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Will The Ghost Of Daimler Haunt Fiat Chrysler’s Merger Ambitions?

Fiat Chrysler Automobiles FCA logo. (AP Photo/Paul Sancya, file) photo credit: ASSOCIATED PRESS

Not again?

That should be the question following Monday’s proposed merger between Italian-U.S. carmaker Fiat Chrysler Automobiles and France’s auto manufacturer Renault, best known for its eponymous brand of vehicles. The deal would create a mega-manufacturer of light vehicles with annual sales of almost $200 billion.

Apparently, the idea is that the two companies join forces to tackle the massive changes in the car business including the trend away from gasoline engines and towards battery-powered electric vehicles, an area being pushed by U.S. rival Tesla.

Bad history

The merger idea might sound great, but only if you choose to forget the ill-fated merger of German carmaker Daimler Benz with America’s Chrysler.

DaimlerChrysler was formed from a so-called “merger of equals” in 1998, but it was a marriage that didn’t last even a decade. The deal broke down in 2007. I followed this closely as for part of that period I worked in the auto business for GM, which was just down the road from Chrysler in Michigan.

The problem was that the two companies were incompatible. On the one hand, you had the engineering-focused Germans from Daimler known for reliable cars such as Mercedes Benz. And on the other, there were the design-led folks from Chrysler who birthed a series of love-em-or-hate-em models such as the Prowler (a two-seater sports car with an exposed axle) and the retro-looking PT Cruiser.

The merger also had to contend with national differences between southeast, Michigan (where Chrysler is based) and Stuggart Germany (where Daimler is headquartered.) The way people from different countries work can make a huge difference in whether any merger can work as anticipated.

A column in the Harvard Business Review from around the time of the merger failed in 2007 sums it up:

That Daimler can sell Chrysler as a more-or-less intact unit to a private equity firm tells you all you need to know about why the combination failed. The two organizations never were integrated into anything that approached a cohesive whole. The potential synergies that were used to justify the deal went unrealized.

Same again captain?

Fast forward to Monday, and the question is, are we traveling the same road yet again? Possibly so.

The proposed combination of Fiat Chrysler with Renault has already been dubbed “a finely balanced merger of equals.”

That alone should worry investors. Again we have vastly different companies. Fiat, like the Chrysler that it purchased, is like many Italian brands focused on design. And it does that well.

Renault’s brands are certainly more stylish than some others, but there would seem to be a mismatch with Fiat’s edge in this area. The Fiat 500, for instance, is a stunning small car.

Then, just like with the Daimler situation, the two companies are from vastly different cultures. Fiat is Italian, while Renault is French. Yes, they are both European, but that doesn’t make them the same. As mentioned before, differences in culture matter in a merger.

The overarching problem is that mergers are always fraught with problems, takeovers less so. If Fiat were to purchase Renault, then the outlook might be better, but only if the latter could afford such a play.

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