets
· Decrease in price of materials bought from suppliers
Opportunities in new markets
Both Chrysler Corporation and Daimler-Benz operate in quite saturated markets (in terms of their current products). In order for them to grow, they will have to carry on those overseas markets, which means development of products in accordance with preferences of the new markets.
Developing new products for a different market segment or establishing an additional brand might have implications for the positioning of the existing product range. Penetration into completely new market segments for both companies would involve both high costs (new offices, stores, and advertisement programs) and substantial risks for the companies.
Another method for successful penetration and establishment in new markets is co-operation with another manufacturer who already has a successful brand and products in place in the segments where it is represented. In this way, the existing product portfolio could be broadened without any risk to each company’s brand identity and its associations of exclusiveness.
Daimler-Benz is well-known and recognized in Europe and USA for its high-quality cars and has firm customers; however, the opportunities are limited. The newly industrializing countries in Latin America and Asia, on the other hand, offer good prospects for growth—starting from a low level—to the premium products segment. To penetrate these fast-growing markets on any scale, however, it would be necessary to launch new, low-priced products, possibly combined with the creation of a new brand name. The new direction will certainly require new funds and the company might not be able to handle this hard task alone. Another possible problem of penetrating the new markets in Latin America and Asia is, was the establishment of new offices, stores, research of new customer’s’ tastes, and advertisement. To cope with this obstacle to its success, DaimlerChrysler seeks companies in those areas for possible merger, like Daywoo, Mitsubisi and so forth.