• Missing the woods for the trees. Strange many people do just that - Madhavan Gopalachary.
Daimler Benz is an awe inspiring global name and a highly respected and valued German auto brand. Chrysler was the traditional number 3 in the US auto industry in the past followed by AMC and its acquisition by it before the onslaught of Japanese and Korean invasion. It had its own strengths in niche markets and was the market leader in minivan sales and Jeep, a vehicle highly suitable for rough terrains for the commons. Almost all armies use Jeeps all over the world. You will find it in every nook and corner in the developing world's villages for transportation. The legendary manager Mr. Lee Iacocca had brought Chrysler from the brink of bankruptcy and closure before retiring. In 1997 it had gross revenue of 60 billion dollars and a profit of 1.5 billion dollars approximately. Daimler paid an amount of USD 37 billion for the acquisition in 1997. It was considered an ideal marriage - German engineering excellence and thoroughness, along with Chrysler's American style marketing, innovation and entrepreneurship.
After 10 years and continuous losses Daimler decided it had enough of Chrysler. It decided to sell 80% of the business for a sum of USD 7.5 billion dollars to a LBO firm called Cerberus. The 20% was retained to keep the Daimler Benz flag flying in USA. However, the most surprising part of the deal is that the sum of USD 7.5 billion it was paid was to be retained by the new buyer of Chrysler for its development. It is quite funny. You sell part of your house. The new owner asks you to put the money he paid you in developing his part of the property and you end up sucking your thumb. It is obvious that Daimler was down and out and had absolutely no power to negotiate or bargain. How did a global giant with a worldclass reputation for quality reach such a stage? What made them sell out in the world's largest auto market and become a marginal player? What made them accept such a low price? There may be plenty of reasons on their side but here are a few of mine:
1. The acquisition price was very high. The projected cash flow and payback period never took into consideration economic downturns that occur regularly. In an A&M, it is the brokers and lawyers who end up laughing all the way to banks most of the time.
2. Daimler did nothing to bring in new products. It tried to milk the existing cash cows and made them run a dry in the first few years which are critical. As a result, no new products were in the pipeline when it needed them most. This mistake is committed by most when they acquire companies. They act like predators and not investors. Very few predators make good managers. One must have enough reserves to pump in after the acquisition. One should not empty one's purse.
3. There was a cultural mismatch. They should have opted either for American style or German style of management. They made a hodge podge porridge of both work cultures. This resulted in some very good and key people from Iacocca's days leaving the organization. The oft quoted saying in giant organizations is that 'nobody is indispensable'. It is an arrogant loser talk. It is also the cases of grapes are sour. There are some people in the world that can make or break an organization and their values are realized only when they are not there.
4. First rule in any business is that you protect and nurture your established brands. Chrysler's strengths were in minivans and Jeeps. It was known for providing reasonably good cars at affordable prices. It let go its market leadership in niches where it was strong. What was its board doing? How many Mercedes Benz's were sold in the last 10 years?
5. Finally, I am not able to understand as to why it sold out at such a low price and for such terms. What were the compulsions? The timing of purchase and selling was all wrong. Why it couldn't wait? It was supposed to be run by industry professionals. If giant organizations are run by such professionals, then even God cannot help in saving them.
The above are basics and common sense. One need not be a genius to figure them out. There is an old English saying. Missing the woods for the trees. Strange many people do just that.
© Copyright, Written on June 12, 2008. Without prejudice. All rights reserved
How to make a mess of an acquisition - Daimler Benz Style? - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name
/mtg.html;
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
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