A Different Perspective On The DaimlerChrysler Merger

My 25-plus years as a Big Time Auto Industry Executive afforded me many memorable moments. It would be difficult to single out one example, but I may be the only person on earth who has shaken hands with both Soichiro Honda and Derek Kreindler.

As for the low point of my career, there is no contest: the morning of May 7, 1998, four months after I joined Mercedes-Benz Credit Corporation. That was the day it was announced Daimler-Benz had merged with the Chrysler Corporation.

I’ll never forget watching the news that morning, as Daimler CEO Jurgen Schrempp and Chrysler CEO Bob Eaton were all smiles during their press conference, deeming the alliance a “marriage from Heaven.” I was slack-jawed. I was dumbfounded. I was the RCA Victor dog with my head cocked quizzically at the television set.

I, also, was not alone. There were reports of Mercedes-Benz USA executives crying in the halls that morning. How could we do this? Didn’t we learn anything from our previous tie-up with Studebaker?

Much would be written in the following years about the culture clash between the two companies and how it contributed to their demerger in 2007. The press gleefully wrote about how the “lean and mean Chrysler” was at odds with the “slow-moving, bureaucratic Benz.” When it came to the resultant hookup between Mercedes-Benz Credit Corporation and Chrysler Financial, those roles were reversed.

While it would be several years before Schrempp would admit the alliance was not a merger but in reality a takeover of Chrysler by Daimler, Chrysler Financial (CF) was in charge of Mercedes-Benz Credit Corporation (MBCC) from day one on the U.S. financial side. On the surface this made sense as CF serviced ten times the number of dealers and employed around eleven times the number of people than did MBCC.

The two banks became DaimlerChrysler Services North America and we would move our U.S headquarters from Atlanta to CF’s home, the decrepit former American Motors building in Detroit, while construction started on a permanent facility. Thus, the only American employees to truly merge and work side by side in America were us financial folks. The respective auto sales and distribution arms in Montvale, NJ and Detroit probably never even spoke.

I was hired by a year-old division of MBCC called debis Affinity, named after the worldwide financial arm of Mercedes-Benz, Daimler-Benz InterServices AG or debis. Located in the MBCC customer service and remarketing facility in Fort Worth, TX, our mission was to provide retail loans and leases to customers of non-Mercedes dealers as well as floor plan and capital loans to the retailers themselves.

“Jurgen, did I tell you about the millions you are about to lose on off-lease Grand Cherokees?”

Starting with a clean sheet of paper, we developed a corporate culture of transparency and employee empowerment. An example of this culture occurred each morning at 9 a.m. when we would turn off the phones and gather together in a “huddle” to review the previous day’s business news and talk strategy. These lighthearted meetings would be led each morning by a different team member. We were completely transparent with our monthly profit numbers. If they were published on a day that an entry level employee led the huddle, he or she would present the numbers to the group.

Chrysler folks thought our culture and huddle were hokey, but it worked: we built a loyal, tight-knit group of employees. I worked in field sales at American Honda during the go-go ’80s and ’90s; working at debis was more fun.

Thanks to our excellent service levels and a field sales staff heavy with former retail car people, we grew quickly, signing up retailers representing all franchises. We were especially welcomed by Chrysler dealers who were not shy to express their disgust with CF’s inconsistent credit buying practices, their jumping in and out of leasing, and their overall poor dealer support.

Our philosophies could not have been more different from those at CF. At MBCC and debis we considered the dealers to be our partners; CF loathed their dealer body. To be fair, at any one time probably 15 percent of Chrysler dealers were on the verge of going out of business, while another 15 percent were dedicated to stealing as much money as possible from CF and from Chrysler. Dealers falsifying customer information on credit applications to gain loan or lease approvals occurred far more often with Chrysler than Mercedes-Benz retailers.

Leganza! Mercedes-Benz Credit’s debis Division provided financing for U. S. Daweoo customers.

The majority of CF employees we met were motivated and as passionate about the Chrysler brand as we were about Mercedes-Benz. The problem was their layers of bureaucracy prevented any task from being accomplished on a timely basis. In contrast, we were lean enough to operate on dealer and customer time – in other words, “right now.”

A perfect example was CF’s remarketing processes for capturing and disposing of off-lease vehicles. MBCC was recognized as having the best practices in the industry – dealer and customer friendly – while maximizing returns at auction. MBCC had one centralized office for remarketing; CF passed off the responsibility to its dozens of regional sales offices. We quickly learned despite all their people assigned to CF remarketing, many were not contacting clients to arrange their vehicles return, thus, customers were happily driving for free for months after their leases were due, assuring the vehicles would be returned at far below residual value. The concept of pitching off-lease clients to buy another Chrysler product was not on their radar at all.

It was quickly decided that the MBCC remarketing department would take over CF remarketing. Our first step was to find these thousands units missing in the CF bureaucracy. Time was ticking as CF was facing two hundred thousand Grand Cherokees coming off leases with payments as low as $199/month that were about to hit the auctions. The potential residual losses were staggering. The losses would end up averaging over $2,500 per unit. We always wondered if Daimler was informed of the situation during merger negotiations.

