Daimler-Chrysler Merger Portrayal 1

A Study of the DailmlerChrysler Merger Portrayal in U.S. and European Media

Research paper
Sergei Golitsinski
48C:291 Project in Communication Studies
Dr. Dean Kruckeberg, APR, Fellow PRSA
December 17, 2000

Daimler-Chrysler Merger Portrayal 2

Introduction: Globalization and Public Relations
Today the business world is becoming a smaller place. One of the main trends in
corporate business is going global: forming transnational businesses, which are
spanning boundaries between nations and even continents. “The most significant
change that our companies face is globalization of our business,” argues Wooland
(1996, p. 6). “As late as the 1980s it was possible for a major industrial company to
limit its market presence to one or two major regions of the world, and to know with
some confidence who it was competing against in those areas. That is no longer
possible if a company hopes to succeed. Now we must be global, and our
competitors are the old ones we have always known, but also new ones, who are just
getting started” (Wooland, 1996, p. 6).
Globalization magnifies the value of a business considerably. “But greater value is
not a given. “This is because the trend towards globalization can often be a source of
confusion or uncertainty,” argues Drobis (1998, p. 34).
Transnational companies face the challenge of building relationships that do not
currently exist and maintain them in an environment of different nations, cultures,
languages and traditions. Culbertson (1996) notes, that such organizations “have
limitations, suggesting a great need for guidance in relationship building and
maintenance”
(p. 1). Referring to Grunig, he concludes, “truly effective public relations practitioners
provide exactly that guidance” (Culbertson, 1996, p. 1).
Wakefield (1996) observes, that the concept of international public relations, that
is, practicing PR in an international or cross-cultural context, is “rapidly attracting the
attention of practitioners and scholars” (p. 17). Ho notes, that “since 1990, Public
Relations

Daimler-Chrysler Merger Portrayal 3

Journal, Communication World, Public Relations Review, and other publications have
published dozens of articles about public relations in a global context” (p. 17).
Besides, an increasing number of articles can be found on various Web sites, related
to public relations research. Professional organizations, such as the International
Association of Business Communicators (IABC) and the Public Relations Society of
America (PRSA) have established sections for members, specializing in this area
(Wakefield, 1996, p. 17).
Finally, the last PRSA national conference in October 2000 was co-sponsored by the
International Public Relations Association (IPRA); its focus on international public
relations was emphasized by its name: “The World Congress.”
For international public relations practitioners, the global economy is not new, but is a
well-established fact of life. Indeed, a growing international capital flow, facilitated by
new communication technologies, has created tremendous opportunities for public
relations.

