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Lessons From the Chrysler-Daimler Debacle. Organic Growth Trumps Synergy.

Posted by: Bruce Nussbaum on May 15, 2007

It is a verity that few in business believe but most mergers and acquisitions designed to produce “synergy” between two companies fail. It would be better to follow a second verity—organic growth from within is usually the best way to expand for most companies.

The enormous failure of the Daimler Chrysler merger at the same time that Toyota has grown to lead the US car market proves the point. Not only did Daimler fail with Chrysler, it also failed in its merger with Mitsubishi. Both mergers were part of Daimler’s strategy of going global through M&A. In contrasts, Toyota grew itself into a global auto power.

Why do most mergers fail? Mostly because they are top down, not bottom up. CEOs and senior managers see synergies and benefits that matter little, if at all, to consumers. Daimler thought that injecting German engineering into Chrysler cars would make Chrysler customers happier. It didn’t. They couldn’t care less. It might have benefited Daimler to have done some serious design research among consumers before jumping into the merger.

Daimler also thought that a merger would cut costs. That seems to have worked out but to what end? Today, cutting costs is something every car company does. It doesn’t require a merger, just better supply chain management. Or better relations with unions. Cerberus, the private equity firm that just bought Chrysler, now must deal with the cost issue. But even if it succeeds in cutting costs, it probably won’t be enough.

Rising Chinese car companies will out-cheap US car companies in a few years time. Chrysler—and Ford and GM—need innovation and design to succeed. Will the money guys at Cerberus get this? You tell me.

And check out Wilbur Ross, Mr. Dealmaker himself, on the deal.

Reader Comments

Mike Reardon

May 16, 2007 5:16 AM

Considering that the group buying Chrysler now has GMAC and now the financial arm of Chrysler Finance they sould use their distribution network and that finance to import Chinese car into the US. Lower cost car will do well if the wage income in the US does not take off. Giving them five or ten years to gain a foothold in the competition against Japanese and Korean car makers they can hold onto the Chrysler's American brand with higher end design products and create a lower end product from China.


June 14, 2010 12:47 AM

отлично написано, у автора прям талант

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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