DaimlerChrysler for East Asia
Introduction
On May 6 1998 the management board of Daimler Benz approved the $130 billion merger that created
DaimlerChrysler. The merger leapfrogged DaimlerChrysler into the big league of global automobile
manufacturers combining Daimler-Benz’s solid engineering and production techniques centered
around one of the world’s greatest luxury brands with Chrysler’s famed resilience and creative design
strength, especially in the light trucks, minivans, and sport utility vehicles (SUVs). The combined
firm ranked fifth in worldwide automobile production.
At some point during his attempt to successfully integrate DaimlerChrysler, Jurgen
Schrempp, the CEO of DaimlerChrysler, must have realized that there were two large gaps in his
strategy to create a truly global automotive manufacturer. The most obvious was the total lack of a
significant presence in East Asia. The other gap was a standard vehicle to sell in East Asia and other
growing markets. In the aftermath of the Asian financial crisis, Schrempp must have sensed both the
opportunity and the threat that the situation presented: the opportunity to enter markets where cultures,
legal restrictions, and ingrained competitors suddenly became loosened in wake of the crisis, and the
threat of other strong competitors staking out a share of the same market with more marketable
products before DaimlerChrysler could react. With the seismic shifts occurring in the industry,
Schrempp wondered what sort of strategy to pursue. Whatever strategy DaimlerChrysler chose would
have to take into consideration the ongoing worldwide consolidation, and existing industry
relationships in East Asia.
Consolidation in the Worldwide Automobile Industry
Daimler-Benz in Germany and Chrysler in United States made an announcement to merge on May tenth in
1998. They merged after a shareholders meeting in November to form DaimlerChrysler, the third largest

This case was prepared by Takashi Morishima, Gordon Stehr, and Hanaoka Yoshinori of Temple
University in Tokyo under the supervision of Professor Masaaki Kotabe for class discussion rather
than to illustrate either effective or ineffective management of a situation described (2001).
1/17
automobile manufacture in revenue after GM and Ford Motors, and the fifth largest in market share (see
Exhibit 1). It was the largest industrial merger ever. The merger was clearly driven by the industrial logic
and growth strategy to win in the global automotive market.
*** Insert Exhibit 1 about here ***
Several industry trends propelled the large automobile makers towards consolidation. First, the
worldwide market for automobile was maturing. Total automobile production in the world was 54.7 million
in 1997, 52.9 million in 1998, and 55.9 million in 1999 (see Exhibit 2). There was only a 2% increase in
two years, although the growth potential was higher in the markets of developing countries such as Asian
and Latin American countries. In a maturing market, competition among established companies tends to
intensify because someone’s gain in share means someone’s loss in numbers. Second, all markets but the
United States had far more production capabilities than required to satisfy domestic demand. According to
1999 statistics, every major automobile manufacturing country except the United States exported more than
40% of its domestic production (see Exhibit 3). Also it is a known fact that Japan and South Korea had
over capacities in automobile production because of Japan’s long recession and the Asian financial crisis in
1997. In a combination of maturing markets and over capacity it would be very difficult for any company
to grow by oneself.
*** Insert Exhibits 2 and 3 about here ***
Third, costs for developing new cars are mounting. Environmental technology such as an efficient engines,
which cut fuel consumption and CO2 emissions, and fuel cell technology, which eliminate CO2 emissions,
is becoming a more pressing issue as people become more concerned about the environment. Developing
these new technologies is a huge investment for one company. Also, as the market matures, the demand for
passenger cars is becoming more and more diversified, and, subsequently development costs for new
models are rising as automobile manufacturers try to accommodate the changes in demand. Bigger
companies can more easily bare these costs, and it is easier to buy established names than to build new
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plants in order to be bigger in maturing and over capacity markets.
Considering these conditions, it was
natural for automobile manufactures to start engaging in a wide range of strategic alliances and other
consolidation tactics.
Chrysler was basically a North American company.
It was strong in lower and medium priced
cars, and very strong in small trucks, minivans, and sport utility vehicles, but weak internationally.
Daimler’s Mercedes Benz was strong in the upper part of the automotive market in Europe, but not in the
US. Also, Daimler was considered to have an advantage in environmental technology, which Chrysler lacks.
Together, they became a full-range auto company, capable of competing in almost every area, equipped
with huge cash flow and technology around the world.
