Case Study for classroom

Case: The Best-Laid Plans Chrysler Hits the Wall

In 1988, after Germanys Daimler-Ben acquired Chrysler, the third largest U..
aut!m!"ile manufacturer, t! f!rm Daimler-Chrysler, many !"ser#ers th!ught that
Chrysler $!uld "rea% a$ay fr!m its tr!u"led U.. "rethren, &!rd and General
'!t!rs, and (!ins the ran%s $ith the )a*anese aut!m!"ile ma%ers. +he strategic
*lan $as t! em*hasi,e "!ld design, "etter *r!duct quality, and higher *r!ducti#ity
"y sharing designs and *arts "et$een the t$! c!m*anies. )urgen chrem**, the
C-. !f the c!m"ined c!m*anies, t!ld shareh!lders t! /e0*ect the e0tra!rdinary1
and $ent !n t! say that Daimler-Chrysler /has the si,e, *r!fita"ility and reach t!
ta%e !n e#ery!ne.1
-ight years later, the grand scheme has *r!#ed e0tra!rdinary, "ut f!r all the $r!ng
reas!ns. In 2334, Chrysler sa$ its mar%et share fall t! 13.45, and the c!m*any
ann!unced that it $!uld l!se 61.24 "illi!n in 2334. +his sh!c%ed shareh!lders,
$h! had "een t!ld a fe$ m!nths earlier that the Chrysler unit $!uld "rea% e#en in
2334.
7hat $ent $r!ng8 &irst, chrem** and his *lanners may ha#e !#erestimated
Chryslers c!m*etiti#eness *ri!r t! the merger. Chrysler $as the m!st *r!fita"le !f
the three U.. aut! c!m*anies in the late 1993s, "ut the U.. ec!n!my $as #ery
str!ng and the c!m*anys c!re !ffering !f *ic%u* truc%s, s*!rt utility #ehicles
9U:s;, and mini#ans $ere the right *r!duct f!r a time !f l!$ gas *rices. <fter the
merger, the Germans disc!#ered that Chryslers fact!ries $ere in $!rse sha*e
than they had th!ught, and *r!duct quality $as *!!r. ec!nd, sharing design and
engineering res!urces, and *arts, "et$een Daimlers 'ercede,-Ben, m!dels and
Chrysler *r!#ed t! "e #ery difficult. 'ercede, $as a lu0ury car ma%er. Chrysler a
mass-mar%et manufacturer and it $!uld ta%e years t! redesign Chrysler cars s!
they c!uld use Daimler *arts and "enefit fr!m Daimler engineering. =!r did
Daimlers engineers and managers seem enthusiastic a"!ut hel*ing Chrysler,
$hich many sa$ as a "l!c% h!le int! $hich a *r!fita"le 'ercedes-Ben, line *!ur
"illi!ns !f eur!s.
+! "e fair, the ne$ cars that Chrysler did *r!duce, including the >33C sedan and
the ?+ Cruiser, garnered g!!d re#ie$s. ales !f the >33C $ere str!ng en!ugh t!
shift the "alance !f Chryslers "usiness a$ay fr!m the small-truc% segment.
Des*ite se#eral years !f financial struggle, "y 233@, it l!!%ed as if things might
finally "e turning r!und at Chrysler. In 233@ and then again in 233A, the c!m*any
made g!!d m!ney. +he c!m*any actually gained mar%et share in 233A. Dieter
Betsche, Chryslers German C-., h!*ed t! ca*itali,e !n this $ith the intr!ducti!n
!f a ne$ U:, the se#en-seat )ee* C!mmander. Caunched in mid-233A, the
timing !f the C!mmander c!uld n!t ha#e "een $!rse. In 233A, the *rice !f !il
surged dramatically as str!ng demand fr!m de#el!*ed nati!ns and China
c!m"ined $ith tight su**lies 9$hich $ere made $!rse "y su**ly disru*ti!ns
Dr. Sudipto Bhattacharya !"TBS
Case Study for classroom
caused "y Durricane Eatrina;. By mid-2334 !il had reached 6F3 a "arrel, u* fr!m
half that (ust eighteen m!nths earlier, and gas *rices hit 6> a gall!n.
+! ma%e matters $!rse, &!rd and General '!t!rs, $h! themsel#es $ere
hem!rrhaging red lin%, $ere engaged in an aggressi#e *rice $ar, !ffering dee*
incenti#es t! m!#e their !$n e0cess in#ent!ry, and Chrysler $as f!rced t! match
*rices !r l!se much share. 'ean$hile, )a*anese manufacturers, *articularly
+!y!ta and D!nda, $h! had "een e0*anding their U.. *r!ducti!n facilities f!r
fifteen years, $ere gaining share $ith their smaller fuel-efficient !fferings and
*!*ular hy"rids.
In e*tem"er 2334, Chrysler ann!unced that due t! a "uildu* !f a in#ent!ry !n
dealers l!ts, it $!uld cut *r!ducti!n "y 145, d!u"le the *lanned figure ann!unced
in )une 2334. In additi!n t! slum*ing sales, +h!mas Ca!rda re#ealed that the
c!m*any $as facing shar*ly higher c!sts f!r its ra$ materials and *arts, s!me !f
$hich $ere u* as much as 435. Chrysler $as als! suffering fr!m high health care
c!sts and *ensi!n lia"ilities t! its uni!ni,ed $!r% f!rce.
cram"ling t! fill the ga* in its *r!duct line, Chrysler ann!unced that it might enter
int! a *artnershi* $ith chinas Chery '!t!rs t! *r!duce small fuel-efficient cars in
China, $hich $!uld then "e im*!rted int! the United tates.
Case Discussion #uestions:
1. 7hat $as the *lanned strategy at Daimler-Ben, f!r Chrysler in 19888
2. In retr!s*ect, Daimler-Ben,s *lans f!r Chrysler seemed !#er!*timistic. 7hat
decisi!n-ma%ing err!rs might Daimler-Ben, ha#e made in its e#aluati!n !f
Chrysler8 D!$ might th!se err!rs ha#e "een a#!ided8
>. 7hat !**!rtunities and threats $as Chrysler facing in 233A and 23348 7hat
$ere Chryslers strengths and $ea%nesses8 Did its *r!duct strategy ma%e sense
gi#en these c!nsiderati!ns8
@. 7hy did Chrysler get its f!recasts f!r *r!duct sales and earnings s! $r!ng in
23348 7hat d!es this teach y!u a"!ut the nature !f *lanning8
A. 7hat must Chrysler d! n!$ if it is t! regain its f!!ting in the industry8
Dr. Sudipto Bhattacharya !"TBS