Daimler-Chrysler Merger Portrayal 4

Challenges of global public relations
Globalization creates both opportunities and challenges for public relations. Taylor
(2000) suggests, “opportunities include the potential for public relations practitioners
to lead their organizations during times of transition” (p. 278). Indeed, the public
relations function creates and maintains relationships with a company’s publics;
therefore, it can help an organization build new relationships in international or
multicultural environments (Taylor, 2000).
However, there are challenges as well. “The ways in which organizations can
effectively communicate with international publics are dependent on a variety of
cultural and societal forces. These cultural and societal variations will affect the
communication between international organizations and the publics in the host
nations” (Taylor, 2000, p.278).
Practitioners argue, “borderless credibility requires a seamless network of
communications professionals who share a company’s vision, who understand a
company’s core messages, and who know how to work cooperatively to deliver those
messages consistently across different cultures, races and religions” (Drobis, 1998,
p. 34). Drobis (1998) emphasizes, that they don’t have to be identical – just
consistent. “A company like Heinz, for example, is perceived as a British company by
British consumers and an American company by Americans. Yet in both countries,
the brand is held in equal esteem, and the management vision is clearly understood”
(p. 33). However, there are other opinions. Some scholars and practitioners believe
that the main value of international public relations is the possibility to centralize
communication efforts, which will cut down costs. Smith (2000) suggests, that each
country developing from scratch its own core materials, such as slide kits, press
packs, and product visuals, does not make financial sense. Smith (2000) concludes,
that in terms of an international public relations program, it is not just the money,
which is being saved, but also the cost of people’s time, which is equally important.
Still, most scholars and practitioners agree, that the challenge of different cultures,
dictates the necessity of developing different communications approaches to different
publics. Seltzer (2000) mentions, that 72% of respondents to an internal survey at
Ogilvy Public Relations Worldwide among mid-level managers from Ogilvy officers
from around the world, stated that the biggest difficulty faced was lack of cultural
knowledge.
Seltzer (2000) argues, that a corporate or product strategy can easily be global;
however, it is necessary to take into consideration the numerous public relations
tactics that work well in one culture, but have no value in others. Seltzer suggests,
that “in developing cultural appreciation and knowledge, it is essential to understand
what works, what doesn’t, and why.” Seltzer (2000) concludes, “Communications
strategy must be consistent across borders, but tactically respect and capitalize on
local market differences.”
Corporate Communications During a Merger
A company is especially vulnerable to the judgment of stakeholders during a merger.
In this case, communications is especially crucial. According to most scholars, post-
merger public relations is one of the most important, least understood disciplines that
impacts the success or failure of a deal.
Scholars and practitioners agree, that historically, companies considering mergers,
have planned every detail except the most important: compatibility. “Their leaders
have thought thru the economies of scale, the operational synergies, the joint
marketing opportunities, but they have paid only lip service to cultural issues.
Organizational culture, after all, is a “soft” issue, difficult to define and even more
difficult to measure. For that reason it makes even seasoned executives
uncomfortable” (“Unhappily married,” 1999).
Underestimating cultural issues is especially dangerous in international mergers.
Wolf suggests, “There has always been a tendency to underestimate the impact of
cultural issues and to focus instead on organizational or structural issues. It is
dangerous to underestimate culture issues in any merger, but when the merger
involves two companies from different national cultures, those issues are
exacerbated and unless a company is prepared they can be debilitating” (“Unhappily
married,” 1999).
Audiences for the typical merger include employees, both active and retired,
investors, journalists, suppliers, customers and regulators. Messages must be
developed for each group that are consistent, yet address individual concerns.
Scholars agree, that the employee audience often receives minor attention in mega-
mergers, deals that focus on lawyers, investment bankers, senior management and
shareholders. Drobis (1998) emphasizes, “Communications must be inclusive,
reaching all audiences, both internal and external. Too often, the discussion of values
centers on convincing investors and the media about the virtues of a company. But
the true place to start is within the company itself. If the employees are loyal to the
company’s vision, and if they are actively involved in creating value every day, the
company will succeed” (Drobis, 1998, p. 33).
Four phases of post-merger communications
Bloomgarden suggests, that there are four distinct phases of post-merger
communications (“Unhappily married,” 1999).

The first phase is the announcement of the merger. Bloomgarden warns, that this is
the only chance a company will get to make a first impression, “so it’s important that
the company presents the deal in the best possible light.” It is also important,
according to Bloomgarden, that as many stakeholders as possible learn of the deal
first from the company itself. “It’s one of the clichés of employee communication that
people should not learn of developments that affect their lives through the media”
(“Unhappily married,” 1999). That’s true for all the company’s publics. The second
phase, according to Bloomgarden, is the period between the announcement and the
final approval. Bloomgarden argues, that “in many ways this period is the most
difficult because companies are generally not able to answer even the most basic of
questions. Wolf mentions, that companies in this stage “are not able to talk about
how the merger will impact human resource policies, or the ways in which individual
plants may be affected, even those issues are of tremendous concern to employees.”
“It’s the inability to provide specific information that makes post-merger
communications such a challenge,” concludes Wolf (“Unhappily married,” 1999).
Bloomgarden argues, that during this period the most important thing is honesty. “A
lot of companies are afraid to talk about the consequences of a merger. They are
afraid to let people know that there will be job losses, that there will be changes. But
it pays to be frank with people, and it pays to make the process as transparent as
possible. People will forgive management for making difficult decisions, but they
won’t forgive it if they think they’ve been lied to or mislead” (“Unhappily married,”
1999).
The third phase, according to Bloomgarden, begins when the deal closes.
Practitioners agree, that the most important challenge during this period is “staying
ahead of the rumor mill.” There is always speculation; usually centered around
potential job losses, and that, according to Taufield, can have a tremendous impact
on employee morale. “The rumors start immediately, and if the company doesn’t step
in and provide employees with factual information the rumors get worse and worse.
People tend to exaggerate and assume the worst” (“Unhappily married,” 1999).
The final stage, according to Bloomgarden, starts when the organizational changes
brought on by the merger are completed. After this point, Wall street, employees and
other constituencies will want to know if a merger delivered on its promised benefits
(“Unhappily married,” 1999). That means continually reinforcing the understanding,
why a merger made sense and how it’s improving the lot of all key audiences of the
new entity. A conclusion can be made, that scholars and practitioners agree, that
major mergers offer significant communication challenges and require massive
corporate communication efforts to live up to their anticipated benefits.
Communications can make a deal successful or not.
This paper will examine the communication challenges of the 1998
DaimlerChrysler merger. To evaluate how well the new company managed these
challenges, the author will analyze the portrayal of the merger in US and European
media.
The Daimler Chrysler Merger
The DaimlerChrysler merger was announced on May 7, 1998. It produced a shock in
the business media. The Wall Street Journal named it “the biggest industrial merger
of all time.” Other media in a similar manner, as well as scholars, journalists and
financial analysists applauded the announcement. The merger was considered to be
“a merger of equals, ” and was supposed to be very successful. In less than two
years it became apparent, that it was an n acquisition, rather than a merger of
equals, and Chrysler, as an American car manufacturer no longer existed.

