The culture clash heard 'round the world

HOLDEN: In early '98 it bubbled up again. By then they had a new chairman, Juergen Schrempp, and he was an acquirer.

He decided to propose the bigger deal. I don't know who he spoke to first or if he did it through a third party, but eventually Eaton got involved and he got me involved to take a look at it. We had about a three-month window where we had to keep our mouths shut.

I didn't [tell my wife] until we got very close. One, I didn't know if it would blow up and two, I just didn't want that obligation on her. She knew I was under plenty of pressure and so I did not tell her, and I was dying to.

LUTZ: Basically, I introduced Juergen Schrempp to Bob Eaton and they basically disappeared into Bob Eaton's office for a few hours, and that was the beginning of the merger process.

Stallkamp and Eaton called all the officers up to the boardroom one day … and that's when they told us what was going on. The thing I remember most vividly is Stallkamp presented a slide. … They had studied who potentially the best partners might be for Chrysler. And the No. 1 choice was BMW. No. 2 was Daimler-Benz.

Chrysler had been an industry darling during Eaton's five years as CEO after the retirement of Lee Iacocca.

HOLDEN: Chrysler had had so many ups and downs over the years, and in about '91, when we moved into the new tech center [in Auburn Hills, a suburb of Detroit] it was a catharsis. All of the sudden everybody was in the same place. The Highland Park complex we'd been in was an old Maxwell assembly plant with buildings everywhere. Everyone was in their own buildings, which created silos. Lutz, to his credit, pushed hard to create the concept of everybody belongs on every team for product platforms and the like. But that was a difficult concept to initiate while we were still in the silo buildings.

By 1996 we'd built the tower and moved everybody there. You had an entire car company, except for the people who ran the individual assembly plants, all in one place. We ate together, we worked together. Before, if you had to meet Tom Stallkamp or Francois Castaing and you went to a separate building, their territory. It was all our territory. It was one company. It made a huge difference and I think it accelerated what Lutz and Eaton were trying to do.

So, when it came to proposing something as big as this merger we were a pretty tight-knit group. It was a lot easier to discuss it with other officers. We were together constantly.

HARRIS: We were fiercely protective of the feeling that Chrysler could do it on its own. Most of us felt like if we could we'd prefer that course of action, because you look at the history of mergers and acquisitions and they rarely worked out as they were advertised. … But Bob [Eaton] and other people on the board felt very much like we weren't going to be able to do it on our own.

HOLDEN: It was one of the questions we asked ourselves in an off-site: "We're fine now, we're doing great." Fortune magazine in '96 said we were the best-managed company. We were riding high, but we also knew how quickly the lows could hit you in our business and we kept asking, "OK, we're fine until 2000, probably until 2005, but what do we look like in 2010 or 2025?" There was always a bit of a cloud — "are we big enough to really sustain and maintain this?" That's what caused us to be interested. That question was right because in 2008, 2009 there was a cataclysmic event.

As negotiations proceeded in the early months of 1998, the two companies increasingly looked like a perfect match.

LIEBLER: My God, if you had gone to bed last night and thought about merging with any other company could you even have imagined it would be Mercedes? And the answer was no, you couldn't imagine it. I thought it made sense.

We said, "Well, we've got speed to market that they don't have, we've got a more contemporary design that they don't have and we have an established U.S. distribution network, a dealer network that they would really love to get their hands into."

So, we thought that's our contribution to this thing, and they on the other hand had a reputation for quality, a real engineering know-how, and they had the international distribution that we didn't have and we were trying to grow the business internationally. The other thing they had was money and we thought, "Well, maybe we'll get some more money for product development," so it all felt really, really good.

HARRIS: It was exciting. There was a lot of optimism about what might occur between the two, but one of the things that tempered that was that it quickly became obvious that these were very different cultures, very different attitudes about how work was accomplished and the thought process that goes into it, whether it's events or products, or whatever. You were bringing together two different organizations. That was perplexing at the same time that you were excited about the potential. You were concerned about how you were going to work together.

LIEBLER: Right away, there was tremendous emphasis on this idea of a "merger of equals." We are going to work together, we are going to be partners, do things for each other, it's all going to be great. And we actually started to believe it.

Eaton, 58 at the time, and Schrempp, 53, vowed to operate jointly as chief executives, but the Chrysler contingent began to have doubts.