GM and Ford
The two largest automobile producers, GM and Ford, also had taken similar approaches as Chrysler,
although in a less significant fashion than DaimlerChrysler’s merger (see Exhibit 4). In 1998, GM already
owned a 100% equity stake in Opel, which produced about one-quarter of all German vehicle output, and a
49% equity stake of Isuzu, the ninth largest Japanese automobile manufacturer. Also, Ford owned a 34%
equity stake in Mazda, the fifth largest Japanese automobile manufacturer, and 100% equity stakes in
Jaguar and Aston Martin, both are small but respected UK automobile manufacturers.
*** Insert Exhibit 4 about here ***
After the merger of Daimler-Benz and Chrysler, GM increased its holding in Suzuki Motors of
Japan to 10% in September 1998, and acquired a 20% equity stake in Fuji Heavy Industries, makers of
Subaru automobiles, of Japan, and acquired a 100% equity stake in Saab of Sweden in January 2000. Ford
also acquired Volvo’s (Sweden) passenger car division in 1999. Furthermore, GM announced its intentions
to acquire a 20% equity stake in Fiat, which is sixth in market share, on March 13th in 2000.
However, after all this GM, the largest automobile manufacture in the world, still holds only a
4% market share in Asian Pacific region, but a 20% share of the world market and 10% share of the
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European market (see Exhibit 5). Automobile sales earnings of GM and Ford in Asia are minus $218
million for GM and plus $133 million for Ford respectively (see Exhibit 6). These amounts are not very
exciting when compared with almost $6 billion income for each company’s automobile sales.
*** Insert Exhibits 5 and 6 about here ***
DaimlerChrysler in Asian Pacific Region
DaimlerChrysler sold only 50 thousand cars in Japan out of 4.9 million productions (see Exhibit 7). This is
just 1% of production and a 0.8% share of the Japanese market although its Mercedes-Benz was the
best-selling foreign made car in Japan. Also the annual report listed no Asian manufacturer or important
subsidiaries in the area except one company in India. In conclusion, while GM and Ford’s presence was
weak DaimlerChrysler had no significant presence in the Asian region in 1999.
*** Insert Exhibit 7 about here ***
The East Asian Market
Production of motor vehicles in Asia reached 16,344,000 cars in 1999, and accounted for 29% of the world
production. The East Asian Market with a population of more than 1.7 billion is categorized into four
groups: Japan, Korea & Taiwan, ASEAN countries and China.
The general characteristics are that
Japanese and Korean automotive manufacturers are being restructured and realigned while Chinese and
ASEAN markets with huge growth potential are attracting most of the major players from all over the
world. More specific features are discussed below (See Exhibits 8 &9).
*** Insert Exhibits 8 and 9 about here ***
Japan.
Japan is a developed country and the domestic market is mature with 11 automotive
manufacturers. Production in Japan experienced its second straight year of decline in 1999 due to weak
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exports under the impact of the strong yen, and due to a downturn in domestic sales. This trend has
gradually affected each company’s financial status.
In addition, some companies have not yet solved their
domestic manufacturing over-capacity problems after shifting their manufacturing capacity overseas. Also
it is suggested that economies of scale, estimated to be 5 million annual production units for one group, will
be necessary for surviving in the coming environmentally-friendly and IT-oriented market of the 21st
century. In Japan only Toyota meets this criterion so far. As a result, consolidation is advancing in the
domestic market with distinct divisions along worldwide groupings so that Toyota, Honda, GM, Ford,
DCM and Renault groups are emerging and competing each against each other in Japan and abroad (See
Exhibits 10 & 11).
*** Insert Exhibits 10 and 11 about here ***
Korea and Taiwan. In order to recover from the downturn due to the Asian financial crisis, Korean
manufacturers are now being restructured and realigned. Daewoo Motors has been the subject of intense
offers from GM, Ford, DaimlerChrysler, and Renault. Recently Ford received exclusive negotiation right
from Daewoo’s creditors. Hyundai has also taken a stake in Kia Motors. Taiwanese manufacturers suffered
less because of a lack of investment in manufacturing capability, and lack of an export-driven market.
Both domestic markets are getting mature (See Exhibits 12, 13, & 14).
*** Insert Exhibits 12, 13, and 14 about here ***
ASEAN countries.
