Big Losses, Little Synergy at DaimlerChrysler
S T U T T G A R T, Germany, Dec. 28 -- Chrysler designer Kevin Verduyn had aproblem back in 1998: he didn’t have an engine small enough to fitthe Java concept car, his sweet new model aimed at the Europeanmarket.
Things started looking up, however, when German auto giantDaimler-Benz AG completed its $36 billion takeover of the Americancarmaker that same year. Verduyn grabbed the engine and suspensionfrom the Mercedes A-series compact, stuck them into the Javaprototype and wowed auto buffs at the 1999 Frankfurt Auto Show.
“That’s where we were in luck with the merger,” said Verduyn, who works at DaimlerChrysler’s advanced design center in Carlsbad, Calif.
It seemed an auspicious beginning for a merger sold to investorsas combining the best of both companies and at the same time saving$3 billion a year. But earlier this year the Java was shelved,reportedly in part because it would compete against the existingMercedes A-series for buyers.
Road BlocksSo instead of blazing a trail to integration, the Java — theonly car to date that combined parts from both Daimler and Chrysler— stands as testimony to the merger’s wasted potential.
Failed synergies are a flashpoint in a merger plagued withproblems — a brain drain of Chrysler’s executive talent, culturalclashes between German and American management, and a battle forfinancial control over the loss-making U.S. division.
Skeptical shareholders bailed out, driving DaimlerChrysler’sstock price to less than half its post-merger high of $101 pershare, making the combined company worth less today thanDaimler-Benz alone before the deal.
The Man Behind the PlanThe backlash has focused on DaimlerChrysler Chief ExecutiveJuergen Schrempp. The charismatic German masterminded the mergerwith promises of greater shareholder value, but is currently heresiding over one of history’s biggest losses in that category.
A driving force behind the deal was Daimler’s need to get moremileage out of Mercedes’ massive research and development spending.The company spends up to a quarter of its budget on new technology,and plans to fork out an additional $45 billion by 2003.
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