Reasons for the Merger

Initially the deal seemed to make sense for both companies. Both CEOs, Robert
Eaton of Chrysler and Jurgen Schrempp of Daimler-Benz, independently concluded,
that their companies needed a partner to survive in the future on the car market.
Even though there is wide spread opinion, that both companies could have survived
independently, the logical reasoning behind the merger makes a lot of sense.
Chrysler, having been close to bankruptcy almost once in every decade, was
extremely vulnerable financially. That was proved by the hostile takeover attempt,
carried out by its largest shareholder, Kirk Kirkorian together with its former
legendary
chairman of the board, Lee Iacocca, who wanted to regain control over the
corporation after his board almost had to force him to resign. Chrysler survived the
crisis, however, that was a clear indication, that the corporation needed a change,
which would bring stability and financial security.
The change would have to involve expansion to other markets. Chrysler was a strong
player on the US market only, besides its strength was guaranteed by its pickup
truck, SUV and minivan divisions. Chrysler passenger cars were not a success on
the market. Increasing Chrysler’s share on the international market required major
investments: neither did the corporation have plants abroad, nor did it have a
sufficient dealer network.
To conclude, Chrysler needed a financially strong partner, with a significant
international presence.
Daimler-Benz was financially stable; it was one of the largest German companies,
which was a conglomerate of over 20 different businesses. However, 95% of its profit
came from one division – Mercedes-Bens. That made the corporation less secure.
The Mercedes division had a rather small share of the entire automotive market;
besides, it was clear, that the market segment for luxury cars had reached its peek
capacity and was no longer growing. To ensure stable growth and stability in the near
future, Daimler-Benz needed to extend its reach into other market segments.
However, diversifying, or “stretching” the Mercedes brand would result in destroying
its brand identity. Therefore, Daimler needed an outside partner to enter the new
markets.
Besides individual reasons of each partner, there was a common reason for the
merger to be a success. The companies were almost meant to be partners: their
product lines almost did not overlap; with German quality and attention to details and
American low cost efficiency and innovativeness complementing each other. The
merger was considered to be birth of a new type of corporation, which would become
a leading automotive, transportation and services company. Forbes (1998) reported,
“No, this merger isn't about savings. It isn't about blending German caution with
Yankee freewheeling…It is about taking two splendid companies and transforming
them into a real world-scale, truly multinational business.” Business Week (1998),
emphasized, “The merger of Daimler Benz and Chrysler Corp. will clearly rock the
global auto industry. But the creation of this new powerhouse is more than an
industrial mega deal.
It's perhaps the first sign that the forces of globalization have succeeded in reshaping
Europe Inc. Companies such as Daimler Benz now seem to be strong and confident
enough to deal on an equal footing with their American counterparts.”

