When DaimlerChrysler was created one year ago, it boldly declared it would become the world's leading automotive company for the 21st century. A merger of equals. A perfect fit.
But so far things haven't turned out that way.
Merger savings were modest. Chrysler shareholders have gained value since the merger was announced in May 1999, but Daimler-Benz AG shareholders have lost ground.
Chairmen Jrgen Schrempp and Bob Eaton set out to integrate the two proud companies quickly. But the company decided in September that full integration was too difficult and reorganized its operations. Instead of a combined automotive division, DaimlerChrysler now has three independent automotive divisions - for Mercedes-Benz/Smart, Chrysler and trucks.
'The fact that they are living separately right now is probably recognition of the problem,' said E. Han Kim, a professor at the University of Michigan Business School in the USA and an expert on mergers and acquisitions.
For now, both sides of the Atlantic are at relative peace as separate operations. And the most recent earnings report suggests the merger is starting to bear financial fruit.
But this quiet period cannot last if the merger ever will live up to its rhetoric - and fully satisfy shareholders. The company must find meaningful and long-term ways to boost sales and save money, such as significant sharing of components and platforms.
Eventually, greater overlap must take place between the two businesses to achieve any real synergies, said John Casesa, an automotive analyst with Merrill Lynch in New York.
Wall Street was the first to judge that the merger was falling short of its initial promises.
The stock plunged from a 52-week high of $108.63 in January to a low of $65.31 in mid-September. It closed at $70 on Thursday, November 18.
Jim Holden, president of DaimlerChrysler's North American operations, acknowledged that the merger saving of $1.4 billion this year has been realized from short-term projects.
'We've barely scratched the surface,' Holden said. 'The big synergies going forward, on the automotive side at least, we couldn't even begin to get at. So the $1.4 billion is just the tip of the iceberg.'
The Automotive Council, a panel of executives including Holden from the company's three separate automotive divisions, will be responsible for seeking ways to combine operations, he said.
The company could still find huge savings by looking at componentry that has not yet been engineered, Holden said.
The goal is to find common architecture and componentry between the two automotive divisions, and possibly across the commercial truck division as well, he said.
However, it is not clear how soon DaimlerChrysler will achieve these savings. By keeping its auto operations separate, it sent a clear signal it was in no hurry to force common platforms and components.
Eaton has asked for patience. Further integration will fall mainly on the Automotive Council.
'A lot of the stuff that they are starting to work on, where we're sharing components and things going forward, take a considerable amount of time to develop,' Eaton said. 'That will be the primary way that we drive synergies going forward. You're seeing some now. The Grand Cherokee will start using the Mercedes diesel engine and automatic transmission. We're working on new vehicles like the Java that will benefit tremendously from the components and so forth that the new company has.'
Day One - November 17, 1998 - opened on an optimistic and festive note as DaimlerChrysler's stock began trading on the New York stock exchange. A single class of DaimlerChrysler stock is traded on 19 exchanges around the world.
But soon after integration teams began an exhaustive search for synergies, that is, ways to combine operations and reduce costs, the perfect fit began to create friction.
A handful of high-profile executives from the company's Auburn Hills, Michigan, headquarters left to work for competitors or retired. Morale suffered in Auburn Hills from poor communication and uncertainty.
DaimlerChrysler was dropped from Standard and Poor's 500 stock index, a move that took the automaker off the shopping list of index funds and some mutual funds. After second-quarter earnings failed to meet Wall Street expectations, the stock price plunged.
And there was more turmoil to come. Tom Stallkamp, the well-regarded president of North American operations and the man in charge of integrating the company, was replaced by Holden in a September 24 management shake-up. The automaker's board of management was reduced from 17 to 14 members.
Then, as if acknowledging that its merger plans were too ambitious, DaimlerChrysler announced a new structure that essentially left the old companies intact. Instead of a combined automotive division, DaimlerChrysler has three independent automotive divisions.
Mercedes-Benz remains an island, carefully kept at arm's length from the Chrysler, Plymouth, Jeep and Dodge brands. The American brands form their own division to carry on much like the old Chrysler Corp. Commercial trucks are the third vehicle division.
Holden, who is head of the Chrysler-Plymouth-Jeep-Dodge Division, said that the separate automotive divisions should not be misconstrued as a retreat from integration.
DaimlerChrysler realized that it must have the ability to run relatively autonomous automotive divisions and not become an automotive conglomerate, Holden said.
'What I'm reaffirming to our folks is there's an awful lot of great things that came as a result of the merger, but it doesn't mean that everything changes,' Holden said. 'There's also a great obligation inside each of those business units, and for me, the Chrysler-Plymouth-Jeep-Dodge business, to keep our eye on the ball of what made Chrysler the great company that it was before.'
Holden wants to maintain characteristics of the old Chrysler that made it successful - in particular, its speed, innovation and cost consciousness. Although Holden does not see morale as a critical problem, he said communicating effectively must be a priority.
'With effective communication comes improved morale,' Holden said. 'I think we lost a little bit of our ability to communicate regularly and informally with our troops.'
Throughout DaimlerChrysler's inaugural year there was one constant. Eaton and Schrempp never tired of plugging the work of the integration teams as they scoured the company for ways to combine operations.
Eaton said the automaker will achieve or slightly surpass its $1.4 billion savings goal this year. The $1.4 billion represents 1 percent of gross revenues. If the company achieves its $3 billion target, that will represent about 2 percent of gross revenues.
Credit Suisse First Boston, which advised Chrysler during its merger deliberations, studied a variety of mergers.
It found that cost savings from synergies were at a level of about 2 percent of revenues in a majority of the mergers studied.
Said Eaton: 'I think we've achieved excellent results.'