DaimlerChrysler Merger:

The Quest to Create One Company

Tom Stallkamp, Chrysler president and executive in charge of accelerating integration of
the recently merged Daimler and Chrysler companies, was feeling great frustration.
Why couldnt he move the integration process along more rapidly? He could see clearly
the amazing potential for payoffs, but it just wasnt happening. He wasnt used to being
unable to move the organization, and he hated the feeling of being able to visualize great
things without being able to mobilize people to action. What else could he do? Maybe it
was time to let the two cultures duke it out, and allow the stronger one to win. That would
be one kind of integration, though not quite what he had been working for.
Background
At 4:00pm on November 12, 1998 as the final bell rang on the New York Stock
Exchange, U.S. automaker Chrysler Corporation and German automaker Daimler-Benz
ceased to exist. They emerged the next day as a new global conglomerate named
DaimlerChrysler AG.
With combined revenues of $130 billion and a market capitalization of $92
billion, DaimlerChrysler became the fifth largest automaker in the world in number of
vehicles sold and third largest in sales. The $40 billion stock deal was the largest ever in
the industrial world. Upon completion of the transaction Daimler stockholders owned
57 percent of the new DaimlerChrysler and Chrysler stockholders the remaining 43
percent. After ten months of discussions and negotiations between the two companies, the
merger was billed as a marriage of equals. It signaled new levels of consolidation within
the automotive industry and was heralded as the beginning of a new era where only truly
global players would survive. At the May 7, 1998 London press conference officially
announcing the merger, Daimler-Benz Chairman Jrgen Schrempp declared,This is
much more than a merger. Today we are creating the worlds leading automotive
company for the 21st Century DaimlerChrysler AG. We are combining to merge the
two most innovative car companies in the world. We are committed to making
DaimlerChrysler the most innovative competitor this industry has ever seen, one that will

set the pace in the automotive world in the next Millennium. We are doing this merger
because we share a common passion for

making

great

cars

and

trucks..by

combining and utilizing each others strengths, we will have the pre-eminent strategic
position in the global marketplace, for the benefit of our customers. We will be able to
exploit new markets, and thereby improve return and value to our shareholders. Chrysler
CEO Bob Eaton added.
We are leading a new trend that we believe will change the future and the face of this
industry. As a result of being among the first, we had the ability to choose our favorite
partners.
Schrempp was convinced the two auto companies could form a powerful partnership. He
recalled the first meeting with Eaton, I just presented the case and I was out again.
The meeting lasted about 17minutes. I dont want to create the impression that he was
surprised. When the meeting was over, I said, If you think Im nave, this is nonsense
Im talking just tell me. He smiled and said, Just give me a chance. We have done some
evaluation as well and I will phone you in the next two weeks. I think he phoned me in a
week or so.
This was not the first discussion Daimler-Benz had with a U.S. auto manufacturer nor
was it the first time Chrysler had thought of combining with another major automobile
company.
In 1997 Chrysler and Daimler-Benz had studied the possibility of a joint venture
to merge international operations but the deal never came to fruition. Chrysler had
studied various combinations and recognized the need for global presence. The company
was financially healthy but industry overcapacity and huge prospective investment
outlays created a risky environment for global expansion on their own. Only a small
number of automakers, like Toyota, Volkswagen, Ford and GM had the capability to go
global without major acquisitions. Eaton had gone so far as to poll investment bankers on
their ideas and spoke with executives from BMW on this topic. In 1998 Ford pitched a
merger plan of its own to Daimler-Benz, unaware of the already ongoing talks between
the German automaker and Chrysler. Ford Chairman Alex Trotman acknowledged the

talks but then suggested the talks had not become very serious. But the Ford
Chairman reportedly briefed both his board of directors and the Ford family, which
controlled 40 percent of the automakers voting stock. It was the familys unwillingness
to give up control that apparently ended the discussions, a key reason why merger talks
between Ford and Fiat a few years prior also collapsed.
Schrempp and Eaton believed the potential benefits from joint product design,
development of new technology to meet emissions and fuel economy requirements,
efficient manufacturing, combined purchasing, other economies of scale and brand
expansion and diversification would position the combined entity as a powerful global
player. In discussing the possibility of a business combination between Daimler-Benz
and Chrysler, they considered it essential that their respective companies play a leading
role in the process of expected industry consolidation and in choosing a partner with
optimal strategic fit.

