Wednesday, February 22, 2012

The DaimlerChrysler Merger (A)

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The combination of businesses in 18 between Daimler- Benz and Chrysler position their names in automotive industry as the largest merger, which gave birth to the third biggest automotive corporation in the world. The new group now covers many aspects of transportation business such as automobile, aerospace, rail system, automotive electronics and diesel engines. The new Company DCX has operation over 00 countries and regions with its traditional business focus on Europe and US. Last year the revenue exceeded $11 billion ranked as no. in automotive industry with earning exceeding $5.6 billion.

Daimler Benz and Chrysler were optimistic about the merger and still feel confident of their strength nowadays. They believed that the two corporations complement each other perfectly and own everything that can be expected to excel in respective areas.

Problem Definition

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The three main regions (North America, Western Europe and Japan) accounted for 75 percent of all vehicles sold in

18 and are still their most important markets. These traditional markets in the industrialized countries were saturated, and growth was expected from expansion in developing countries in Asia and Latin American. Nevertheless, economic difficulties resulted in large idle capacity in these formerly promising markets, too. Moreover, due to currency volatility, high inflation, and competitive pressure, developing markets have proven difficult.

Performance Analysis

• Accounting and Financial Analysis

Accounting Analysis

Due to its multinational operations, its inventories are valued from division to division. Financial statements are prepared in accordance with US GAAP which is also widely applied by its peers. Though accounting flexibility exists, it would be an exaggeration to say it will distort the valuation of the company.

Financial Analysis

In 18 Chrysler had an Inventory of $4,78 inventory and total assets of $60,418 therefore ratio is equal .078.

If we compare this amount with Ford we have that in 18 Ford had $5,656 inventory vs. $88,744.Ratio of .064.

The difference in ratios shows that Chrysler improved its ratio fewer inventories imply more efficiency and better management compared with previous years. Applying the Accounting tools concepts we have that Chrysler reports three types of inventories Finished products including parts not manufactured by Chrysler, ) raw materials and produced parts and ) supplies. There is no work in process listed (vehicles or other produced assets that have not been completed). Supplies inventory is inventory intended for internal use only. It is not incorporated into production.

First of all, let us take a look at its free cash flow, based on the projection of some financial firms. The free cash flows in the following years are sufficient to cover its interest payment, dividend pay-out and anticipated profits. Next is to analyze its profit drivers, return on shareholders and return on total assets. Return on shareholders is very high according to projection. Decomposing the Return on Shareholders it is showing straight forward that the company is run efficiently, the profit margin is sound but the leverage is too high. Return on Total assets is just normal among all the existing automotive firms lower than the level it would be in light of its return on sales. The reason is once again, due to the high leverage, which is a result of its historic merger and inheritance of previous debts from Chrysler.

Turnover ratios show how efficient a company is and can be desired in its management. By looking on Assets ratio, inventory ratio. We would like to say that the company overall is quite efficient and does not have serious financial problems in liquidity.

In the other side we have that Ford reports a somewhat different composition for its inventories. Raw materials, work in process and supplies are grouped together. Finished goods are the other category. Ford has a smaller percentage of its inventory in finished goods, which may reflect somewhat better management of this resource. Ford’s ratio did not change over the two years but overall the ratios suggest that Ford may be managing its inventory more efficiently. The difference in ratios is fairly substantial. Ford is maintaining lower inventories as a percentage of total assets. However some financial information shows that Ford has lower inventory during times of cost increases. This factor could cause some of the difference in ratios. In addition the percentage of total assets is not necessarily a good measure of inventory management. The distribution of assets within the automotive sectors of these firms may be different, as well as the age of the assets.


Currents Stakeholders.

. Daimler Chrysler South Africa.

. Delta Motor Corp.

. Ford Motor Company

. Volkswagen of South Africa

Potential Stakeholders

. Potential investors in the eastern cape including both national and international.

-Other Western and Eastern Cape Automotive

-Automotive component suppliers outside the Eastern Cape.

Analysis of Performance

In this case we found that there is a dynamic relationship connecting the stakeholder groups. Both companies (Daimler- Benz and Chrysler) are smart companies that creates a high level of employee satisfaction which leads to higher customer effort, which leads to high quality products and services, which creates higher customer satisfaction, which leads to more repeat business, which leads to higher growth and profits, which leads to high stockholder satisfaction, which leads to more investment, and so on. This is the virtuous circle that spells profits and growth.

Analysis of the Societal Environmental Opportunities.

Daimler Chrysler predicament is an expression of global contradictions in the auto industry and vertically every other sector of the economy. The disproportion between manufacturing capacity and potential sales has sparked a wave of mergers and consolidations that in the last few months alone has led to mass lay off announcements by GM, Mazda, and Daewoo.

What political, economic, technological, and social trends provide firms in this or related industries with opportunities for growth?

The former traces to product lines that meshed well, Daimler’s movement into the American market and Chrysler’s movement into the European market and complementary engineering and marketing skills. In contrast, the latter reflects among other things standard and poor decision not to include Daimler Chrysler in the S & P500 index and the clash of corporate cultures and compensation schemes. Differences in corporate culture, compensation policies, ownership structure and the legal environment can be as barriers to entry to a global environment.

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