In this case study it is shown that the German automobile company Daimler-Benz acquired an US automobile company named Chrysler. Though both were the car manufacturing company the Daimler-Benz was the producer of luxurious cars and the Chrysler was a mass-market manufacturer. So it took years to redesign Chrysler cars so that they could use Daimler parts and benefits from Daimler engineering. Moreover the acquiring company Daimler-Benz overestimated the value and competitiveness of Chrysler. After merger the German company Daimler-Benz found that. Chrysler’s factories were in the worse condition than they had though.
The product quality of Chrysler was very poor. So the decision of merger was proved wrong because of those reasons. The company also made very optimistic forecast about their products and earnings without any judgment of the conditions of the acquired company which created light of hope to their shareholders. Lastly, the world’s automobile business changed dramatically after the raise of the fuel price. These mergers could not cope with the increasing price condition of fuel and loss its market share. In this assignment the problems of the merger the solutions are seek &.some measures are taken to resolve the case study.
1. The planned strategy at Daimler-Benz for Chrysler in 1988 was to emphasize bold design, better product quality, and higher productivity by sharing designs and parts between two companies by acquiring Chrysler.
2. Decision making errors:
* The CEO and his planners overestimated the Chrysler’s competitiveness.
* It has been ignored that Chrysler products were the right products for a time of low gas price.
* Chrysler factories were in worse shape than they had thought and product quality was poor.
* Sharing of design and engineering resources and parts proved to be very difficult. Ways to avoid these errors:
* Redesigning the Chrysler’s cars effectively so that they could use Daimler parts and benefit from Daimler engineering.
* Taking necessary steps to increase the sales.
* Company gained market share in 2005
* New product launch
* Increase in oil price: The oil price had reached $70 a barrel in the mid 2006
* Increase in gas price: The gas price hit $3 a gallon.
* Increase price war: Company involved in aggressive price war, offering
deep incentives to raise the sales with Ford and General Motors.
* Japanese manufacturers such as Toyota, Honda bring out smaller fuel efficient offerings and popular hybrids.
* Largest automobile manufacturer
* Large market share
* Fuel-efficient offerings
* Building up excessive inventory
* Higher cost of raw materials
* Suffering from high health care cost
* Suffering from pension liabilities
* Due to increase in oil price
* Due to increase in gas price
* Due to price war
5. Ways to regain its footings in this industry:
* The company can regain its footings by offering fuel efficient products.
* By minimizing the costs of raw materials.
Summary of Case
Germany’s Daimler-Benz acquired Chrysler in 1998 by forming DaimlerChrysler in order to establish the strategic plan to emphasize bold design, better product quality and higher productivity by sharing designs and parts between the two companies. But in 2006 share of Chrysler fall to 10.6% by disappointing higher expectation of shareholders of this company. There are reasons for this failure. One is the overestimation of Chrysler’s planners and CEO, although its factory shape and product quality was not satisfactory. Then sharing of two companies’ engineering resources, designs were too difficult and they were not so cooperative in this case specially Daimler’s engineers. Although two new cars including 300 sedan and the PT cruiser generated good reviews but it was not enough for Chrysler.
Finally after 2004 Chrysler met good money and in 2005 its CEO wanted to introduce new SUV in order to capitalize this company. But in rapid fluctuation made situation difficult and the situation also went to worse because of aggressive price war made by this company’s competitors named Ford and General Motors. So Chrysler also did that to cope up with this situation and side by side Toyota and Honda were gaining share with their smaller fuel-efficient offerings and popular hybrids. Chrysler dropped its production by 16% in September 2006 because of its higher cost. To improve the situation Chrysler announced to make partnership with China’s Chery Motors for small fuel efficient cars.