Do Mergers Create Value in the Automobile Industry - A Study of Daimler Chrysler

Applied Research Project Page 1
Contents
Abstract............................................................................................................................................................................................................2
Aim of the Research...................................................................................................................................................................................2
Specific Research Objectives.................................................................................................................................................................2
Introduction...................................................................................................................................................................................................3
Literature Review.......................................................................................................................................................................................3
Methodology..................................................................................................................................................................................................7
Overview of the automobile industry..............................................................................................................................................7
The Daimler – Chrysler merger................................................................................................................................................................9
Company Selection.....................................................................................................................................................................................9
Overview of the companies .....................................................................................................................................................................10
Daimler..........................................................................................................................................................................................................10
Chrysler.........................................................................................................................................................................................................11
The Merger.......................................................................................................................................................................................................13
Structuring of the Transaction..........................................................................................................................................................13
Daimler Chrysler 3 Phase Approach..............................................................................................................................................13
Rationale for Daimler Chrysler Merger.............................................................................................................................................14
Daimler’s Dilemma..................................................................................................................................................................................14
Chryslers Puzzle.......................................................................................................................................................................................14
Daimler & Chrysler .................................................................................................................................................................................15
Merger performance evaluation...........................................................................................................................................................16
Return on Equity......................................................................................................................................................................................16
EBIT/Revenue...........................................................................................................................................................................................16
EPS...................................................................................................................................................................................................................17
Dividends per Share...............................................................................................................................................................................17
R&D/Sales & R&D/ EBIT .....................................................................................................................................................................17
Return on Assets ......................................................................................................................................................................................18
Cultural Clash.............................................................................................................................................................................................18
Daimler Post Merger..............................................................................................................................................................................19
Limitations of our research .....................................................................................................................................................................19
Conclusion........................................................................................................................................................................................................19
Appendix ...........................................................................................................................................................................................................20
References ........................................................................................................................................................................................................27

Do Mergers create value in the Automobile
Industry – A study of Daimler Chrysler
Abstract
A merger has many aspects to it, qualitative as well as quantitative in nature that lead to its success or
failure. Through our analysis of the Daimler-Chrysler case, the largest value merger in the automobile
sector, we can conclude that though the quantitative factors such as prior performance of the individual
companies, market share and expected value add were considered, many qualitative factors such as
cultural clashes, difference in the strategies are also important and need to be considered. This research
has been divided into three phases, the first phase explains the performance of both the companies
individually prior to the merger, second phase focuses on the performance of combined companies and
last phase details the performance after the demerger of DaimlerChrysler. The performance of the
merged company failed due to lack of strategy such as the research and development (R&D) funds
were drained out of Chrysler, which to begin with, was a technology driven automobile company. This
had a spiral effect on the cars being offloaded in the market by the company, thus affecting the sales
and eventually the profitability of the merger. There were differences in the ways of operations of the
two companies as both came from completely different cultures. During the merger phase, one
company tried to dominate the other, though it was agreed to be a 'Merger of Equals.' This led to
conflict of interests within the company and eventually infiltrated down to the employees, thus
affecting the overall productivity of the company. The merged company faced a major problem to
utilize their available resources and assets in an efficient manner, which individually they were able to
master, as was evident with the analysis of the Asset Utilization Ratios. This paper gives a glimpse of
merger failure in the automotive industry and also considers a valuable question: Can mergers create
value? Using the above factors, the study suggests that big merging companies have low value and do
not serve the purpose of entering into a merger transaction. The sad conclusion is that the market
capitalization of big companies is at risk and the returns are minimal.
Aim of the Research
The aim of the project is to find out whether mergers and acquisitions in the automobile create value
for the organization, using a case study.
Specific Research Objectives
Our objective for this project is to evaluate the performance of companies prior to a merger and post-
merger in the auto-industry from 1997-2012 and to assess whether the merger created value for the
companies or not.

Introduction
Globalization has triggered rampant increase in cross-border mergers and acquisitions (M&A's). This is
often believed to be the winning mantra for companies opting for these activities. Over the recent years,
there have been numerous studies on M&As due to the considerable increase in M&A volume.
According to Bloomberg, the volume of M&A transactions in 2012 was recorded at US$ 2.23 trillion ,
which was a decline from US$2.42 trillion in 2011. With the economic slowdown, there was an
increase in M&A activity only in select industries such as Oil Exploration & Production, Real Estate
Operations & Development and Cellular Telecom.
Research from as early as 1960, have various ratioanles about why a company may engage in such
M&A transactions- some positive and some negative. The many reasons why an organization may
engage in M&As can be to increase market share, market power, improving efficiency, to take
advantage of lenient regulations or diversifications. Apart from the external factors that motivate
companies to engage in M&A’s there are many internal factors such as synergy, Hubris and agency.
(Berkovitch& Narayanan, 1993)
A major portion of the literature on this topic focus on the very important question – Do Mergers create
value ? There is a lack of consensus on this matter. The differences in opinions stem down to the
motives of the mergers, how value is defined and how post merger performance is measured. Prior
research into this has shown that only 17% of M&As create shareholder worth (Lau, R. K., Liao, S. Y.,
Wong, K. F., & Chiu, D. W, 2012). There are various reasons that are attributed towards the success or
failure of an M&A. Our research studies this into further detail to look at the reasons for the success or
failure of an M&A and how companies look at an M&A as ways to create more value or worth for
them and their investors/ shareholders.
Literature Review
A firm is a unit that is driven by the main motive of profit maximization or maximizing the present
value. In the given context, an M&A would be creating value if the corporate transaction increased the
present value of the owners’ interest in the firm. (Hogarty, T. F. 1970)
Schoenberg (2006), in his research tried to collate and assess the various M&A performance measures
and determine the applicability and the reliability of such measures. He identified four main
performance measurement measures - cumulative abnormal returns, managers’ assessments,
divestment data and expert informants’ assessments.
Cumulative abnormal returns is a method adopted whereby the impact of an event such as a merger or
acquisition announcement on the acquiring firm’s share price is analyzed. Such an impact is estimated
by first identifying the ‘normal’ returns accruing in the absence of the M&A announcement and
comparing it to the actual return achieved post the announcement (Fama et al., 1969). This measure
only considers share price as an indicator of performance.
Managers’ assessment is a measure that incorporates more than one measurement criterion. Schoenberg
(2006), The executives of the acquiring firm are made to analyze the performance of the firm and
thereby match the actual performance with the objectives defined at the pre- merger stage using
specific measurement criterion. For the purpose of such analysis, data is usually gathered 3–5 years
after the M&A transaction.

