CASE REPORT-MERCEDES BENZ

CASE STUDY-WHEN THINGS

GO WRONG(EYES OF BALL
AT MERCEDES BENZ).

Submitted BY:

SHANKAR RAMASWAMY 2009H149188P

Birla Institute of Technology and Science, Pilani

 CASE REPORT- MERCEDES BENZ

ABSTRACT

This case related to merger of two iconic brands- american Chrysler &
german Daimler
luxury car –Mercedes is going through a lean patch sales as well profits have
fallen down and it lags behind others like BMW, Audi customers seems to shift
their loyalty to other luxury brands
there has been issues linked to quality and leading to model recalls, 1.3 million
cars have been recalled since 2001 .

The main issue was of CHANGE MANAGEMENT. There was a CULTURE CLASH
between two companies. "Mercedes was universally perceived as the fancy,
special brand, while Chrysler, Dodge, Plymouth and Jeep the poorer, blue collar
relations. The best operations and management practices of respective
companies which were to be used mutually could not be replicated effectively

Some question whether the highly technologically sophisticated gadgetry on its

latest top of the range S-class cars can be trusted to perform. They fear that
any electronic gremlins could further damage the entire marque’s image nd
further alienate its customers

Focus on Mercedes brand was not there, management tried to introduce other
brands while not focusing on its main brand .

DAIMLER CHRYSLER APPOINTED new CEO-Dieter Zetsche, quickly realised the

problem-misfit of two companies and not focussing on main mercedes brand.A
new plan announced today is calling for the layoff of 13,000 workers till 2009.
They are also planning plant closures in order to reduce costs.He started
working on demerger of the two companies which was completed in 2007 .
Cerberus Capital Management(Equity firm)acquisition of an 80.1 percent stake
in Chrysler for 7.4 billion dollars

QUESTIONS

1) What has been the source of Mercedes’ competitive advantage?

Competitive advantage occurs when an organization acquires or develops an

attribute or combination of attributes that allows it to outperform its
competitors.Merecedes uses DIFFERNTIATION STRATEGY to seek competitive
advantage. Differentiation is about charging a premium price that more than
covers the additional production costs, and about giving customers clear
reasons to prefer the product over other, less differentiated products.It gives
 CASE REPORT- MERCEDES BENZ
customers high end quality luxury products and customized .as per their needs

2) What seems to be the cause of its recent problems in operations?

The Main problem was not focussing on its main brand ”Mercedes” and trying
too many things(launching a small car division) which were not its core
competency .This resulted in lack of quality in its operations.Also , due to its
merger with Chrysler, it tried to replicate economies of scale model of
Chrysler , and failed miserably

3) Is it possible for the firm to simultaneously improve its performance in

both productivity and quality?

Yes, it is possible for firm to improve its performance in such a manner.

Toyota Lexus did this in such a manner, and this is explained clearly by The
‘sandcone’ model of operations excellence. The starting point, the base of
the sandcone is excellence in quality. On this should be built excellence in
dependability, then flexibility (which they take to include speed), then cost.
They emphasize that efforts to further enhance quality should continue whilst
commencing efforts to build dependability. Similarly, actions on quality and
dependability need to continue whilst building flexibility. Finally efforts to
reduce costs take place alongside continuing efforts to improve quality,
dependability and flexibility.They claim that operational capabilities
developed in this way are more likely to endure than individual capabilities
developed at the expense of others

4) Where would you position Mercedes Benz on the Hayes and Wheelwright
four-stage model? Give your reasons

I will put it in STAGE 4. Its core competency-High quality products were

used to provide a base for competitive advantage.
CASE REPORT- MERCEDES BENZ
 CASE REPORT- MERCEDES BENZ
INTRODUCTION

Atlantic Computer, a leading player in the high-end server market, has found a marketplace opportunity in the
basic server segment. They have developed a new server, the Tronn, to meet the needs of this segment. In
addition, they have created a software tool, called the ‘Performance Enhancing Server Accelerator,’ or PESA,
that allows the Tronn to perform up to four times faster than its standard speed. The company has entrusted the
responsibility to Jason Jowers(NEW PRODUCT MANAGER) on how to price the Tronn and PESA.
Although costplus, competition-based, and status quo pricing are the most common means by which firms
establish prices for their offerings, these approaches may prevent firms from fully realizing the benefits that
are due to them. Provides an opportunity to optimize value capture for the firm by utilizing value-in-use
pricing (i.e., examining the value that a firm's offering creates for the customer, and using the savings
generated as the basis for developing prices). Also allows for the exploration of the challenges surrounding the
implementation of a value-in-use pricing strategy.