Communication Challenges of the Merger

However, there were significant challenges facing the merger. Daimler has been run
as a conglomerate with 21 separate businesses; while Chrysler was a
highlycentralized car and truck manufacturer. The two companies were separated by
geography, tradition and national culture.
Both companies had their own historical heritage. Chrysler, founded in 1924 by
Walter P. Chrysler, was an American legend, an independent automaker that
survived major crisis, was on the edge of bankruptcy several times, and still
managed to grow into a manufacturing giant and become a member of the “big three”
American car automakers.
Mercedes-Benz, which later, in 1924 grew into Daimler-Benz, was a German legend,
famous through the world for its luxurious cars, as well as for creating the first car in
the world in 1834. Both companies were deeply respected in their nations, both had
their own museums, and both were fiercely protective of their corporate identity. The
companies had very different corporate cultures, which were based on different
national cultures. Keller (1998) states, “when it comes to the cultures of these two
companies, they’re oil and water” (“Unhappily married,” 1999).
In Germany, for example, Mercedes-Benz workers are used to taking several
company-sanctioned beer-brakes a day. In the US, the practice would raise the
specter of alcohol-related accidents and legal liability. However, DaimlerChrysler
chairman Jurgen Schrempp, to the amazement of his American colleagues, had a
bar installed and the fire alarm shut off in his new office, so that he could enjoy his
cigars and European work environment.
If Chrysler was considered to be innovative, then Daimler-Benz was its complete
opposite. The Germans embraced formality and hierarchy, from a well-structured
decision-making process to the suit and tie dress code and respect for titles and
proper names. Chrysler broke barriers and promoted cross-functional teams that
favored opencollars, free-form discussions and casual names.
However, in relation to sexual harassment issues, the Americans proved to be much
more conservative than the Germans. Jurgen Schrempp never made a secret of his
intimate relationship with his personal assistant. In general, many issues, that could
become flashpoints of discord in the US, from workforce diversity to smoking on the
factory floor, were barely discussed in Germany.
“We were not trying to bring two worlds together to create a new one. The ideal
merged company will still have noticeable differences, like a choir that needs different
voices to achieve the perfect sound,” according Dirk Simmons, a corporate strategist
from Daimler-Benz who served on the DaimlerChrysler integration team. Simmons
said, that the companies’ research suggested that more than 70 percent of cross-
border mergers fail within three years because of cultural differences.
DaimlerChrysler’s post-merger integration team, which has 100 members, has
studied more than 50 failed cross-border deals to identify all the things that might go
wrong and try to avoid making the same mistakes (“Unhappily married,” 1999).
Still, some cultural differences were more complicated, if not impossible to solve. The
lifestyles of the German and American managers turned out to be very different.
Americans enjoyed much higher salaries, while the Germans enjoyed larger expense
budgets. However, that caused difficulties in persuading Americans to relocate to
Germany, while many German managers embraced the possibility to move to
spacious homes in America.
“From the outset, the German obsession with planning has kept everyone on edge,”
said one of Chrysler’s executives. “We Germans look for big reports, and then we
have long meetings with long discussions,” said Hubbert from Daimler-Benz. “We are
getting the message that meetings can last one hour with few papers.” That was a
complete opposite of the Chrysler culture, which was shaped by “a creative collection
of industry renegades” (“Unhappily married,” 1999).
Among other things, these cultural differences caused problems for the two
companies’ respective PR departments. “The Chrysler team, led by Steve Harris, and
the Daimler-Benz team, led by Christoph Walther, clashed from the start” (How the
DaimlerChrysler merger flunked cultural test, 2000). The initial argument was about
the release date of the news release, announcing the merger. The release was
scheduled for a time, suitable for the European media; however that meant 2 a.m. in
the Eastern United States.
According to Vlasic and Stertz (2000), the Chrysler team, spontaneous and
theatrical, found the Germans demanding to the point of domineering. The PR staff
clashed over press kits: the Germans wanted to replace the highly distinctive,
creative, attention-grabbing kits designed by the Chrysler staff (including the award-
winning Dodge Durango press kit designed like a Wheaties cereal box) with stark
white folders.
The German staff designed a commemorative watch with the names of the two
companies on the strap. However, when the strap was fastened, the Daimler name
overlapped Chrysler’s. Company news releases were written in German and then
translated into English, and went out in the morning, German time.
Very soon the impression became that the Germans had the top. The media started
reporting stories of American ideas being shunted aside as German managers began
imposing the Daimler way of doing business. As the cultural differences became
more obvious, more communication challenges were raised by other cultural issues.
Was the entity really going to be run by the Germans? Would jobs be lost and
facilities closed? In Germany, some shareholders questioned whether Chrysler’s
mass-market products would tarnish the upscale image of the Mercedes brand.
Others were stunned by the massive payouts made to American executives. In the
US some shareholders – Jewish in particular – were upset that an American
automaker was being taken over by a company that played such an active part in the
German was effort half a century earlier” (How the DaimlerChrysler merger flunked
cultural test, 2000).
These issues represented a major communication challenge. Research proves, that
the company’s communication strategy was not sufficient enough to meet this
challenge.
In less than two years DaimlerChrysler had lost the confidence of the media and
whatever credibility it had with its US management staff and shareholders.