The Daily Deal, October 4, 2001
Industry Insight Automobiles

Rough Ride

by Susan Webber

A pair of Detroit newspapermen offer an engrossing, even-handed tale of how the car industry's dream deal careened off the highway

One Puritan legacy is the notion that entertainment and the acquisition of knowledge, at least for anyone over the age of 10, don't mix. In keeping, the business press churns out a seemingly endless supply of dreary, repetitive, and often hectoring texts on how to be a better competitor/leader/innovator. And those that strive to entertain too often are neither amusing nor helpful.

We now know that the Puritans' world view was woefully distorted. Storytelling, one of the oldest forms of recreation, is now seen as a tool for inculcating culture, for it appeals to the limbic brain, the seat of emotion. Similarly, narrative is an under-appreciated means for conveying and organizing information. For example, studies have found that jurors do not weigh testimony, but instead construct their version of what happened as the basis for a verdict.

So there's no reason to abstain the pleasure of reading "Taken for a Ride: How Daimler-Benz Drove Off With Chrysler." Bill Vlasic and Bradley A. Stertz, who covered the DaimlerChrysler AG story for The Detroit News, tell the engrossing tale of how the auto industry's dream deal went spectacularly awry.

"Taken for a Ride" starts with the misunderstandings that led investor Kirk Kekorian, a 10% percent owner of Chrysler Corp., to believe he had management's support for a leveraged buyout. Though the offer was quashed - Chrysler leaned on its banks to shun the deal - Daimler-Benz AG had offered to assist Chrysler. Chrysler, feeling it needed a much greater foreign presence, and Daimler, seeing limited growth opportunities in the luxury car market, explored a major international joint venture. Though the discussions failed, they left Daimler all the more convinced of Chrysler's attractiveness.

The bid also left CEO Bob Eaton, a strikingly introspective man with no Wall Street experience, feeling terribly vulnerable. His study of competitors fueled his fears. By 2002, global automobile capacity would exceed demand by 80 assembly plants, tantamount to six Chryslers. That, along with his concerns about the eventual demise of the internal combustion engine, made him receptive to the renewed overtures of Daimler Chairman Jurgen Schrempp.

Schrempp clearly saw the transaction as a acquisition; indeed, preserving Daimler's independence was a key criterion in choosing among deal alternatives. But he allowed the Chrysler team to persist in its "merger of equals" fantasy as long as it was useful.

The fantasy had some validity: Chrysler was contributing half the combined profits. But Daimler also held much better currency: a stock trading at 26 times earning, versus Chrysler's nine. And Daimler won key points in the negotiations: the domicile would be Germany, the Daimler name would come first, Daimler would have more representatives on the management board, and Eaton would retire as co-head first.

The decline was swift. Eaton became a lame duck; key executives were forced out or retired. Jim Holden, the new Chrysler group president, struggling to meet unrealistic, top-down budgets, faced a firestorm of criticism at Daimler board meetings and was replaced by a German.

"Taken for a Ride" is an outstanding work, engaging and well-crafted. One strong feature is its scrupulous and even-handed reporting. Narratives always raise the question of whose story is really being told. In this case, all the major participants cooperated, allowing for multiple viewpoints on key events. The authors note when different parties emerged with diverging impressions and flag the rare occasions when they have only one source.

A second strength is the emphasis on human drama. The book gives rich, nuanced portraits of not just the main actors - Kekorian, Eaton, Schrempp, Holden, and Chrysler Vice Chairman Bob Lutz - but also the secondary players. Many vignettes have a gripping, voyeuristic feel, such as Schrempp's campaign to secure control of the independent fiefdom of Mercedes-Benz, the increasing antipathy between Eaton and Lutz, and Holden's futile struggles.

Third is skilful marshalling of detail. While readers of this publication might prefer more nitty-gritty dealmaking, the book covers the key issues - valuation, the choice of domicile, the differences in American and German governance and management practices - in a way that enhances the narrative. And there's a Motor City wink and nod in the device of chronicling the make and model of the cars used.

"Taken for a Ride" evokes a number a questions: Was the perfect fit of the two companies an illusion, since the deal offered comparatively few cost savings and synergies? Was the Chrysler sell-out necessary? The success of mid-sized automaker BMW suggests not. Did the Detroit executives understand how they left themselves open to Daimler domination? How much of the dive in Chrysler's profits resulted from the distractions and new overhead created by the deal?

Or did the Chrysler executives pull the ultimate fast one, selling their company at peak earnings for a fat premium, yet making the Germans and the public believe they got the short end of the stick?

Whether you read it for fun or profit, "Taken for a Ride" is storytelling at its best.