PROBLEM DEFINITION
The issues confronting Jason Jowers are:
1. What price should Jowers charge DayTraderJournal.com for the Atlantic Bundle (i.e. Tronn servers + PESA
software tool)?
2. How is Matzer likely to react to the recommendation?
3. How is Cadena’s sales force likely to react to the recommendation? What can Jowers recommend to get
Cadena’s hardware-oriented sales force to understand and sell the value of the PESA software effectively?
4. How are customers in the target market likely to react to your recommended pricing strategy? What
response can be provided to overcome any objections?
5. How is Ontario Zink’s senior management team likely to react to the Atlantic Bundle?

ANALYSIS
The need for internet servers in America’s workplace is a growing market, with several different segments.
First, there is the segment for High Performance Servers, which represents those who take on complex
applications such as supply chain managements and business intelligence. On the other hand, there is need for
servers to complete basic, repeatable tasks, such as browse the internet. Both segments are expected to grow,
but the segment needed basic computing capabilities is growing at a much faster rate.
Ontario Computers has been the leading company for servers for a long time, mainly because of their ability to
sell at low price. They cut costs because they only sell online and have mastered the supply chain process to
minimize costs. They claim to not have the best product, but the “most flexible and innovative supply chain
possible”. This is both a threat and an opportunity because customer may be drawn to them because of the low
price, but Atlantic can capture the ‘best product’ reputation that hasn’t been dominated by Ontario Computers
yet.
 CASE REPORT- MERCEDES BENZ
General Motors (GM), the world's #1 maker of cars and trucks, owned brands such as Buick, Cadillac,
Chevrolet, GMC, Pontiac and Saab. GM also produced cars overseas through its Holden, Opel, and Vauxhall
units. Other operations included Hughes Electronics, Allison Transmission (heavy-duty automatic
transmissions), and GM Locomotive (locomotives, diesel engines).

GM also had stakes in Isuzu Motors, Fuji Heavy Industries (Subaru), Suzuki Motor, Fiat (Alfa Romeo,
Lancia), and GM Daewoo Auto & Technology. Subsidiary, General Motors Acceptance Corporation (GMAC)
provided financing.

In 2003, GM looked well placed to regain some of its market share in the US. 2002 marked the second
consecutive year of increased US market share - a feat it had managed to achieve for the first time in 26 years.
GM hoped to maintain this momentum by launching 30 new vehicle products in 2003 across its global
markets.

Asia had emerged as an important market for GM. The company had purchased 20% stakes in Fuji Heavy
Industries (Subaru) and Suzuki, and a 42% stake in South Korea's bankrupt GM Daewoo Auto & Technology
Company (formerly Daewoo Motor) for $251 million.

GM finalized the Daewoo deal with partners Suzuki and Shanghai Automotive Industry Corp. GM hoped that
Daewoo would help it to make inroads to the largely closed South Korean car market while creating new
opportunities in China. Meanwhile, GM retooled its relationship with Isuzu Motors by writing off its 49%
stake and infusing the troubled carmaker with $84 million in cash. The resulting recapitalization reduced GM's
stake in Isuzu to 12%.

GM was also sharpening its business focus by spinning off non-core units. The company had spun off parts
maker Delphi Corporation, and sold its defense unit (armored vehicles) to General Dynamics for $1.1 billion.

Rupert Murdoch's News Corporation had striked a deal to take control of GM's 20% stake in Hughes
Electronics, which owned DIRECTV, for about $6.6 billion. In 2002, GM recorded revenues of $186,763.0
million and a net income of $1,736.0 million...

verview of Risks
 CASE REPORT- MERCEDES BENZ
Changes in economic conditions, volatility in financial markets, significant terrorist acts, or political instability
in the major markets where GM procured material, components, and supplied principal products might affect
the company's performance. Shortages of fuel or interruptions in transportation systems, labor strikes, work
stoppages, or other interruptions might adversely affect its performance...

Legal Risks
Like most domestic and foreign automobile manufacturers, over the years GM had been using some brake
products incorporating small amounts of encapsulated asbestos. These products, generally brake linings, were
known as asbestos-containing friction products. There was adequate scientific data demonstrating that these
asbestos-containing friction products were safe and did not create an increased risk of asbestos-related
disease...

