Is DaimlerChrysler Facing Divorce?

Anthony Fontanelle
February 16, 2007

It was a marriage heard around the world. In November 1998, a stunning $36 billion merger was perfected between Daimler Benz, the German manufacturer of Mercedes-Benz luxury cars, and Chrysler Corp., the all-American maker of Jeeps and minivans. However, on Wednesday, when DaimlerChrysler announced it was cutting 13,000 jobs in the United States, analysts anticipated a possible divorce.

The union rocked the global automotive world and provided a draft for the international consolidation. After the exchange of rings in 1998, Jürgen Schrempp, the chairman of the board for the brand new company DaimlerChrysler said that the marriage was a "match made in heaven." But this assumption may no longer stay the same. On Valentine’s Day, Mercedes workers received bulky bonuses while DaimlerChrysler announced 13,000 job cuts in the United States. This is the reason why critics in the industry are predicting that the couple could be heading to divorce court.

The couple underwent relationship troubles in the past. However, the worst blow happened on Valentine’s Day when it announced a massive cut of 13,000 jobs over the next three years at Chrysler in the United States. The slashing of jobs is required by its restructuring plan, which is aimed at alleviating the standing of the automaker in the auto industry.

There has been an apparent shift of market from large vehicles to small, sleek and fuel-efficient cars. This fact has troubled the automaker much; it had difficulty turning a profit in previous years primarily because it has great reliance on huge SUVs. Last year, Chrysler reported a loss of about $1.4 billion; hence the desire to reduce the work force to return to profitability by next year. "We believe that this represents a solid plan to return to profitability and lay the groundwork for a solid future," said Chrysler CEO Tom LaSorda.

Mercedes in Germany and Chrysler in the United States are taking different paths. On Wednesday while Mercedes announced its 132,000 workers would each receive a €2,000 bonus as a result of 2006 profits; Chrysler announced job cuts, plant closures and shift reductions. The Mercedes bonus is twice as high as the one following 2005.

Chrysler’s troubles, on the other hand, are immense. Earlier, DaimlerChrysler management said that divorce was not an option but on Wednesday, Dieter Zetsche, DaimlerChrysler CEO said that all options were being looked at and that a sale of the US-based automaker could not be ruled out. When asked about the company’s future plans Zetsche declined to comment. "I cannot and will not go into any further detail about the announcement we made today," Zetsche said at the Michigan press conference.

A divorce between Daimler Benz and Chrysler would mean the end of the 1998 dreams that has earlier rocked the industry. Schrempp even envisioned adding a Japanese automaker in the alliance to create the world’s biggest auto manufacturing company worldwide. However, difficulties started pouring in and the company’s performance became less than impressive.

Analysts also said extending the marriage could pose greater difficulties. This is because it is hard for the couple to produce entirely different vehicles. Mercedes ventures on a luxury brand image and high quality reputation, but Chrysler focuses on volume; with astounding competition on the side. As such, its vehicles have to be more affordable than its rivals to have a chance - hardly an excellent foundation for a life-long union. Critics concluded that they have to step on the brakes or lose their chance to bloom separate ways.

Source: Amazines.com