Eharmony

Question 1:

In the late 1990s, the increment of automobile industry around the world started slow down, main consumer markets suffered different degrees of atrophy, and competition between manufacturers is intensifying. The complementary product lines between Europe’s largest industrial company Daimler-Benz AG and the third largest US carmaker Chrysler, their different distribution of market power, the possibility of low cost collaborative platform (see Exhibit 1 for the full list of motivations/justifications), gave most of the investors, analysts and the rest of the public unlimited space for imagination, and they called it “merger of equals made in heaven”.

In the global automotive industry, vehicle production overcapacity problem was very serious in the late 1990s. According to the case study, the projected surplus capacity will reach 18 million units in 2002. With the limit power in each market, how to obtain the largest possible market share and ensure company’s profitability is the most important question executives need to answer. While S&P’s DRI predicted that over the next 10 years, there will be nearly a 50% of reduction in the number of producers, merge and acquisition has become the trend in the automotive industry. The globalization of the industry and excess capacity was the main force to push both companies to make this defensive move.

The second and third motives are equally important. In the field of production and sales, both Daimler AG and Chrysler can effectively complement each other. Chrysler is heavily depended on the North America region as 90% of the sales come from NAFTA. On the other hand for Daimler, its sales were largely restricted to the European market as NAFTA market only generates 22% of its total sales. With the merger, the new company will have the ability to open up international markets for both brands, allow Chrysler make a smooth entry into the European market, and allow Daimler to explore the rest of the passenger cars market outside the luxury line. Both markets are very attractive to the new company and by working together, DaimlerChrysler can capture more share of the pie.

On the other side of the spectrum, Chrysler’s need to broaden its line to luxury end and Daimler Benz’s need to borrow creative styling from Chrysler are less important comparing to the other motives. Daimler is known for its quality, safety and comfort, the concept of “German Engineering” is the culture for Daimler. Chrysler is more known for its cost efficiency and productivity. These two motives also won’t add too much change in the scope of economies, procurement cost, sourcing cost and fixed asset cost will not be affected by these two changes. At the end of the day, the last thing anyone wants is paying different price for very similar cars.

Question2

Sales & Marketing: The expectation of Chrysler and Daimler’s executives is to save $380 million from global sales and marketing activities by leveraging each other’s dealership operation and other resources in the U.S and Europe. However, because Mercedes’s brand image was significantly higher than Chrysler’s brand image in service, comfort and prestige, at the same time, Chrysler did not have a suitable car that could be marketed in Daimler’s dealership, both brand weren’t able to leverage the potential complementary sales resource. There were also separate marketing campaigns for the Mercedes and Chrysler brand as they are targeting two different customer segments. Like the case stated, “The sacrifice of potential synergies was easy for them (Daimler Benz executives) to bear in order to protect their “Most valuable asset” (DB’s Brand)”