Chrysler - Case Study

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In January 1998, Jürgen Schrempp, CEO of Daimler-Benz A.G., approached Chrysler Corporation Chairman and CEO, Robert Eaton, about a possible merger, acquisition, or deep strategic alliance between their two firms. Schrempp argued that: The two companies are a perfect fit of two leaders in their respective markets. Both companies have dedicated and skilled work forces and successful products, but in different markets and different parts of the world. By combining and utilizing each other's strengths, we will have a pre-eminent strategic position in the global marketplace for the benefit of our customers. We will be able to exploit new markets, and we will improve return and value for our shareholders. 1

Schrempp recounted, "I just presented the case, and I was out again. The meeting lasted about 17 minutes. / don't want to create the impression that he was surprised. When the meeting was over, / said; 'If you thin I'm naive, this is nonsense I'm talking, just tell me.' He smiled and said, "Just give me a chance. 'We have done some evaluation as well, and I will phone you in the next two weeks.' I think he phoned me in a week or so. ,,2

Independently Eaton had concluded that some type of combination of Chrysler with another major automobile firm was needed: the firm was .currently financially healthy, but industry overcapacity and huge prospective investment outlays called for an even larger type of global competitor. Before seeing Schrempp, Eaton had polled investment bankers for their ideas about a major automotive merger, .and had spoken with executives from BMW on this topic.

Eaton replied positively to Schrempp's idea of an industrial combination. Now lay ahead the task of forging the details of the agreement to combine. Robert Eaton appointed a small task force of business executives and lawyers to represent Chrysler in the detailed negotiations. Eaton challenged this team on ∗

This case was prepared from public information by Professors Robert Bruner, Petra Christmann, and Robert Spekman and by Assistants Brian Kannry and Melinda Davies. This case is intended to be used in a negotiation exercise with "Daimler-Benz A.G.: Negotiations Between Daimler and Chrysler" (UVA-F1241). The financial support of the Darden Partnership Program and the Darden School Foundation are gratefully acknowledged. Copyright @ 1998 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved


several counts: exploit the benefits of combination; preserve and strengthen the Chrysler brands; minimize the adverse effects of combination on employees and executives; and maximize shareholder value. Eaton reflected on the varieties of terms the Chrysler team might seek, and immediately convened a meeting to begin planning the team's negotiation strategy. Eaton said, “My number one criteria is that [any deal) has got to be a long-term upside with no negative short-term impact. It's got to be good for the shareholders. That's my-and my board's-fiduciary responsibility.” 3

Chrysler Corporation
In 1920, Walter P. Chrysler, a multi-millionaire and the president of Buick at age forty-five, stormed out of the head office of General Motors with the prospect of starting his own car company. The Chrysler Corporation was officially launched in 1924 with the introduction of the Chrysler Six and rapidly grew to become the third largest automaker in America. While Chrysler managed to survive the Great Depression intact, labor problems and rampant mismanagement brought the company to the brink of financial ruin multiple times (e.g., 1956, 1965, and 1993), but most notably in 1980. Under the leadership of Lee Iacocca, and with the support of federal loan guarantees, Chrysler managed to turn itself around one more time, returning to profitability in 1982. While the late 1980s proved tough for the industry as a whole, the introduction and...
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