Share
Explore BrainMass

Chrysler and Mercedes Merger

The switch to U.S. GAAP facilitated the merger with Chrysler because the two accounting systems were compatible. As the Daimler Chrysler accounting policies footnote explains, the merger was treated as a pooling of interests. Accounting for a pooling is relatively straightforward, and the separate financial statements of Daimler-Benz and Chrysler merely needed to be combined. Thus, the accounting costs associated with the merger were negligible. Cross-border mergers often involve incompatible accounting systems and the costs of converting one company s GAAP to another s can be significant.

Chrysler has not done well since the merger. The 2000 annual report shows that income before extraordinary gain and changes in accounting principles are [amounts in euros] 2,465 (2000); 5,106 (1999); and 4,949 (1998). Net income amounts show a better pattern 7,894 (2000); 5,746 (1999); 4,820 (1998)] but the 2000 amount includes a 5,179 extraordinary gain. Daimler Chrysler s U.S. share price peaked at over $100 in early 1999, but by early 2001 it had lost half its value.

Your Project: Outline the proprietary, financial and psychological difficulties associated with this merger along with your comments. Incidentally, this Merger is well documented in the press.

Solution Preview

STEP 1

Overall difficulties with the merger

? Mercedes catered to the high end of the market and Chrysler to the lower end of the market. Mercedes stuck to the high end even after the merger and Chrysler to its position. The result was the much expected synergies did not happen. In addition, the cultures of the companies were very different. This was not merely a matter of American Culture verses German Culture, but the manner of working was very different, they had a very different approach to manufacturing cars. The companies after the merger tried very hard to protect the separation between the two brands of products. The amalgam was resisted. The merger was engineered keeping in mind a shared vision, but the vision related to distant future and the top management were fuzzy about the current cultural issues. After the merger the different ways of doing business continued, even the executives did not make an effort to be bilingual. The company's structures were not conducive to quick and seamless merger. There were a plethora of levels in the German company and the company resisted the flattening of the organization. Every one was addressed by his proper title whereas the American company thrived on first names. At every level, that is finance, product and people there was a clash of culture leading to overall disaster.
On a more dangerous level there was a collaboration of sorts between the unions of the two companies. The unions tried to base their operations using the German law because it was more favorable to their cause. Finally, the understanding and agreements between the two unions ensured that there were no layoffs. In other words, this means that restructuring was not allowed. After most mergers, restructuring is undertaken to streamline the organization of the united company, however, the power of the unions ...

Solution Summary

This posting gives you an in-depth insight into Chrysler and Mercedes Merger

$2.19