Due to the Asian financial crisis in 1997, the production in ASEAN nations,
consisting of Indonesia, Malaysia, Thailand, and India, decreased to 70% of the peak level recorded in 1996.
It may take 3-5 years to recover to pre-crisis levels, even though each country is seeking to stimulate
domestic demand by changing policies from protectionism to liberalization.
Japanese manufacturers
dominate ASEAN countries, except Malaysia. However, the markets still attract some major players due to
the high growth potential in these markets (See Exhibits 8 & 9 shown earlier).
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China. Although most automotive manufacturers are interested in the huge potential of the Chinese
market, it will take some time to penetrate into the market mainly due to the Chinese government’s strict
control. The government sets pricing limitations and regulations on local content and tariffs to prevent
ease of entry by outsiders. There are 2-3 big groups and 6-7 middle size groups. The industry is not
mature and the demand for trucks still strong. (See Exhibit 15)
*** Insert Exhibit 15 about here ***
East Asian Market Overview
As outlined, the East Asian auto market is quite diverse. In this market several trends exist. First there is the
presence of strong regional players like those in Korea. Second, East Asia is home to several national car
manufacturers like Malaysia’s Proton. Third are the global brands and manufacturers in Japan that not only
have a history of exporting to markets in East Asia but also have long-standing technical and equity tie-ups
throughout the region. Finally, until recently, is the total lack of any significant presence by major
American or European manufacturers in the area. This has allowed existing regional players to consolidate
their brand name and sales channels in this market.
DaimlerChrysler’s Strategy for East Asia
As Exhibit 16 shows, DaimlerChrysler’s vehicle platform and sales pattern are extremely weak in East Asia.
The Asian crisis presented the opportunity to quickly change this without forcing DaimlerChrysler into
investing in costly ground up production and sales channel facilities, or an expensive acquisition. Initially
DaimlerChrysler pursued Nissan, but fear over the actual extent of Nissan’s debt problems convinced
Schrempp to pass on Nissan. Honda was also considered, but Honda’s desire to remain independent as well
as the potential for cultural differences scuttled the negotiations. Convinced of the need for a partner
Daimler initiated discussions with Mitsubishi Motors in Japan. Mitsubishi seemed the optimum partner due
to its longstanding relationship with Chrysler.
*** Insert Exhibit 16 about here ***
6/17
In March of 2000 DaimlerChrysler and Mitsubishi agreed to a strategic purchase where DaimlerChrysler
would acquire 34.4% of Mitsubishi for $1.86 billion. This will give DaimlerChrysler needed access to
small car engine and platform technology, and to existing sales channels. More importantly, according to
the March 27 joint press release, the strategic purchase will mean that DaimlerChrysler Mitsubishi will
have a 10.4% market share in Japan and a 9.4% market share in other parts of East Asia. Not satisfied
with the Mitsubishi deal DaimlerChrysler initiated a strategic tie up with Hyundai Motors of Korea. For
approximately $486 million DaimlerChrysler Mitsubishi will obtain a 10% stake in Hyundai and a seat on
its board. In exchange Hyundai and DaimlerChrysler will engage in a 50:50 joint venture to develop
commercial vehicles and trucks for the Asian market, and will develop a small car platform “world car” for
East Asian and other markets (See Exhibit 17). In two dramatic moves DaimlerChrysler made significant
progress in achieving its stated goal of increasing sales in East Asia to 25% of total revenues.