In this respect, both the timing of

the

proposed

business

combination and the selection of the parties were considered highly appropriate in
order to secure and strengthen their respective market positions. Furthermore, since the
companies had virtually no product overlap there was little threat to immediate
rationalization of product offerings.
Before DaimlerChrysler could hope to unseat GM or Ford, however, it had to create a
single company, keeping the best of both former companies in the areas of
innovation, cost savings, supplier relationships, quality and brands. The integration of
the two companies was no small challenge. It required a blending of corporate and
national cultures and operations. Former Chrysler President Robert Lutz commented, I
do think that managing the cultural issues will indeed be the toughest part of making this
marriage work. And the challenge, as always, will be getting the cultures to really meld
below the level of senior-most management.
The task of integrating the two car companies fell to Chrysler President Tom Stallkamp.
Stallkamp had become Chrysler president effective January 1, 1998 just days before
Schrempp visited Eaton to plant the seeds for the historic merger. Despite the powerful

company the merger created on paper, Stallkamp knew the track record for such
large mergers, particularly cross border ones, was not good. A global report by KPMG
at the time indicated 83 percent of mergers were unsuccessful in producing any business
benefit with regard to shareholder value. Daimler-Benz had conducted its own study of
previous mergers and found that 70 percent had failed.
The world auto industry had already experienced culture clashes that ended various
mergers and joint ventures. Autolatina, the Ford Motor Co.-Volkswagen AG venture
in Brazil and Argentina collapsed in 1995, the victim of continued arguments over
product plans between executives of the two automakers. A proposed merger of Renault
S.A. and Volvo AB also fell apart in 1995 due to extreme resistance and cultural friction
within each company. Merging two large successful companies, incorporated in different
countries, with geographically dispersed operations, and with different business cultures
and compensation structures created challenges that were quite different from absorbing a
smaller acquired company into an existing structure.
The attention the merger garnered from the media, industry experts and Wall
Street created an environment of speculation. Everyone had an opinion about the
merger and its chances for success. Autoline Detroit, a weekly industry news show hosted
a special one-hour panel discussion on the merger. Csaba Csere, editor of Car and Driver
magazine observed, If they really want to integrate they need to figure out how their two
different systems can [blend].
Each

side

has

something/have

very

proud

history

and

each

side

thinks

they

know

unique knowledge about how to do things. Paul Ballew, chief

economist at J.D. Power asserted, The greatest challenge of any major merger is the
culture. It probably will or should be the number one topic on their agenda for the next 35 years.
Stallkamp thought that, The way you can make the merger work is to get people excited
about finding something new, rather than going back to defending their own turf. Its

human nature to fall back on whats familiar. We have to take away the fear of the
unknown by making it fun and exciting.
Both companies had a history of strong turnarounds and recent market success
(see Exhibit 1 for company histories), but all eyes were on DaimlerChrysler, as the price
of failure for the largest industrial merger in history would be immense.
Potential Benefits of the Merger
For Chrysler and Daimler-Benz there were high hopes about a number of gains to
be achieved through their merger. Daimler-Benz was stronger in Europe; Chrysler, in
North America. Daimler-Benz had a global distribution network. Daimler-Benzs
reputation for engineering complemented Chryslers reputation for creative styling and
product development. Chryslers experience in dealing with US investors would
help Daimler-Benz become a pacesetter in bringing modern concepts of corporate
governance and shareholder value to the German economy. Chryslers freewheeling
methods of vehicle development would kick-start the more bureaucratic Mercedes-Benz.
The combination with Chrysler helped reduce the risk associated with DaimlerBenzs dependence on the premium segment of the automobile market by introducing
brand diversity. Daimler-Benzs financial clout and technical prowess would bolster
Chrysler in the auto wars. Moreover, the combined company had greater financial
strength with which to enter new markets. Exhibit 2 summarizes the potential advantages
of the merger to both.
Of particular importance was the need to improve Daimlers development time
and reduce development costs and the need to improve Chryslers quality and
engineering. Daimler-Benz typically spent 5 percent on R&D, compared to Chryslers 3
percent. As an engineering company Daimler-Benz had high development costs.
Mercedes-Benzs cost structure was considered too high to make a reasonable return on
cars below $20,000. Mercedes R&D cost was over $2000 per vehicle compared to
Chryslers $590 and it could take as long as 60 days to build a vehicle in Germany (see
Exhibit 3 for key performance comparison for the 1997 calendar year).