Market Risks

GM was exposed to fluctuations in foreign currency exchange rates, interest rates, and certain commodity and
equity prices. GM entered into a variety of foreign exchange, interest rate, and commodity forward contracts
and options, to hedge these exposures. A risk management control system was utilized to monitor foreign
exchange, interest rate, commodity and equity price risks, and related hedge positions. GM also measured the
sensitivity of the fair value of financial instruments. The analysis assumed instantaneous, parallel shifts in
exchange rates, interest rate yield curves and commodity and equity prices...

Derivative Instruments: Accounting & Valuation

GM's financial exposures were managed in accordance with corporate policies and procedures. All derivatives
were recorded at fair value on the consolidated balance sheet. Effective changes in fair value of derivatives
designated as cashflow hedges and hedges of a net investment in a foreign operation were recorded in net
unrealized gain/(loss) on derivatives, a separate component of accumulated other comprehensive loss...

Exhibits

Exhibit I: General Motors: Financial Highlights

Exhibit II: General Motors: Sensitivity Analysis
Exhibit III: General Motors: Financing & Insurance Operations
Exhibit IV: General Motors: Fair Value of Financial Instruments
 CASE REPORT- MERCEDES BENZ

ntroduction

Toyota, the world's third largest car manufacturer after General Motors and Ford, was rated as the most
efficient car maker in the world. Toyota's major business segments were automotive and financial services.

In 2002, the automotive segment accounted for approximately 90% of Toyota's total revenues and 96% of
Toyota's operating income. The company's manufacturing, vendor management and product development
practices were considered best in class. Toyota's primary markets (based on vehicle unit sales) for the year
ended March 31, 2002 were: Japan (40%), North America (32%) and Europe (13%).

Overview of Major Risks

Toyota believed the profitability of its automotive operations was affected by factors like
• Vehicle unit sales volumes,
• The mix of vehicle models and options sold,
• The levels of price discounts and other sales incentives and marketing costs,
• The cost of customer warranty claims and other customer satisfaction actions,
• The cost of research and development and other fixed costs,
• The efficient use of production capacity,
• Changes in the value of the Japanese yen and other currencies in which Toyota did business,
• Intensifying competition,
• Regulatory issues.

Risks in Product Development

Product development in the automobile industry was highly capital intensive and time consuming. Yet,
automakers had to keep coming up with new models from time to time. They had to standardize the core
product, the platform and build features around a small number of platforms. Toyota was a pioneer in lean
product development, a philosophy which believed in coming up with new products, using minimum
 CASE REPORT- MERCEDES BENZ
resources. In 1955, when the product development process for Toyota's model 'Crown'started, the practice of
appointing 'susha'(an empowered project manager) to head a project from its inception was initiated.

In 1965, Toyota formally established a product planning division to organize and support sushas. The structure
used by Toyota was essentially a matrix, with functional specialists reporting both to a functional manager and
the susha. The matrix structure helped Toyota to combine the best features of both functional and divisional
organizations. At that time, there were 10 sushas and 5 to 6 staff members under each susha. Except for
replacing the name susha by 'chief engineer' in 1989, the company did not change the structure of its product
planning division till the early 1990s.

Marketing Risks

The worldwide automotive market was highly competitive and cyclical. Demand for automobiles in each
market could vary substantially from year to year. Demand depended to a large extent on general economic
conditions in a given market, the cost of purchasing automobiles and the availability and cost of credit and
fuel.

Toyota's vehicle unit sales in Japan decreased during fiscal 2002 mainly due to poor market conditions and
increased competition from other domestic manufacturers. This decrease followed increases in Toyota's
vehicle unit sales in this market during fiscal 2000 and 2001 driven by new models and the strong sales efforts
of domestic dealers...

Regulatory Risks
Changes in laws, regulations, policies and other governmental actions could affect the profitability of Toyota's
automotive operations. These laws, regulations and policies included those affecting environmental matters
and vehicle safety, fuel economy and emissions. Such laws significantly increased the cost of vehicles...

Financial Risks

Toyota was exposed to various risks due to changes in foreign exchange rates, interest rates and certain
commodity and equity prices. In order to manage the risk arising from changes in foreign currency exchange
rates and interest rates, Toyota used a variety of derivative financial instruments.
 CASE REPORT- MERCEDES BENZ

The financial instruments included in the market risk analysis consisted of cash and cash equivalents,
marketable securities, finance receivables, securities investments, long-term and short-term debt and all
derivative financial instruments...

