Crisler Corporation. Senior thesis

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The United States was a promising market for the Mercedes. In the early 60s the company increased its sales to 50,000 cars sold in the U.S. (Consumer Guide, p. 46, 1986)

However, in the mid 60s, the sales went down. The new 190D four-cylinder diesel model did not sell well in the U.S. and Europe. It took the company three years until it became one of the leaders of the market. In 1970, Mercedes introduced three new models, which they called the тАЬNew Generation.тАЭ The new models were 280S, 280SE, and 280SL. By that time, the Mercedes became the number one imported car in England, France, Belgium, Holland, Switzerland, and Austria (Consumer Guide, p. 48, 1986).

Another reason why the Mercedes became one of the most popular cars in the world was its participation in auto racing. In the late 60s, Mercedes cars participated in nine races and won seven of them. After tremendous racing results, people around the world wanted to purchase the C-111 model which would set up three new world records; however, Mercedes would not make this available to the public for sale. The company was receiving a thousand letters a day with offers buy the C-111 model and in 1976 the similar model C111-11 was introduced at the Geneva Automobile Show. The new model had tremendous power. It had 350 horsepower, and it could get from zero to sixty mph in six seconds. Its top speed was 190 mph. Also, the C111-11 Diesel set a new record in durability by running at a speed of 156 mph for 10,000 miles straight (Consumer Guide, p.55, 1986).

In 1982, the 190 series was one of the best selling models in the world. The 190 model was a small sized car which opened for Mercedes an entirely new market. In Germany, this model became a best selling car in 1985. This was a very important establishment for Daimler-Benz because the 190 model became the number one selling small car in Germany, leaving the long-time leader, BMW, in second place (Consumer Guide, p. 64, 1986).

In the early 1990s, the Mercedes market share in the United States was greatly decreased. The reason for this was that the Japanese car companies started to produce luxury cars. For example, Toyota was manufacturing Lexus, Honda was manufacturing Acura, and Nissan was manufacturing Infiniti. These cars today are becoming increasingly popular among Americans. However, German management found a way to overcome the competition by building a Mercedes factory in Alabama in 1994. Now, a large share of Mercedes cars sold in the U.S. are produced by American labor. Producing Mercedes in the U.S. has solved many problems for the company. Many people in the U.S. have an opinion about buying American-made cars with the purpose of supporting the American economy. The second problem was that tax on imports was greatly reduced. The cost of a German laborer was 50% higher than an American laborer in Alabama. By building cars in the United States, all these problems were solved (Fortune, p. 150, 1997).

Similarly, Mercedes used the same strategy in South America. It built a new plant in Brazil. This plant decreased the prices of the cars and made the purchase of a Mercedes more affordable for the South American region (Motor Trend, p. 123, 1997).

In the past five years the demand for 4x4 vehicles has been increasing. Two years ago, Mercedes came up with a new M-class jeep model. The price of the is jeep is around $34,000, which is competitive with the American-made Chevy Blazer, Ford Explorer, and Grand Jeep Cherokee. By making a jeep, Mercedes is keeping up with its competitors for this share of the market. The new jeep is a success because it was named the 4x4 truck of the year for 1998.

Short summary of current position of DaimlerChrysler

Company ownership: European, U.S. and other international investors own DaimlerChrysler; there are approximately one billion shares outstanding. 65% is made up of European investors.

Global Stock: DCX ordinary shares are traded on the New York and Frankfurt stock exchanges as well as nineteen other major stock exchanges worldwide.

Group Headquarters: Stuttgart, Deutschland, and Auburn Hills, Michigan, USA.

Chairmen: Robert J. Eaton and Jurgen E. Schrempp

Management Board: Consists of fourteen members, including the two chairmen and the heads of the operation and functional divisions.

Supervisory Board: Consists of ten shareholders representatives and ten employees representatives. The Supervisory Board appoints the Board of Management and approves major company decisions.

Market Capitalization: Currently about EUR 80 billion (March 1999)

Investments: 1999-2001: EUR 46 billion to be invested in the future of DaimlerChrysler

Automotive Sales: 4.5 million units in 1998 (Passenger Cars and Commercial Vehicles)

Employees: 466,900 at the end of 1999

Manufacturing Facilities: in 34 countries.

Global Brands: Mercedes-Benz, Chrysler, Plymouth, Jeep, Dodge, Smart, Freightliner, Sterling, Setra, Airbus, Eurocopter, Ariane, Debis and others.

Product sold: More than 200 countries

Official Language: English

Financial Reporting: US-GAAP accounting with earnings reported quarterly.

Reasons for merging and new opportunities.

In 1998, at the Detroit Auto Show, the idea of cooperation of Daimler-Benz and Chrysler Corporation was born. Schrempp, Chairman of Daimler-Benz and Eaton, chairman of Chrysler Corporation, began negotiations about possible combination of two large automobile manufacturers. тАЬWe are leading a new trend we believe will change the future, the face of the industry,тАЭ Eaton said five months later when the deal was announced.

The two chairmen acknowledged that the merger would not be easy. Their own study of transnational mergers suggested that 70 percent failed to achieve the kind of success that had been anticipated.

As a result of the long series of negotiations, a new company named Daimler-Chrysler was established. The company would manufacture not only cars, but commercial trucks, trains and rockets as well.

The goal of the merger was to create a company that would be able to stand better against other world leading car producers like General Motors, Ford, Nissan, Volkswagen, Toyota and so forth.

With the creation of a new company, both of the old components were going to benefit from the following:

  • Decreased R&D expenses per production unit
  • Confluence of technologies of both firms
  • Double strength in total
  • Opportunities in new markets
  • Decrease in price of materials bought from suppliers

Opportunities in new markets

Both Chrysler Corporation and Daimler-Benz operate in quite saturated markets (in terms of their current products). In order for them to grow, they will have to carry on those overseas markets, which means development of products in accordance with preferences of the new markets.

Developing new products for a different market segment or establishing an additional brand might have implications for the positioning of the existing product range. Penetration into completely new market segments for both companies would involve both high costs (new offices, stores, and advertisement programs) and substantial risks for the companies.

Another method for successful penetration and establishment in new markets is co-operation with another manufacturer who already has a successful brand and products in place in the segments where it is represented. In this way, the existing product portfolio could be broadened without any risk to each companys brand identity and its associations of exclusiveness.

Daimler-Benz is well-known and recognized in Europe and USA for its high-quality cars and has firm customers; however, the opportunities are limited. The newly industrializing countries in Latin America and Asia, on the other hand, offer good prospects for growthstarting from a low levelto the premium products segment. To penetrate these fast-growing markets on any scale, however, it would be necessary to launch new, low-priced products, possibly combined with the creation of a new brand name. The new direction will certainly require new funds and the company might not be able to handle this hard task alone. Another possible problem of penetrating the new markets in Latin America and Asia is, was the establishment of new offices, stores, research of new customers tastes, and advertisement. To cope with this obstacle to its success, DaimlerChrysler seeks companies in those areas for possible merger, like Daywoo, Mitsubisi and so forth.

Chrysler has not penetrated the European market very deeply. It certainly will be a good opportunity for Chrysler Corporation to start cooperation with Daimler-Benz in order to penetrate the European market without additional costs for opening its offices and stores.

At the same time, Chrysler has very a good market in North America and can facilitate Daimler-Benzs deep penetration into that market with a new program of minivan production.