Howes: Decades on, ‘merger of equals’ a cautionary tale

Daniel Howes
The Detroit News

Twenty years ago this week, a big, bald lie was born.

In the mendaciously labeled “Merger of Equals,” Germany’s Daimler-Benz AG acquired Chrysler Corp., making the Motor City’s No. 3 automaker the North American arm of a foreign company. It remains so today, albeit under an Italian-controlled parent headquartered in London.

The Daimler-Chrysler deal would begin roughly a decade of unhappy marriage marked by premature executive retirements on the American side, grudging partnership on the German side, and the predictable cultural limits of trans-national unions — as least insofar as the guardians of Mercedes-Benz are concerned.

There were no equals because there was no merger, as then-CEO Jürgen Schrempp admitted in an infamous interview with the Financial Times. It was a takeover executed in “a roundabout way,” he said in the fall of 2000, an admission that sufficiently poisoned whatever goodwill remained in the recesses of Auburn Hills and Detroit’s proud auto circles.

Was Chrysler the better for its association with the lustrous three-pointed star? Not if numbers matter. A little more than two years after the transatlantic union announced in May 1998 became official, Chrysler’s stumbling financial performance embarrassed Schrempp, shocked investors and claimed another American CEO, Jim Holden. His successor: Dieter Zetsche, now CEO of the renamed Daimler AG.

And less than two years after Daimler-Benz off-loaded Chrysler to the smartest guys in the room at Cerberus Capital Management LP, the maker of Jeep SUVs and Ram trucks collapsed into a Chapter 11 bankruptcy that only a new president, Barack Obama, and the U.S. Treasury could finance.

If there’s any enduring Daimler legacy to the arc of Chrysler’s fall and rebirth, that would be it. The Mercedes tagline, “The best or nothing,” meant mostly nothing when it came to the Stuttgart set polishing Chrysler’s brands and infusing them with German technology. Didn’t happen.

Save an interior buffing of, say, the bellwether Jeep Grand Cherokee, German ownership of Chrysler recedes like a bad dream in a present preoccupied with Fiat Chrysler Automobiles NV’s accelerating financial performance, its tie-ups in Auto 2.0, its always quotable CEO Sergio Marchionne, and who his successor will be come next year.

Daimler’s acquisition of Chrysler failed because the professed goal of “integration” proved genetically incompatible with the predominantly German belief in the purity of the Mercedes brand and the expectations of its customers worldwide. And because that crop of German executives and engineers basically didn’t play well with others.

During my years as a foreign correspondent based in Germany at the height of the Schrempp era, I was constantly reminded that the adjective “American” was considered a synonym for second-rate. And perhaps nowhere was that sentiment more deeply held than in the bowels of a Mercedes organization expected to somehow share its vaunted technology with Chrysler’s pedestrian brands.

But time moves on. And the truth is that the mess wrought by Schrempp & Co. offered valuable lessons for the trans-national tie-ups that followed. Like so many others at the time, I figured Renault SA’s rescue of a failing Nissan Motor Co. would follow the DaimlerChrysler AG trajectory, an incompatible melding of vastly different cultures rooted on different continents.

CEO Carlos Ghosn has proven doubters wrong. At an Automotive News Europe World Congress not long after Renault confirmed its investment in Nissan, circa 2000 or so, someone asked then-CEO Louis Schweitzer whether he would have made the play without Ghosn.

His response: “No.” His point then, and it still stands today, is that leadership matters. So does cultural respect. So does the humility to know when to push the business imperatives of integration and when to back off, acknowledge local customs and celebrate success.

Team Daimler never understood those simple management tools. And I’d guess if you asked them today, they still wouldn’t — which is one reason the Chrysler chapter in its long history will be relegated to footnotes its official historians would prefer to ignore.

A decade removed from the end of its miserable “Merger of Equals,” a retooled Chrysler is challenging its cross-town rivals for leadership in operating margins, even profitability in the truck-and-SUV heavy U.S. market. Success like that is the sweetest revenge.


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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.