In addition the two companies had promised to deliver synergies totaling $1.4 billion in
1999 and more than $3 billion by 2001. Commenting on the areas for integration and
savings Stallkamp explained,
Some things will be integrated right away, like global purchasing. Sales and marketing
will be among the first, though the brands will remain separate. You wont sell Chrysler
products at Mercedes dealerships or Mercedes products through Chrysler. The integration
will occur behind the scenes. The next area is engineering. This was the area I was most
concerned about. But our technical people have come in and said lets find new ways of
doing things. The last area will be manufacturing, and thats driven by product. We need
more common product. Well never share the same platforms (between Chrysler and
Mercedes), never the same vehicles, but maybe common components, like sideimpact protection devices. This could save enormous amounts of money.
Exhibit 4 indicates the areas where synergies were expected. Achieving these synergies
required a focused effort to quickly integrate the necessary functions. Stallkamp knew
they had to deliver on the promised synergies but the big savings would come from the
combination of back office functions and the streamlining of systems and processes. He
envisioned separate marketing and sales to ensure brand integrity. On the operational side
he saw numerous opportunities for significant savings. A more strategically focused R&D
process would help drive technology transition, the sharing of design expertise
from Chrysler would keep DaimlerChrysler at the forefront of innovation, a single
manufacturing organization with separate plants would provide for the transfer of key
manufacturing process technologies and systems. DaimlerChrysler could leverage its unit
volume to achieve additional savings and streamline its systems. Bringing this vision to
reality, however, was a formidable challenge. Chrysler and Daimler-Benz had very
different ways of operating. Getting both sides to see the benefit of operating in a new
way was critical to the success of integration.
The Two Companies before the Merger
Recent Change and Structure at Chrysler

Reengineering expert Michael Hammer called Chrysler, overwhelmingly the most

innovative auto company in the world.
Chrysler garnered this praise following company-wide restructuring. Beginning in 1991,
Chryslers management had bulldozed its traditional functional organizational structure.
It created platform teams for the whole organization, assigning all functional
employees to one of five teams, large car, small car, minivan, truck or Jeep (see
Exhibit 5 for platform team structure). Corporate staff was all but eliminated. The
executive vice presidents were co-located on one floor and were forced to work
through issues together.
Chrysler established a matrix management structure for these senior managers. Many of
the traditional vice presidents were replaced with people who not only had functional
expertise but who were able to work together. Each vice president under the new
structure had two jobs, creating mutual dependence among them. In order for Tom
Stallkamp, then vice president of Procurement and Supply and general manager of
Minivan Operations, to obtain good designs for his minivans from Tom Gale, head of
design, he needed to provide supply chain support to Gale.
Likewise for Gale to receive quality parts from procurement and supply he needed to
provide good designs for the platforms. This teamwork ethic applied to the highest levels
within Chrysler.
CEO Bob Eaton was considered to be one of the more modest chief executives in the
world, a mild mannered and even- tempered man who believed in the power of teams.
Eaton and former Chrysler President Bob Lutz, a dynamic and outspoken man, had
formed a balanced partnership in running the company. When Tom Stallkamp replaced
Lutz as Chrysler president, it was believed his self-effacing manner and ability to
generate consensus would enable Chrysler to continue on its successful path. With the
introduction of the platform teams, management focused on determining the what
- the specific goals, objectives, constraints, and resources - but the team would
determine the how. Teams were empowered to find the best way to deliver the
results, providing periodic progress reports to senior management. Chrysler soon

began to reap the benefits of its platform team concept and new structure; Chrysler
became one of the most profitable automakers in the world. Chryslers brushes with
bankruptcy in 1979 and 1990 along with its radical restructuring had forged a culture
dedicated to teamwork, speedy product development, lean operations, cost leadership
and flashy design. Eaton commented, Were trying to build a culture that is
focused

on

continuous improvement, setting tougher objectives and never being

satisfied with where were at.

