Case Study: The Best-Laid Plans: Chrysler Hits the Wall
chapter 1
0Closing Case: The Best Laid Plans – Chrysler hits the Wall
In 1998, after Germany’s Daimler Benz acquired Chrysler, the third largest U.S. automobile manufacturer, to form Daimler Chrysler, many observers thought that Chrysler would break away from its troubled U.S. brethren, Ford and General Motors, and join ranks with the Japanese automobile makers. The strategic plan was to emphasize bold design, better product quality, and higher productivity by sharing designs and parts between the two companies. Jurgen Schrempp, the CEO of the combined companies, told shareholders to “expect the extraordinary” and went on to say that Daimler Chrysler “has the size, profitability and reach to take on everyone”.
The grand scheme proved extraordinary, but for all of the wrong reasons. In 2006, Chrysler saw its market share fall to 10.6% and the company announced that it would lose $1.26 billion. This shocked shareholders, who had been told a few months earlier that the Chrysler unit would break even in 2006.
What went wrong? First, Schrempp and his planners may have overestimated Chrysler’s competitiveness prior to the merger. Chrysler was the most profitable of the three U.S. auto companies in the late 1990s, but the U.S. economy was very strong and the company’s core offering of pick up trucks, SUVs and minivans were the right product for a time of low gas prices. After the merger, the Germans discovered that Chrysler’s factories were in worse shape than they had thought, and product quality was poor. Second, sharing design and engineering resources, and parts, between Daimler’s Mercedez Benz models and Chrysler proved to be very difficult. Mercedez was a luxury car maker, Chrysler a mass market manufacturer, and it would take years to redesign Chrysler cars so that they could use Daimler parts and benefit from Daimler engineering. Nor did Daimler’s engineers and managers seem enthusiastic about helping Chrysler, which many saw as a black hole into
0Closing Case: The Best Laid Plans – Chrysler hits the Wall
In 1998, after Germany’s Daimler Benz acquired Chrysler, the third largest U.S. automobile manufacturer, to form Daimler Chrysler, many observers thought that Chrysler would break away from its troubled U.S. brethren, Ford and General Motors, and join ranks with the Japanese automobile makers. The strategic plan was to emphasize bold design, better product quality, and higher productivity by sharing designs and parts between the two companies. Jurgen Schrempp, the CEO of the combined companies, told shareholders to “expect the extraordinary” and went on to say that Daimler Chrysler “has the size, profitability and reach to take on everyone”.
The grand scheme proved extraordinary, but for all of the wrong reasons. In 2006, Chrysler saw its market share fall to 10.6% and the company announced that it would lose $1.26 billion. This shocked shareholders, who had been told a few months earlier that the Chrysler unit would break even in 2006.
What went wrong? First, Schrempp and his planners may have overestimated Chrysler’s competitiveness prior to the merger. Chrysler was the most profitable of the three U.S. auto companies in the late 1990s, but the U.S. economy was very strong and the company’s core offering of pick up trucks, SUVs and minivans were the right product for a time of low gas prices. After the merger, the Germans discovered that Chrysler’s factories were in worse shape than they had thought, and product quality was poor. Second, sharing design and engineering resources, and parts, between Daimler’s Mercedez Benz models and Chrysler proved to be very difficult. Mercedez was a luxury car maker, Chrysler a mass market manufacturer, and it would take years to redesign Chrysler cars so that they could use Daimler parts and benefit from Daimler engineering. Nor did Daimler’s engineers and managers seem enthusiastic about helping Chrysler, which many saw as a black hole into