Chrysler Suicide Watch 13: Inappropriate Force

In the Phantom Menace, Anakin Skywalker stands in front of the Jedi Council. Master Yoda senses that Skywalker’s fear of losing his mother is clouding his mind. “Fear is the path to the dark side,” Yoda pronounces. “Fear leads to anger. Anger leads to hate. Hate leads to suffering.” And there you have it: the story of the merger between Daimler-Benz and the Chrysler Corporation. Witnessing much suffering, we are.

Like Anakin, every Daimler-Benz CEO has been afraid of losing his metaphorical mother. In other words, they’ve been scared that Daimler-Benz will fall prey to a hostile takeover. In 1984, Daimler-Benz CFO (and later CEO) Edzard Reuter decided that the only way to keep Daimler-Benz independent was to grow to the point of indigestibility.

At the time, Daimler-Benz had huge cash reserves. They could have easily survived a complete failure of one or two new model lines. But Reuter believed that the market for Daimler-Benz products wasn’t big enough to accommodate poison pill-scale growth. So he decided to diversify.

Reuter mined Daimler-Benz’ cash mountain to buy numerous aerospace and technology corporations. Unfortunately, his acquisitions were bottomless pits. Reuter burned so much cash during his regency that Daimler-Benz’ 1995 stock price had fallen 12 percent since the fateful day he’d assumed control in 1987– despite a wildly successful Mercedes brand.

In 1995, Reuter floated away on his golden parachute, creating corporate lebensraum for his successor, Jürgen Schrempp.

Schrempp soon sold every major business that wasn’t part of traditional automaking. When he finished de-acquisitioning, Daimler-Benz was exactly where it was ten years earlier, only poorer.

By this time, the global car industry was in the throes of massive consolidation. BMW, GM and Ford were buying-up once storied marques. FIAT was on the ropes. Toyota’s epic growth was continuing. Industry analysts were predicting that the international automotive market could only sustain five independent car manufacturers by 2005.

And then Deutsche Bank, Daimler-Benz’ long-time majority shareholder, announced it was dumping its stake in the German automaker. If Yoda would have been present, he could easily have sensed the fear within Schrempp.

Schrempp decided that Daimler-Benz had act upon of the old Italian saying: il pesce grande mangia il più piccolo. Daimler-Benz had to eat someone else not to get eaten.

Honda topped the list. Still smarting from its ill-fated tie-up with Britain’s Rover Group, the Japanese automaker was deaf to Schrempp’s overtures. So Schrempp started negotiations with/for Chrysler.

At the same time, Ford approached Daimler-Benz about a possible tie-up. When the Ford family made it clear that a takeover (Ford over Daimler-Benz) was the only acceptable scenario, Schrempp pulled the plug on the negotiations. After all, Chrysler had announced “game on.”

Daimler-Benz paid $36b for the American automaker, called it a merger of equals (a.k.a. “a wedding in heaven”) and breathed a sigh of relief. They singularly failed to notice a disturbance in the force.

One year later, on March 10, 1999, it all started to go downhill. That was the day DCX’ Board of Directors rejected DaimlerChrysler’s plan to take over the world Nissan. Schrempp wanted it. Nissan wanted it. But Schrempp was too afraid unable to push his plans through the Jedi Council DCX’ Board of Directors.

Renault ended up buying Nissan. Under the leadership of Carlos “The Slasher” Ghosn, the two companies formed the most successful merger in recent automotive history. Schrempp was left shaking his head, knowing that Nissan could have provided Chrysler with the high quality small cars it needed for the U.S. market (a task now left to DaimlerChrysler’s less-practiced Chinese partners).

Still hungry for a Japanese partner, DaimlerChrysler bought Mitsubishi, a wounded manufacturer with plenty of production problems. This decision lead to the second important date in the history of DaimlerChrysler’s failure: April 22, 2004.

On this fateful day, Daimler-Chrysler’s Board of Directors decided to end any further financial help for its ailing Mitsubishi brand. Schrempp had staked his reputation on making Mitsubishi work. It needed a massive cash infusion. But the force was weak with that one.

After the Board’s rejection of his request, Schrempp’s days were numbered. By the end of 2005, he finally stepped down, taking with him the grand global “vision” that was supposed to fuel the Daimler Chrysler merger.

By the time this epic episode faded to black, DaimlerChrysler’s stock price stood at sub-‘95, (pre-Schrempp) levels. Now it’s Dieter Zetsche’s turn to clean up the mess that Schrempp left behind. And when he’s finished, Daimler-Benz will be where it was 10 years ago, only poorer.

According to the official numbers, CEO Reuter and Schrempp’s delusions of grandeur successful attempts to prevent a Daimler-Benz takeover burned through some $60b of Daimler-Benz’ money, although the unofficial estimate place the amount as high as $120b. And it ain’t over yet.

Let’s just hope Dr Z is not afraid.