Discussion Questions
1. What are the strengths and weaknesses of DaimlerChrysler’s Strategy?
2. How should DaimlerChrysler-Mitsubishi brand itself in Asia?
3. What cultural issues will DaimlerChrysler have to overcome to succeed with its strategy?
7/17
Exhibit 1
Rank/Company
1997 World
Market Share
1 General Motors
2 Ford Motor Co.
3 Toyota Motor Corp.
4 Volkswagen AG
5 DaimlerChrysler
6 Fiat Auto S.p.A.
7 Nissan Motor Co.
8 PSA Peugeot Citroen
9 Honda Motor Co.
10 Mitsubishi Motors Corp.
16.2%
12.9%
9.0%
7.9%
7.4%
5.3%
5.2%
3.9%
3.8%
3.5%
Exhibit 2
Automobile production (Units by thousand)
North America
South America
Western Europe
Easton Europe
Asia
World total
1997
14,694
3,870
15,453
2,468
17,516
54,695
1998
14,572
3,503
16,782
2,400
15,014
52,922
Exhibit 3
Export/Domestic Sales Ratio in 1999
Export
Spain
Sweden
France
Germany
UK
Korea
Italy
Japan
US
81.1
80.1
67.8
64.6
61.5
53.1
46.9
44.6
9.6
Domestic sales
18.9
19.9
32.2
35.4
38.5
46.9
53.1
55.4
90.4
8/17
1999
16,066
3,186
16,939
2,453
16,343
55,629
Exhibit 4
Acquisition Activities in GM and Ford Motor
GM
Before 1998
Name
Opel AG
Isuzu
09/16/98 Suzuki Motor
12/10/99 Fuji Heavy Industry
01/31/00 Saab Automobile AB
03/13/00 Fiat
Nation
Germany
Japan
Japan
Japan
Sweden
Italy
Equity stake
100%
49%
3.3% to 10%
20%
50% to 100%
20%
Name
Mazda
Jaguar,
Aston Martin
In 1999
Volvo
In May 2000 Land Rover
Nation
Japan
UK
UK
Sweden
UK
Equity stake
Ford
Before 1998
9/17
34%
100%
100%
100%
100%
Exhibit 5
Vehicle Unit Deliveries (units in thousand)
Total
19968
17419
2549
20138
3231
11610
54947
North America
Total US
Others
Europe
LAAME
Asia and Pacific
World total
Share
36%
32%
5%
37%
6%
21%
100%
GM
GM share
5706
28.6%
5017
28.8%
689
27.0%
1979
9.8%
536
16.6%
457
3.9%
8578
15.8%
Exhibit 6
Income in Automobile manufacturing in Ford Motor Co. and GM in 1999
Ford
Income($M)
Revenue($B)
Total
5721
137
North America
6137
100
Europe
28
30
Latin America
-452
2
Others
133
5
GM
Income($M)
Revenue($B)
Total
4981
146
North America
4822
115
Europe
423
26.2
LAAM
-81
4.7
Asia & Pacific
-218
3.2
Exhibit 7
DaimlerChrysler' Unit Sales (units in thousand)
EU
NAFTA
US
Japan
South Africa
Rest
Total
M-B Passenger
716
212
197
50
Chrysler
3052
2694
Commercial
267
193
172
102
1080
177
3227
43
51
555
10/17
Total
983
3457
3063
50
43
330
4862
Exhibit 8
Summary of the East Asian market in 1998
2) GDP per 3) Cars per 4) Domestic 5) Domestic 6) Export
Country
1)Population
Capita
1000 people
Sales
Production
Ratio
Japan
126.5
23,100
395
5,879
10,050
44.6%
Korea
46.4
12,600
227
780
1,954
69.7%
Taiwan
21.9
16,500
286
474
405
Thailand
61.2
6,100
100
144
158
32.1%
Indonesia
204.4
2,830
20
58
58
Malaysia
21.0
10,300
213
164
164
China
1,250.2
3,600
11
1,630
1,628
Notes
Million
US$ USA
484
Thousand cars
UK
461
Exhibit 9
Production (Thousand cars)
1997
Country
Total
Japan
10,975
Korea
2,818
Taiwan
381
Thailand
360
Indonesia
389
Malaysia
266
China
1,580
India
746
Asia Total
17,516
Cars
8,056
1,625
293
32
8
126
507
384
11,031
11/17
1998
CVs
1,994
329
112
126
50
7
1,121
244
3,983
Total
10,050
1,954
405
158
58
134
1,628
628
15,014
1999
Total
9,895
2,843
350
327
89
205
1,830
803
16,344
Exhibit 10
Japan by make in 1999
Manufacturer
Daihatsu
Fuji
Hino
Honda
Isuzu
Mazda
Mitsubishi
Nissan
Nissan Diesel
Suzuki
Toyota
Total
(Note. Imports in 1999 were 271,000.)