LUTZ: [I knew there was a problem] when I saw that Bob Eaton was going to be walked all over by Juergen Schrempp. That was obvious almost from day one. Schrempp wasn't even tactful about it. We had two equal offices on the top floor of the Auburn Hills building. The one facing west was Bob Eaton's, the one facing east and south was mine. Juergen Schrempp moved into mine and he immediately pulled out a big cigar in front of a lot of people at the [first] meeting. [Eaton said] "Juergen, hah, I have to remind you that Chrysler is a total nonsmoking company" and Schrempp said: "It was until now. I hereby declare this floor to be an authorized smoking area, and he lit up." Eaton didn't do anything. Everybody sat there with eyes as big as saucers waiting for Bob Eaton to say, "Excuse me Juergen, could you step outside with me for just a minute?"

You don't have the confrontation in front of the people, but you do go outside the room and then you say, "Juergen, you are violating Chrysler policy. This is supposed to be a merger of equals. Kindly remember that when I'm over in Stuttgart I'll obey your rules and when you're here you obey ours. Is that clear?" And then you go back into the meeting. Bob Eaton just sat there with a beatific smile on his face. Then later, I don't know if it was the same day or the same week, they went down to lunch in the executive dining room, open to all managerial people, and Juergen says, "So what's on the menu today," and the girl comes and tells him, and he says, "and are you serving a nice white wine with the fish?"

Bob Eaton says, "Uh, Juergen, this is America and you can call us prudes, but we don't serve alcohol for lunch here," and Juergen says, "Well that's ridiculous." He gets the girl over and says, "Look, I want a bottle of wine" and she says, "Mr. Schrempp, sorry sir, we don't have any." He pulls out a $100 bill and gives it to her and says, "Have one of the drivers go to a nearby wine store and buy five or six bottles of a decent white, make sure it's chilled, and come back as quickly as you can."

She comes back in about 20 minutes with the wine and Juergen Schrempp … gets the glasses and everybody at the table has wine and they're all looking at Bob Eaton and Bob is just sitting there with his innocent little smile on his face. Those were the signals that he was disenfranchised.

LIEBLER: When Bob Eaton announced he was only going to stay for a year or two or whatever, that to us was the beginning of the end. We knew we were all in trouble because that said obviously Juergen Schrempp was the man in charge, and he acted as though he was the man in charge. It seemed to go downhill from there.

THEODORE: The stories about Schrempp are all true.

LIEBLER: Schrempp had great charisma and he was a great cheerleader. He was a stern taskmaster, but you could follow that guy, you could believe him. He was a smart guy and he'd done a lot. But after a while it all seemed to be going one way and it wasn't ours.

HOLDEN: I could say [Eaton's decision to announce he would leave within three years] was reasonable planning on his part, but we were all concerned that we were going to lose the co-chairman. We had already ceded away the CFO [Chrysler Corp.'s Gary Valade, who instead became head of purchasing under DaimlerChrysler]; it was going to be [Daimler executive Manfred] Gentz.

That's a big power position. That was a concern, and that's kind of the stuff that consumed the Chrysler side of senior management.

There was a big debate about my title, because, in Germany, they don't have presidents. I was president of Chrysler, and then they said, "Well, you can be president of the DaimlerChrysler Group."

"What's that?" I said.

And they said, "Well, that's Chrysler."

I said, "Well, OK. That sounds all right to me."

HARRIS: The personality of the organizations were very different, even in communications. Their style was to lock in early on what you want to do and execute to the nth degree. Our personality was to keep creating, keep innovating, maybe we'll come up with a better way or more clever idea and trust that we can pull it off in time for the execution date. That was a very different style. Both were good, it's just that they were different. That made it interesting trying to get consensus around something. Or if somebody at Chrysler came up with a better idea for how to do something, it was tough because [Daimler-Benz] had already locked in on the direction they wanted to go.

LIEBLER: From a marketing standpoint, when it first started we came out with the line, "expect the extraordinary," and we believed that stuff. Inside the company they were talking about one company, one vision, about working together and sharing technology and becoming this great global enterprise which made sense, until it didn't.

All of a sudden … the Daimler people treated Chrysler people sort of like second-class citizens and they made it very clear that they were in charge. We'd tell them how we did things and how we went about our business and they quickly tell us how they did things and how they went about their business and that theirs was better than ours.

STALLKAMP: They had all these other business units. We called ourselves the 23rd business unit, because by the time we joined together, they had 22 other groups. They had a company that did the trolleys in Austria, they had the part of Airbus and they had all these other businesses — a credit card company. We were the largest single component, but we were the 23rd business unit, and that's when I began to realize that we were going to be treated, not as a merger, but as just another one of the units, even though we were pretty big.