Upon taking the position as Chrysler president, Stallkamp commented, At Chrysler
were all different personalities. What were trying to do is run the company as a team
like weve been doing.

The speed in improving quality, improving the company

and the way we operate the business. Timing is very important to us. Were very
flexible. Were lean. The speed energizes the people within Chrysler.
Chryslers management wanted to ensure that speed and adaptability to change remained
part of the companys culture. Former Chrysler President Bob Lutz commented, One of
our greatest challenges is to prevent our people from thinking everything is OK because
Chrysler is no longer on the ropes.
With respect to the use of platform teams, Chryslers Vice President for Marketing Bud
Liebler stated, At this point there is no way wed be able to even think of managing
without them. Nor would we want to. Eaton summed up his thoughts, Perhaps the
most important attribute of any company today is to anticipate change, and to
move quickly to capitalize on it. Its all about speed and flexibility. Its about
converting ideas into profits, and doing it faster than our competitors. Its about speed to
market. Above all, we believe its about passion - the passion for designing, developing
and building the worlds greatest cars and trucks, etc. Everyone is truly passionate about
what were trying to do.
Recent Change and Structure at Daimler-Benz

When Schrempp took over as chairman in May 1995, Daimler was in serious financial
trouble. Many of its 35 business units were making little or no profit. Its traditional slow
bureaucratic structure and amalgamation of disparate businesses created an unwieldy
organization focused on its past successes. Significant levels of streamlining and
restructuring were needed.
Schrempp created a new Board of Management with many new members who would
undertake the fundamental changes to the inherited structure. The Board was determined
to see the process through and to keep the momentum going. They attached great
importance at the outset to organizing the change process so that there was a clear
division of responsibilities with predefined tasks and priorities and, to keep friction to a
minimum, as few interfaces as possible.
The Board quickly carried out a streamlining of Daimlers business portfolio trimming it
to 23 strategic business units (see Exhibit 6 for Daimler-Benz structure). The goal was to
achieve a strong market position in first or second place in the world market in each
business. As part of the restructuring of the auto business, Mercedes-Benz was merged
with the Daimler-Benz group.
Helmut Werner, the head of Mercedes-Benz and the man credited with its success, was a
vocal opponent of the move. He resigned soon after the decision was made. Profitability
became a key measure for the company once restructured, business units were required
to earn a 12% return on capital employed in order to remain part of the companys
portfolio. In 1995, to improve financial transparency, Daimler-Benz began reporting
results externally based on US GAAP. In addition Schrempp and his new Board began
preaching the necessity for a strategy focused on shareholder value. This approach had
not yet been expressly formulated or followed in Germany. The issues surrounding
quarterly reporting and focusing on stock price triggered lively debate. One trade union
representative expressed the opinion that the obsession with increasing shareholder
value rides roughshod over the interests of employees, the environment and society.
The Board also undertook an aggressive cost cutting program, which included layoffs of
thousands of workers, something unprecedented in Germany. A restructuring of the

headquarters group was initiated to reduce the bureaucracy and improve planning
and decision-making.
Although significant reductions were made Daimler-Benz still maintained a strong
centralized corporate staff. At a January 1997 announcement of the new group structure
Schrempp announced, The new structure will make us fit for the next century. But we
still need a culture shock.
The new structure gave business unit managers more autonomy in running their
businesses and increased accountability for profits. Each business unit maintained its own
staff. By 1997 the restructure had borne its first fruit. For financial year 1997 DaimlerBenz reported an operating profit of DM 4.3 billion, a 79 percent increase over 1996.
Our strategy of orienting the group around units that are profitable and offer
good prospects for future growth has now borne its first fruit. We must also point
out however, that Daimler Benz has still only completed the first stage in its effort to
reach world best practice.
The significant changes at Daimler-Benz left many managers dazed by its rapid
pace. Many of the people working for the century-old company were unable to keep pace
or keep track of the changes going on around them. Schrempp, a driven and charismatic
individual, earned a reputation as a Rambo, partly due to the speed with which
he demanded change and partly because of his direct and sometimes severe nature.
Schrempp responded, If Rambo is someone who acts quickly and decisively, the image
is an appropriate one.
By the end of 1997 the new structure was fully in place. Schrempp reported, We had
once again lashed the new organization down at a time when many in the company
thought that we were still in the change state. This meant that we had already moved on
to refreezing at a time when many thought that we were still in the unfreezing and
moving stage.