2)Domestic
3) D. Sales:
1) Domestic Production
Market
Export:
(Thousand cars)
Share
Overseas
Cars
CVs
Total
for Cars
Production
479
183
662
8.2%
395
86
481
5.3%
40
40
0.7%
1,143
77
1,221
16.5% 1: 0.66: 1.76
38
223
261
1.8%
705
76
781
6.1% 1: 1.51: 0.47
753
261
1,014
7.8% 1: 0.73: 0.48
1,210
175
1,385
13.7% 1: 0.79: 1.86
23
23
0.2%
679
230
909
9.9%
2,699
419
3,118
27.1% 1: 0.90: 0.97
8,100
1,795
9,895
100%
12/17
Exhibit 11
Japanese automotive manufacturers' alliances with world major players
European
Japanese
American
Daihatsu
51.2%
50%
VW
Toyota
Car supply
NUMMI
33.8%
Car
supply
Hino
Suzuki
10%
Isuzu
49%
50%
GM
20%
49%
Fuji
SIA
Isuzu
51%
Honda UK
100%
100%
Honda
34%
DCM
Ned Car
(Plan)
97.1%
Mitsubishi
50%
50%
Honda USA
MMMA
Parts supply
Car
DCM
5% each
supply
Volvo
36.8%
Renault
100%
Nissan
22.5%
22.5%
Nissan D.
Ford
50%
Ford
Car
Mazda
Supply
33.4%
50%
in Europe
13/17
AAI
Exhibit 12
Korean production by make (Thousand cars)
1997
1998
Hyundai
1,301
845
Kia
614
363
Daewoo
607
411
Daewooshop
156
248
Samsung
42
Others
140
45
Total
2,818
1,954
Exhibit 13
Korean manufacturer’s’ alliances with world major players
American/European
Korean
10%
DCM
1.4%
Hyundai
(Plan)
100%
Kia
GM
Renault
Daewoo
Alliances
Japanese
Samsung
Source: 1999 Nihon Jidosha Kogyo
14/17
Mitsubishi
Exhibit 14
Taiwanese sales
Automaker
China Motor (Mitsubishi)
Kuozui Hua Tung (Toyota)
Yue Loong (Nissan)
Lio Ho (Ford/Mazda)
San Yan (Honda)
CapitalParticipation Sales in 2000
14.6%
35,348
46.6%
64,094
25.0%
72,733
45,331
13.5%
37,343
Exhibit 15
Chinese production (Thousand cars)
China First Auto
Shanghai Auto
Dongfeng Motor
Changan Auto
Tianjin Auto
Beijing Auto
Others
Total
1998
290
236
191
115
155
82
559
1628
1999
341
257
206
171
129
121
605
1830
Market Share Alliance
18.7%
14.0%
GM/VW
11.2%
9.0%
Suzuki
7.0%
Toyota
6.6%
33.5%
100.0%
15/17
Exhibit 16
DaimlerChrysler's Worldwide Footprint
Location
Vehicle Type
North America
Passenger Cars
Chrysler Group
Commercial
Vehicles
Total
Passenger Cars
Chrysler Group
Commercial
Vehicles
Total
Passenger Cars
Chrysler Group
Commercial
Vehicles
Total
Passenger Cars
Chrysler Group
Commercial
Vehicles
Total
Passenger Cars
Chrysler Group
Commercial
Vehicles
Total
Passenger Cars
Chrysler Group
Commercial
Vehicles
Total
Europe
Asia
South America
Oceania
Africa
Production
Locations
1
41
11
53
8
2
15
25
4
3
1
8
1
4
2
Sales Locations
508
5,167
508
3,460
28
3,460
79,354
24,352
2,840
13,728
149,070
92,400
2,159
55,327
629
25
629
40,920
3,101
409
517
149,886
328
420
1,246
466
23
466
4,027
350
780
1,346
1,994
1,330
1,254
11,886
197
5
197
2,476
440
134
266
14,470
0
0
0
259
7
259
840
677
156
430
0
3,503
13
0
1,263
3,516
7
0
2
1
1
4
16/17
Revenue (Mil Personnel
EUR)
9,180
1,898
59,766
125,549
10,408
21,623
Exhibit 17
DaimlerChrysler's Planned World Car Project
Production Year
Production Location
Target Market
First Half 2002
First Half 2002
Second Half 2002
2003
Korea (Hyundai)
Korea (Hyundai)
Japan (Mitsubishi)
Europe (DaimlerChrysler)
Korea
China
Japan
Europe
17/17
Estimated Production
Volume
300,000 - 350,000
100,000 – 150,000
100,000 – 200,000
250,000 – 300,000