Infiniti dumped Nissan Acceptance for debis to provide leases for their customers.

In 1999, debis shocked the industry when we were chosen by Japanese luxury automaker Infiniti to provide factory subvented leases for their customers in their Western and Central Regions. Infiniti’s captive finance arm, Nissan Motor Acceptance Corporation, was out of money and the bank’s dealer satisfaction rankings were even lower than those of Chrysler Financial. Infiniti also admitted that they did not have the channels to dispose of off-lease vehicles.

On the surface this may appear to be Mercedes-Benz helping a competitor’s sales but it is actually just the opposite. The customer had already chosen an Infiniti by the time we were involved. We would profit on the leases as opposed to Nissan capturing that money. We’d also have control of that customer at lease end, with the hopes that their great experience with us might lead them to buy a Mercedes-Benz product next time. At one point, debis was also the leading lessor of Lexus RX300s in several markets on the East Coast.

Four outlying automakers also chose debis to serve as their captive lender, all drawn in by the prestige of being associated with the three-pointed star:

Daewoo: The Korean automaker may have built crappy cars, but their retail paper performed great. The Daewoo people also were by far the easiest to work with among all of our OEM relationships.

Lamborghini: We had the pleasure of working with one of the great automotive crooks of our era, North American Lamborghini distributor Vic Keuylian, who went from hanging with Hollywood celebrities to losing the distributorship to a guilty plea for wire fraud for selling $12M worth of Lamborghinis and stiffing Volkswagen Credit on them. I recall we did some Lambo leases for actor Nicolas Cage.

debis client and former Lamborghini distributor Vic Keuylian with actress Kristen Bell.

Panoz: I am not sure if we actually ever financed a single one of their sports cars but we did get to visit their Georgia headquarters and drive some of their vehicles at Road Atlanta – so the relationship was worth it.

Lotus: I do not think we ended up doing much business with this brand either, but they were also located in Atlanta so we could justify our boondoggles to Panoz by visiting them.

In three years, debis had become wildly successful. Besides the OEM accounts, we had signed up 1,600 dealers and were close to overtaking Chase in several markets as the top non-captive automotive lender.

In early 2000, our managing director was tapped to develop DaimlerChrysler’s online auto financing site. He was replaced by a Chrysler “lifer” who was openly disdainful of debis. His actions verified what was long rumored to be true: CF senior managers only communicated to employees one band level below them and all other workers were not to approach them. I was marketing manager at the time and don’t recall ever having a conversation with the man. Our independence and our unique culture began to slip away.

Soon after, rumors began to swirl that debis was going to be disbanded. When the COO of DaimlerChrysler Financial, a long-time CF man, assured us this was not the case, we figured we we were toast. We were correct: Chrysler bombed debis at dawn on December 7 – Pearl Harbor Day – in 2000. The reason given for our closing was due to the competitive nature of the non-captive lending business as well as duplication of efforts with Chrysler dealers. In my opinion, the truth was that Chrysler Financial hated our guts due to their brand partner being taken over by Daimler, they were tired of hearing from Chrysler dealers about our superlative service levels, and they simply could not understand the empowering (and profitable) debis culture. The news of our shutting down made the front page of Automotive News.

debis folks were devastated – but there was a bright side: to the company’s credit, all 64 debis employees were offered positions within the company, the majority on the Chrysler side, a few on the Mercedes-Benz side.

In 2007, the crazies at Cerberus bought Chrysler from us (during a recession!). We had paid $35 billion for Chrysler and sold them for $8 billion. I likened the loss to the two-year residual value of a Chrysler Pacifica minivan. MBCC was quickly reborn as Mercedes-Benz Financial Services (MBFS). The Chrysler financing arm also became part of Cerberus and would eventually be bought by Canada’s TD Bank in 2011.

In the end, the damage done was the value of the millions of wasted man hours learning Chrysler’s systems and processes we could have dedicated to improving our products and services for Mercedes-Benz customers and dealers. The amount of money spent to build new Detroit and Fort Worth facilities for the merger and a second set for the demerger was staggering.

To be fair, a lot of good did come out of the merger on the financial services side. Thanks to Chrysler’s powerful human resources department, our benefits were far better than before the alliance. MBFS also became a much more diversified workplace thanks to Chrysler’s influence. Some of the talented leaders of the current MBFS came from Chrysler, most being managers who were considered “rebels” on the domestic side. The MBFS headquarters remained in Detroit where we were able to draw from the city’s deep, laid-off automotive talent pool for years to come.

The debate will rage on as to whether Daimler-Benz nearly killed the Chrysler Corporation, but in one small corner of their financial services division it was Chrysler who dealt the deathblow to a vibrant and vital Mercedes-Benz operation.

Chronicling this story has made me decide to amend my opening statement: the day in May 2007 when the DaimlerChrysler demerger became official, and I was safely on the Mercedes-Benz Financial Services side, was the single best moment of my automotive career.