Daimler-Benz had forged a culture focused on (brand) image, quality, engineering,

profitability, and business unit autonomy.
Reflecting on the significant changes made at Daimler-Benz, Dieter Zetsche, head
of sales and marketing, concluded, In many peoples minds Daimler-Benz is this
traditional, conservative company of managers wearing dark suits and moving ahead very
slowly. I have to say that there are very few companies in the automotive industry that
have made as many rapid, daring and basic changes as Daimler-Benz.
Initial Structure of Management and Integration Process
As a public limited company DaimlerChrysler like Daimler-Benz was required
under German law to have a Board of Management and a Supervisory Board. Based on
the German Co-Determination Law the Supervisory Board was comprised of ten
shareholders representatives and ten employees representatives. Five members from the
Supervisory Board of Daimler-Benz and five members of the Chrysler Board of Directors
comprised the new Supervisory Board. In order to assist the integration of the two
companies, Hilmar Kopper, then chairman of the Supervisory Board of DaimlerBenz, was named chairman of the Supervisory Board of DaimlerChrysler for at least
two years.
The Board of Management consisted of 18 members, eight from Daimler-Benz,
eight from Chrysler and two responsible for the Aerospace and Services divisions.
Jrgen Schrempp and Bob Eaton were to be co-chairmen and co-chief executive
officers for a period of approximately three years. Eaton announced at the outset
of

the

merger

that

he

would

retire within three years, causing considerable

consternation at Chrysler, where he was seen as having made himself a lame duck with
considerable loss of power.
DaimlerChrysler President Tom Stallkamp was put in charge of the integration effort (see
Exhibit 7 for profiles of Schrempp, (Eaton and Stallkamp). Chrysler also had
employment continuation agreements in place with each of its executive officers to cover
a period of two years following the merger.

The Board of Management formed a committee, called the Chairmans Integration

Council, the stated main task of which was to promote the integration of the two
companies (see Exhibit 8 for Integration Organization). It was anticipated that the
Council would be in place for two years. The companies prepared for integration through
29 Issue Resolving Teams; later approximately 70 working groups were brought together
to make recommendations. Final decisions were left to the Board of Management. An
overall coordination team, called the Post Merger Integration Team (PMI) was also
introduced and headed by managers from both Daimler-Benz and Chrysler. The PMI
reported to the chairmens Integration Council and was responsible for ensuring
integration occurred in all areas. Integration teams fell into two categories, automotive,
and non-automotive areas and corporate functions. Each team was co-led by DaimlerBenz and Chrysler managers.
Automotive Integration Teams:
Product Creation
Purchasing
Marketing and Sales
Production Planning
Global Strategy-Integration
Non-automotive and Corporate Functions Teams:
Corporate Development
Technology and Research
Information Technology
Finance and Controlling
Human Resource and Corporate Structure
Corporate Communication
Non-automotive Divisions

Commenting on the integration structure Stallkamp noted, We had our own team
internally that was getting ready for this, and they had their own team doing the
same thing independently. We have now married those two teams together.
The Quest to Create One Company
After the May 1998 public merger announcement Daimler and Chrysler executives
initiated efforts to address the challenges of integrating the two companies. Since only a
handful of managers were taken into confidence during the negotiation phase the
task

of

bringing

the management levels together needed to begin immediately.

Commenting on the unique blending of

the

two

organizations,

Chris

Benko,

managing director of Autofacts, a division of Vlasic, B. Transition Teams smooth

the way for big merger, The Detroit News, September 3, 1998
PricewaterhouseCoopers stated, They have the best combination of creativity and
charisma plus bureaucracy and precision management.
Stallkamp commented, All 420,000 employees need to know weve left Chrysler behind
and weve left Daimler-Benz behind, he said. We will all be working for a new
company. Because of the intense scrutiny the merger was under, analysts and the media
sought out benchmarks in other major US-German mergers and acquisitions, of which
there were very few.
In the May 24, 1998 Autoline Detroit special, Dean Langford, President of OSRAM
Sylvania, the result of a 1993 acquisition of GTEs Sylvania by Siemens subsidiary
OSRAM, gave insight into the challenge of integrating German and American
companies.
Americans are more free form in their discussions, a little less rigid. The
Germans tend to be very rigid, more methodological in their meetings and thought
processes. Americans have a tendency to sometimes go off on tangents.