Exhibits

Exhibit I: Toyota Centers and their Functions

Exhibit II: The Automobile Industry World motor vehicle production
Exhibit III: The Automobile Industry Passenger car production in major countries
Exhibit IV: Toyota Production Sales and Exports
Exhibit V: Toyota Breakdown of Domestic Production by model
Exhibit VI: Toyota Domestic Sales breakdown by model
Exhibit VII: Toyota Regional breakdown of production
Exhibit VIII: Toyota Domestic Plants and other facilities
Exhibit IX: Toyota Overseas production of selected models
Exhibit X: Toyota Sales by region*
Exhibit XI: Toyota Sales in the top 10 overseas markets
Exhibit XII: Toyota Overseas sales by brand 2002
Exhibit XIII: Toyota Contribution to Industry sales
Exhibit XIV: Toyota Export from Japan by Region
Exhibit XV: Toyota Top 10 Exports by Destination

rd Motor (Ford), one of the leading automobile manufacturers in the world had two broad business segments:
automotive and financial services. The automotive segment included the designing, manufacturing and sale of
a variety of cars, trucks, and sport-utility vehicles (SUVs). The company's famous brands included Ford,
Mercury, Lincoln, Jaguar, Mazda, Volvo, Land Rover, and Aston Martin. Ford also participated in the
financial services industry through Ford Motor Credit Company and The Hertz Corporation.

The Ford Motor Credit Company was the world's largest auto financing company. Ford offered credit services
in over three hundred locations around the world. The Hertz division offered rental services.
 CASE REPORT- MERCEDES BENZ

Till the late 1990s, Ford had been regarded as one of the best managed companies in the industry.

But since the early 2000s, Ford had been a company in trouble. CEO Bill Ford faced the daunting task of
leading, the company, out of the current scenario of declining sales and deteriorating market share.

In 2002, Ford faced plant closures, employee downsizing and other drastic cost cutting measures aimed at
trimming excess production and streamlining operations.

But Bill Ford had publicly acknowledged that just cutting costs would not be enough to turn Ford around.
There were other initiatives that Ford was contemplating to help address the various problems it faced.

Overview of Risks

The automotive market was highly competitive. The major players competed on the basis of product quality,
advertising, promotion and price. Ford faced several risks. First, competition in the industry, often led to price
wars. In addition, the stagnant economic conditions in America might lead to a decline in sales and leases.

A third risk facing Ford stemmed from its relationship with the United Auto Worker's union. In the past,
striking workers had halted production at plants across the world. A fourth risk facing Ford resulted from
litigation against the company. In the recent past, deaths caused by Ford's use of certain Firestone Tires had
resulted in lost sales, as well as a tarnished reputation. A fifth risk arose from defects and recalls of cars...

Ford Automotive - Product Development

Product development was a critical success factor in the automobile industry. Car makers needed to have the
capability to come up regularly with new models of good quality that appealed to customers in a cost effective
way. Serious quality problems within the Ford product line had arguably been the most critical factor in Ford's
rapid fall from grace. Ford possessed a line of vehicles that were synonymous with recalls and poor quality
such as the Ford Explorer, Ford Focus and the Ford Escort...
 CASE REPORT- MERCEDES BENZ
Legal Risks

Ford's reputation had suffered because of the highly publicized Firestone Tire debacle, class action lawsuits by
Ford employees and the many other quality problems that had made the headlines in the last two years...

Financial Risks

Foreign Currency Risks

Ford's Automotive sector undertook various transactions denominated in foreign currencies. These included
purchases and sales of finished vehicles and production parts, debt and other payables, subsidiary dividends,
and investments in affiliates. These expenditures and receipts created exposures to changes in exchange rates.

Ford used derivative instruments to hedge assets, liabilities and firm commitments denominated in foreign
currencies. Ford's hedging policy aimed at reducing income volatility...

Ford Credit

Ford Credit was exposed to various risks in the normal course of its business activities.
• Operational risks - the possibility of errors relating to transaction processing and systems, actions that could
result in non-compliance with regulatory standards or fraud by own employees or outside persons.
• Credit risk - the possibility of loss arising from a customer's failure to make payments according to contract
terms.
• Market risk - the possibility that changes in future market interest and currency exchange rates or prices
would make Ford Credit's positions less valuable.
• Liquidity risk - the possibility of being unable to meet all current and future obligations in a timely manner...

Exhibits

Exhibit I: Ford Motors A Global Overview of Core Brands

Exhibit II: Ford Motors A Global Overview of Financial Services
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Exhibit III: Ford Risk Management Purpose, Statement and Vision
Exhibit IV: Ford Motors Financial Highlights
Exhibit IV: Ford Motors A Global Overview of Customer Services
Exhibit V: Automotive Sector Geographic Earnings
Exhibit VI: Financial Services Sector
Exhibit VII: Ford Credit's Worldwide