THEODORE: I decided to meet with my counterpart [at Mercedes, head of vehicle development] Helmut Petri, who was a wonderful man. He was a manufacturing guy who had taken over product development.

I met with Helmut behind their stand. I told him, "I'm willing to work with you, I'm willing to work for you." I shared our team approach, our CAD systems, which were very advanced at the time.

He was touched. He said, "Chris, this makes all the sense in the world, but we cannot do this. You don't understand: We don't want Chrysler to tarnish the three-pointed star." They were fearful that we would tarnish the three-pointed star!

HARRIS: They were very protective, and rightfully so, of the Mercedes brand. Anything that sort of showed equivalence or equality was difficult for them to deal with.

It was the little stuff afterwards that drove us nuts. It was the throwaway "we'll get to it after the merger" stuff. Those were the things that began to sow some seeds of unrest — contracts for key executives and how long were the contracts and what were the terms.

There was some concern that we had co-CEOs, but many of us were surprised that Bob Eaton was going to leave.

The cultural differences made it hard to achieve the synergies that had been the great attraction of the deal. Actually, Lutz felt the Daimler executives had been too sensitive to Chrysler's feelings.

LUTZ: You cannot acquire a company and not pursue the economies of scale that are there for the picking. With a "merger of equals," you really couldn't do that because … we retained two CEOs. That was the mistake right there. Two purchasing departments, two finance departments, two engineering groups, multiple design centers. Everything went on as before. It turns out it wasn't really a merger of equals, it was an acquisition by Daimler and at that point Juergen Schrempp should have said, "I'm the CEO," which he later did, and they should have drastically reduced the size of the engineering activity, purchasing activity, finance.

LUTZ: I'll tell you where it went south. What Daimler was hoping to get out of the deal was access to low-cost mass-produced vehicles, i.e. Chrysler and Dodge. And once they got in and did the analysis … they found that a Dodge Stratus or a Chrysler Cirrus was within a couple of bucks the same cost as a Mercedes C or E class. There's no surprise there. Everybody uses the same technology, the same materials, the same amount of steel, the same assembly process, the same Tier 1 and Tier 2 suppliers, the same equipment suppliers. Technologically they have exactly the same content. So, Mercedes was greatly surprised because they thought they had bought a low-cost producer, and they found out the cost was pretty much the same as theirs.

THEODORE: As best as I can recall, virtually none of the synergy teams bore hardly any fruit. But I remember one: building the ML320 in Graz, Austria, alongside the Jeep [Grand Cherokee]. But only if they came out separate doors from the factory.

LUTZ: The acquiring company has to be able to impose its culture, its methods and its rules on the company being acquired. It is as simple as that. At some point you have to say, "Look this is the new company, this is how we do it. If you don't like it, you are free to go." If you want it to work, you have to be that brutal. They were in some ways much too kind and in other ways unrealistically uncompromising.

For instance, when they set sales goals, they just said, "here's what we want you to do for the rest of the year. [Sell] this many Jeep Grand Cherokees, this many minivans." The Chrysler guys say, "Well, OK, all right," and they'd do all kinds of brand-damaging stuff to try to move the iron, but at least they'd get through the year. But in other areas, almost nothing was done. Chrysler didn't adopt any Mercedes architectures, Mercedes didn't adopt any Chrysler architectures, and yet you had stuff as ridiculous as both companies producing an all-aluminum 3.2-liter overhead cam 24-valve V-6. That's silly. You would think that at some point someone would look and say, "We're producing two engines of equal engineering quality, equal durability, equal output with exactly the same displacement and the same mechanical characteristics. This is a waste."

There is not a Mercedes customer in the world who would have noticed that this 3.2-liter engine was made by Chrysler as long as it had Mercedes valve covers on it.

THEODORE: There was no sharing of chassis components until Dieter [Zetsche] came over. You wouldn't have the LX, you wouldn't have the [Grand Cherokee], until that point in time. We'd talked about it. We asked for it. We wanted those synergies, but they weren't coming.

Stallkamp's ouster in the fall of 1999 was the first real public indication that the partnership was teetering.

HOLDEN: Stallkamp had his moments. He just wouldn't put up with their noise much. On some points I could have argued that he could have been a little more understanding. But Stallkamp was asked to leave, and shortly thereafter I was in the same position and found myself doing exactly what Tom had been doing.