With the Germans you dont have to worry about it. When they say theyre going to do
something and this is the agenda they stick to it.
Charles Jerabek Executive Vice President and General Manager of OSRAM
Sylvania added, For the most part Germans dont understand the informalities of
American business, everything from casual dress days to drinking coffee throughout
a meeting. In that context they dont take the ideas presented as seriously as they would
if they were being presented in their own culture. On the other side Americans often
misinterpret the Germans need for rules and order as maybe disinterest in doing
something. What weve worked hard to overcome and what Daimler and Chrysler will
have to work hard to overcome is the separation of Not Invented Here (NIH) syndrome.
Both sides of the ocean tend to think that what theyve come up with and developed is the
best way to do something.
Some close observers believe that the merger was a marriage of opposites
Daimler embraced formality and hierarchy, from its intricately structured decisionmaking processes to its suit-and-tie dress code and starchy respect for titles and proper
names. Chrysler shucked barriers and promoted cross-functional teams that favored open
collars, free-form discussions, and casual repartee. Virtually all the German executives
spoke English. None of the Americans, with the notable exception of Lutz, [retired Vice
Chairman, forced out by Eaton], spoke German.
DaimlerChryslers early integration efforts were focused on trying to identify the
best process for the new company. Its not our intent to say one side wins and the other
loses, said Stallkamp.
Take the different ways we conduct meetings. Our approach is more informal, with more
give and take. Theirs tends to be more formal, with a lot more work done in advance.
The differences in business culture were widespread, as basic as figuring out how
Daimler and Chrysler could share product information when the Germans take

measurements in centimeters and the Americans use inches, to as complex as

ensuring market competitive compensation systems on both sides of the Atlantic. In
an effort to improve the likelihood of integration success, Chrysler invited employees to
take voluntary culture training. The national cultures are less of an issue than business
culture, and its more important to get cultural training than language training, noted
Stallkamp.
When asked about his approach to the integration Stallkamp responded, More and
more of my time, if you include the cultural side, is spent on integrating the two
companies. My job is to integrate them as much as possible, so we can get the synergies
we signed up for, to get one company out of two. The biggest challenge is the need for
face-to-face communications, rather than videophones. You need to meet people in
person, rather than long distance, so that means we have to travel more. You have to
socialize with each other, you have to meet after business meetings. Otherwise, the
comfort factor would keep pushing people back into their own (traditional cliques).
The pace of integration was also a concern to the DaimlerChrysler management. To be
fair we move faster and theyre much more analytical, said Stallkamp. That is one of
the issues. How fast do we go on this? This is a big deal, and we dont want to screw it
up by crashing some premature integration.
Schrempp added his thoughts, We have said to ourselves, lets rather make 80 percent
correct decisions now and not wait for the 100 percent decision which might not
eventually

happen. Because the whole organization expects change, so if you do

something now, they will say, yes its necessary. If you do not act for 12-18 months the
organization will again get into a sort of stable situation. And then when you want to
move and change something they say why didnt they do it immediately?
The Reality of Integration

The Chairmans Integration Council (CIC), ostensibly created to promote the integration
of the two companies, was in effect an attempt to get around the cumbersome
governance structure and run the company using a small group of leaders with a longterm strategic focus. The formation of the CIC, however, met with immediate and equal
dissatisfaction from non-CIC members on both sides. These senior officers felt they were
once again being left out of the important decisions for the company. Stallkamp saw it as
a slap in the face to non-CIC members, and doomed to fail. The CIC met with such
retaliation that it was ultimately disbanded. Decisions reverted to the 18-member
management board. Schrempp, however, maintained a small cadre of loyal advisors,
which the Chrysler managers nicknamed his kitchen cabinet. This small group served
as Schrempps primary information network and sounding board for his plans. Topics to
be presented before the management board were often previewed by this group. This
soon included merger integration updates by the PMI team. Stallkamp had intended to
use the PMI team as the catalyst for process redesign. Initially the PMI would identify
low hanging fruit that could be used to achieve early synergies. Since the

