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    Strategies - Daimler-Benz and Chrysler

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    Daimler-Benz and Chrysler merged in 1997. The merger wasn't the only option available to both companies. How might each company have been affected if they had:

    1. stayed the way they were
    2. formed a strategic alliance with each other or another car organisation
    3. or any other options they could have chosen.

    Thank you very much for this assistance!

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    Solution Preview

    Please see response attached.

    1. Stayed the way they were...
    If they stayed the way they were, Daimler-Benz and the Chrysler could not meet the goal of becoming a global automobile industry, or other business goals, such as strong economies of scale, a global presence, match between products and geographic dispersion, large match between two very strong and very prosperous companies, global automobile industry, etc. if they had stayed the same as they were For example, Mercedes-Benz sells very well here in the United States but it still only has 1 percent. Likewise, for Chrysler, it' would be very hard to grow on its own in the United States. The United States is a mature car market. It doesn't grow very rapidly. Chrysler has tried to grow in Europe. It's made some progress there, but Europe is also a very mature car market. So it's very difficult to grow yourself into a much larger car company. Thus, a merger made sense for global expansion (see interview below for other reasons for the need to change).
    The main goals of Daimler-Benz and Chrysler merged in 1997 are discussed in an interview available on-line and downloaded below (e.g. global automobile industry, strong economies of scale, a global presence, match between products and geographic dispersion, large match between two very strong and very prosperous companies, , etc.). Let's look at these goals in more detail by reading the interview and comments made by the main players, who would argue that the merger was the best fit with there company aims and goals mentioned above...
    Example: Interview
    Germany's Daimler-Benz and the Chrysler Corporation formally announced their merger today, forming the fifth largest automaker in the world. Following a background report, Jim Lehrer and guests discuss the ramifications of the deal.
    ________________________________________
    JIM LEHRER: We're joined now by Klaus Friedrich, chief economist for the Dresdner Bank Group, Germany's second largest bank; Harley Shaiken, Professor of Labor and Industrial Relations at the University of California, Berkeley; Csaba Csere, editor-in-chief of Car and Driver Magazine; and David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan Transportation Research Institute. Mr. Cole, for the automobile industry generally, how major a development is this?
    "...one of the most significant events that we have seen in the last 50 or even more years...."
    DAVID COLE, University of Michigan: Oh, this is absolutely huge. It's probably one of the most significant events that we have seen in the last 50 or even more years in terms of the structural change in the industry, and that really may signal a major final restructuring of the industry.
    JIM LEHRER: There have been mergers before. There have been large mergers before. Why is this one so different?
    DAVID COLE: Well, it really, I think, is in the context of the new world that we have where the boundaries are vanishing. We are in a true global environment as far as the industry is concerned. And if you're going to be successful in this business, you need economies of scale, strong economies of scale, and you need a global presence. And when you look at the match between products and geographic dispersion, this is a very good match. But it's a large match between two very strong and very prosperous companies.
    CSABA CSERE, Car & Driver Magazine: It was a very good deal for them because it puts them on the track towards that bigness. These days consumer demand for product refining is incredibly high. There are regulations all over the world on emissions, on fuel economy, on crash, and it takes a certain size of engineering muscle to satisfy all these standards and still produce a car at a price that the customer wants. You've got to have a certain critical mass to do this. And by hooking up with Daimler-Benz, now Chrysler and Daimler-Benz together are a large enough company to do this effectively.
    JIM LEHRER: And Chrysler could not grow on its own, in other words, is that what you're saying?
    CSABA CSERE: Well, it's very hard to grow on its own. Chrysler is in the United States. The United States is a mature car market. It doesn't grow very rapidly. Chrysler has tried to grow in Europe. It's made some progress there, but Europe is also a very mature car market. So it's very difficult to grow yourself into a much larger car company.
    JIM LEHRER: So a good thing for Chrysler?
    CSABA CSERE: A very good thing for Chrysler.
    JIM LEHRER: Now, Mr. Friedrich, for Daimler-Benz, why is this a good thing
    Going global.
    KLAUS FRIEDRICH, Dresdner Bank Group: I think some of the same reasons. Daimler has had problems in the last recession. They have restructured. They have become very lean and very mean and profitable. And now they're ready to go global. And when you want to go global, you cannot ignore the American market. And I think this is the move for the American market.
    JIM LEHRER: So the point that Spencer Michels made in his piece that Mercedes-Benz sells very well here in the United States but it still only has 1 percent of the market is key to why they wanted to merge?
    KLAUS FRIEDRICH: That's exactly right.
    JIM LEHRER: Why they needed Chrysler?
    KLAUS FRIEDRICH: 1 percent is not a significant share of the market. Daimler wants more.
    JIM LEHRER: Yes. All right now, Harley Shaiken, how is this going to affect the work forces in these two companies?
    HARLEY SHAIKEN, University of California, Berkeley: Well, I think it's going to have a positive effect on the work force, at least in the near term. There are several short-term things that could benefit the union. One, in the United States, Mercedes' new plant in Alabama is currently non-union. It's one thing to have a non-union Mercedes plant in Alabama and quite another to have a non-union Chrysler plant in Alabama. So the fact that this merger is taking place undoubtedly will put additional leverage for that plant to become unionized. Also, in addition to that, there are new talks that are going on as a result of the merger between the UAW and its counterpart, the I. G. Metall in Germany, and the Canadian autoworkers in Canada. So this merger among two very large companies is, in turn, having an analog among its unions. And finally--I'm sorry--
    JIM LEHRER: No. Go ahead.
    HARLEY SHAIKEN: Finally, I think that what we are looking at is the fact that no layoffs in the near term is the dog that's not barking. It's not heard, but it's very good news for the workers in all three countries.
    JIM LEHRER: How would you compare the two unions, the strength of the United Auto Workers and the counterpart in Germany?

    A comparison of American and German unions...
    HARLEY SHAIKEN: They're both very strong unions. They both dominate the industries in which they're primarily located, in this case automobiles. The German union has much stronger governmental backing, and the laws in Germany are much more favorable to the union. So it will be interesting to see to what extent that additional dimension within Germany passes over into this new combined entity in the U.S.
    JIM LEHRER: Mr. Cole, do you have an opinion on that as to how this could affect these two unions, one in one country, one in another, both very strong and independent in their own rights?
    DAVID COLE: I certainly agree with Harley that I think it's probably going to be good news. There are very different personalities between ...

    Solution Summary

    Concerning the merger of Daimler-Benz and Chrysler, this solution discusses other alternatives and how they might have been affected if they decided instead of a merger: to stay the way they were; or formed a strategic alliance with each other or another car organization; or any other options they could have chosen.

    $2.19

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