We'd had a board meeting in Paris and it hadn't gone particularly well, and you could tell that it was morphing into the shirts and skins. Schrempp took his team — we were in an outdoor cafe bar after the thing for dinner — and Schrempp took his German team and sat at one table and the Americans sat at the other table. You could tell it was going down the tubes fast. [A former Chrysler executive came into the cafe] and I took him over to introduce him to Schrempp. We just got cold-shouldered, and at that point I knew it is going nowhere.

Stallkamp was president for about a year and a half, and I think that's about all I got. It was becoming increasingly obvious that until they were able to install people they knew and trusted better than the people who had come along with the merger, it was going to be a very difficult thing.

What if Lutz rather than Eaton had been Chrysler's CEO when Schrempp came calling. While Lutz regards the question as "almost impossibly hypothetical" he says,"I might have been in favor of the deal, but I don't think I would have been at that time." But if the deal had already happened, he believes he would have been able to face down his German counterparts.

LUTZ: I certainly would not have been the pushover that Bob Eaton was. I would have been much more active in protecting the interests of the company and frankly in pushing … the Daimler guys into some meaningful consolidation so that we actually made some money off of this thing by saving a bunch of money by sharing products and so forth.

There were amazing possibilities out there. All the things we could have done that weren't done. I would have behaved differently and Juergen Schrempp knew it and that's why — let's put it this way, I was still around for a few months, but I was told, "Don't bother coming in," because I was the person who could have eliminated all the BS going on in both sides. … I would have acted as a cultural bridge. Both Juergen Schrempp and Bob Eaton were very eager to see me depart.

HOLDEN: I wouldn't disparage Bob [Eaton], I was disappointed that he wasn't able or chose not to stay longer as the co-CEO [to] try and push the merger through [and achieve] more balance between the two sides. But the stuff he did when he came in '92 … he did a lot of really good stuff. He had a fresh eye on the company.

I think in hindsight you could say he could have been tougher at the time of the merger, but we were riding high … while he was there. He was good for the company.

STALLKAMP: The last, final decision we made — and Lutz and I were in on this — we were going to call it ChryslerDaimler. We kind of joked, because we knew this was going to be a hard sell. And Eaton kept telling all the Chrysler guys, "Don't worry; we're going to be Chrysler — ChryslerDaimler." And so I told people that, and they would ask, "How can you be sure of that?" And I said, "Well, it's alphabetical — C comes before D — we're going to be ChryslerDaimler."

People looked at me and thought I was absolutely crazy, and that it would never work. So, we're in the board meeting, we're all voting, and Eaton brings us out and brings Lutz and I into this little room, and he says, "Well, there's just one little hiccup. It's going to be DaimlerChrysler." And Lutz just rolls his eyes and takes his cigar and looks at me, and we just laughed. It was so predictable, because there was no way that it was going to be ChryslerDaimler, but we carried on that facade for quite a while. There are a million stories like that."

After Theodore left DaimlerChrysler to join Ford in 1999, he received a phone call from Schrempp's secretary.

THEODORE: She says, "Mr. Schrempp wants to meet with you at the Ritz-Carlton in Dearborn on such and such a day." I went to Ford CEO Jacques Nasser and said, "They called me up, and I don't really want to take this meeting." He said, "No, take the meeting, but tell them you left and that you're a competitor. You can't give them any advice."

Schrempp says to me, "Well, will you come back?" And I said, "No. I made my decision and I left."

Then he said, "Well, where have all the leaders gone?" And I said, "Well, a lot of the leaders have left."

"Like who?"

"Well, [Chrysler manufacturing chief] Denny Pawley's gone, Francois [Castaing] had left, [manufacturing specialist] Sham Rushwin left, others left — we lost a large portion of the management team."

He said, "What would you do? What's your recommendation for me?" And I said, "You're a competitor now. I can't give you any recommendations." And [Schrempp] says, "But, you know, what would you do?"

I told him: "I think you've got a pretty good assessment about Mr. Eaton."

[Schrempp] says, "Don't worry about Mr. Eaton; We have a plan for him." That's a quote: "We have a plan for him." He had a plan for Mr. Eaton, and that was kind of the story. It was shortly before they fired Stallkamp.

It could have been good, but it wasn't. That's the long and short of it. It's a great case of "how not to."

HOLDEN: We gave it every effort and we couldn't make it work.