PMI

consisted of working level managers from each business unit, not senior officers,
Stallkamp believed the PMI could identify processes that, if redesigned, could provide
significant improvements and/or savings long term. The framework for process redesign
was to be similar to GEs Workout sessions; current systems would be detailed and
compared and then new systems developed containing the best aspects of the current
ones. Stallkamp and other Chrysler managers felt the PMI could be used to track
synergies, measure the morale and culture momentum, and identify new opportunities.
Instead of inventing a new best system, however, both sides spent significant time trying
to convince the other that their system was superior. The PMI soon became bogged
down in the financial accounting of the synergies that had been so publicly touted
and its reports to the management board soon were sanitized to discussions of the
financials. The soft issues and new processes were not considered important by many
of the German managers. Instead they were focused on achieving their portion of the
financial synergy target that had been allocated to them.

The different philosophies of organizational structure became a contentious issue early

on. Chrysler had matrix management and platform teams and operated in essence as a
single strategic business unit. Daimler-Benz had a more traditional structure with direct
lines of authority and business unit autonomy for each of its 23 business units. The
matrix concept of one manager having two jobs, for example the head of Mercedes-Benz
also heading DaimlerChrysler Engineering, did not make sense to the Daimler-Benz
managers. Even Schrempp himself asked, Who do you shoot when it doesnt work?
Daimler-Benz managers were rewarded based primarily on the profit and loss results of
their unit. Chrysler managers were rewarded based on the success of their team and
Chrysler. The differences in compensation, particularly between Eaton and Schremmp one paid at the high American CEO rate with ample stock options, and the other at much
lower German salary -- were often highlighted in the press. Further, Chrysler executives
had rich termination contracts, (golden parachutes), a practice not used in Germany. In
addition, Stallkamps title became an issue. In a German AG company there is no
president; all board members are considered equal. Even the CEO is not the boss, at least
not legally. Stallkamps title of president of DaimlerChrysler caused a disturbance among
many of the German managers, who questioned, Why is he called president?
At the outset neither side was willing to give up its structure; many managers on both
sides wanted to be left alone to run their business units. Despite these major
differences Stallkamp believed there were opportunities to demonstrate the benefits
of finding the new way, stating, All we needed was a couple key processes to show
the workforce that it could be one company.
Stallkamps efforts to integrate the operational systems of the company soon hit another
major roadblock. Daimler-Benz managers, particularly those from Mercedes-Benz, were
extremely sensitive to the issues of brand image. Schrempp explained, We had to keep
brand identity and we see how we do it here. And before closing we were able to
come up with a great policy paper on how we wanted to do that, in every detail,
describing every brand, describing back offices, infrastructures, identities, etc.

The policy paper became known as the brand bible. The Germans pushed for the
separation of brands to extend to the back office activities. To the Americans, this seemed
unnecessarily conservative. Stallkamp recalled, We had one discussion that lasted for
three days. It was that we couldnt have our (Chrysler) Mopar truck, from our after
market parts division, arrive at a Mercedes dealer, even with parts not identified as
Chysler-connected. We had a protracted discussion on whether we could even use white
trucks and unbranded trucks! We wasted a lot of intellectual capital and time on that
issue.
Financial reporting and investor relations became another battleground. Over the
previous several years, the finance staff at Chrysler had implemented several
major process redesigns, and established itself as a world-class benchmark. It had
received formal recognition for these achievements from the U.S. business community.
Its brushes with bankruptcy had ingrained a disciplined approach to cash management.
Daimler-Benz had begun reporting according to US GAAP in 1995, but was still
developing its approach, particularly in the area of cash management. Since all cash was
pooled, it was difficult to trace the sources and uses of cash for Daimler-Benz business
units. This difficulty became a sore point early in the merger. Chrysler executives
couldnt believe, for example, that the top finance official at Daimler-Benz could not
produce or seem to understand the need for a simple cash flow statement.
In addition Chrysler was adept at dealing with the investment community. It had
significant experience dealing with analysts, Wall Street and institutional investors.
Daimler-Benz on the other hand did not have a strong relationship with Wall Street and
followed a more traditional approach to the investment community, reporting the required
numbers and avoiding significant attention. In addition to the internal 12 percent ROCE
hurdle rate, Daimler-Benz primarily measured revenue and number of personnel
employed as indicators of its size and success.