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March 10, 2008 ± Business Management Article

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Mercedes-Benz maker, Daimler AG and the world¶s second-largest maker of luxury vehicles
reported profits in its fourth-quarter results for 2007. The good results this quarter have come
after selling the Chrysler division in the U.S. and cutting jobs at Mercedes-Benz Cars.
Without Chrysler, Daimler reported profits of 1.7 billion euros (£1.3 billion) for the fourth
quarter and a net profit of 4 billion euros for the year (3.8 billion euros in 2006). Sales rose to
99.4 billion euros ($144.98 billion) from 99.2 billion euros, with 2.1 million automobiles sold
globally. In May last year, after a decade of disappointing results, Daimler finally sold
Chrysler to private equity firm Cerberus Capital for £3.74 billion.

With the North American car and truck market struggling this year from the impact of falling
house prices in the wake of the sub-prime crisis, Daimler is banking on demand from China,
India and Russia. Daimler, the Stuttgart-based company expects the North American truck
market to recover in the second half of the year.

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In 1926, the merger of two German automobile manufacturers Benz & Co. and Daimler
Motor Company formed Stuttgart-based, German company Daimler-Benz. Its Mercedes cars
were arguably the best example of German quality and engineering.

In 1998, Daimler-Benz and U.S. based Chrysler Corporation, two leading global car
manufacturers, agreed to combine their businesses in what was perceived to be a µmerger of
equals¶. Jurgen Schrempp, CEO of Daimler-Benz and Robert Eaton, Chairman and CEO of
Chrysler Corporation met to discuss the possible merger.

The merged entity ranked third (after GM and Ford) in the world in terms of revenues,
market capitalization and earnings, and fifth (after GM, Ford, Toyota and Volkswagen) in the
number of units (passenger-cars and commercial vehicles combined) sold. In 1998, co-
chairmen and co-CEOs, Schrempp and Eaton led the merged company to revenues of $155.3
billion and sold 4 million cars and trucks. But in 2000, it suffered third quarter losses of more
than half a billion dollars, and projections of even higher losses in the fourth quarter and into
2001. In early 2001, the merged company announced that it would slash 26,000 jobs at its
ailing Chrysler division.

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The Daimler Chrysler merger proved to be a costly mistake for both the companies. Daimler
was driven to despair, and to a loss, by its merger with Chrysler. Last year, the merged group
reported a loss of 12 million euros.
Analysts felt that though strategically, the merger made good business sense. But contrasting
cultures and management styles hindered the realization of the synergies. Daimler-Benz
attempted to run Chrysler USA operations in the same way as it would run its German
operations. Daimler-Benz was characterized by methodical decision-making. On the other
hand, the US based Chrysler encouraged creativity. While Chrysler represented American
adaptability and valued efficiency and equal empowerment Daimler-Benz valued a more
traditional respect for hierarchy and centralized decision-making.