Expert informants’ subjective assessment is similar to measurement using Managers’ assessment, but is
distinct since it uses the knowledge and viewpoint of experts on the M&A. The data used in this
method typically uses direct data from the analysis of the stock in the market as well as the indirect
method using the research from rating agencies, reports and publications. (Datta and Grant, 1990).
Divestment is a measure that recognizes whether the acquiring firm has subsequently divested the
acquired firm. The underlying principle is that the acquired firm would be divested only when the
transaction is deemed a failure and does not provide any value add to the acquiring firm. (Ravenscraft
and Scherer, 1987).
The research done by Schoenberg was used as a base by many researchers to form performance
measures that are more applicable to the current market scenario. Research done by Papadakis, V. M.,
& Thanos, I. C. (2010), modified the measures identified in Schoenberg’s research and prescribed three
main performance measurement measures – Accounting based measures, stock market based measures
and managers subjective assessments.
Accounting based measures use factors such as ROI, cash flows, Per share ratios such as EPS, Cash
flow per share and so on, margins – all using EBIT/EBITDA/Net profit depending on the type of
industry bottom line KPI, DPS, ROA, utilization ratios and so on and are based on the underlying
principle that the M&A can be said to be a failure when the post merger returns (adjusted for the
industry and the size of the firm and transactions) are lower than the pre merger returns of the firms.
(Sudarsanam, 2003).
Stock market based measures, as identified by Papadakis, V. M., & Thanos, I. C. (2010) studied the
stock market performance of the firm separately in the short term and the long term. In short-term
studies, researchers compare the stock returns of both the target firm and the bidders for a short period
of time during the announcement of the transaction and compare it to the “normal” returns, Value is
said to be created in the short term if these cumulative abnormal returns are positive. In the long term,
researchers evaluate the post merger performance of the acquiring firm usually 5 years after the deal
was closed and evaluate the impact of the deal on the long-term shareholder wealth. While evaluating
the long-term impact, researchers usually conduct the research with an assumption that the deal leads to
a negative impact on shareholder wealth. (Tuch and O’Sullivan, 2007).
Managers’ subjective assessments is an extension of what was prescribed in previous literature where
the executives of the acquiring firm are required to evaluate and rate the post merger performance to
pre merger objectives. But the only variant is apart from questions related to the financial growth such
as ROI, ROA, profitability, sales etc the executives are also asked to evaluate non-financial factors
such as managerial competence, personnel, competitive position etc. Value is said to be created when
the actual results are lower than the pre merger expectations. (Papadakis, V. M., & Thanos, I. C. 2010).
Research collated by MIT Sloan also recognized three broad methods of value creation – short term
value characterized by short run stock performance with the underlying principle that the markets are
efficient and the stock prices will factor the new information of an acquisition and incorporate the
related value – I.e. he abnormal returns. The second method is the long run stock performance, usually
three to five years from the announcement. The third method measures value by way of analyzing the
accounting measures of profitability over a period of three to five years from the announcement of the
acquisition and comment on the value proposition that the M&A activity brings to the table. (MIT
Sloan Management Review, 2003)

Even though firms resort to M&As as a means to increase “value” of the acquiring firm, approximately
60%–80% of all mergers are not successful in creating “value “ (Swaminathan, V., Murshed, F., &
Hulland, J. (2008). More than half of the big M&A and other restructuring announcements made fail to
create significant value and many have concluded that on an average such transactions accrue little or
no value to the acquiring firm with a considerably high degree of risk. (The Mckinsey quarterly 2001)
In the midst of the high level of merger activities in the 1960- 1970’s, literature from early researchers
can be summarized by two main conclusions – even though M&As were perceived to be predominantly
profitable, there was very little evidence that corporate mergers were successful. One study concluded
that after merging, the firms were unprofitable and the other study suggested that the acquiring firms
were neither more nor less profitable than the peer companies. Based on these early findings (Hogarty,
T. F. 1970) investigated the post merger performances of the acquiring companies and concluded that
the investment performance of the companies post-merger were lower than the investment performance
of the other peer companies. The other findings were that mergers are an extremely risky affair and
there are very few companies that boasted of a successful corporate transaction and these firms
obtained very attractive returns. These supernormal profits earned by acquiring companies lured other
companies to engage in M&A activities.
The post acquisition performance was studied by (Yook, 2004) in his study using EVA- economic value
added method, rather than studying the stock performance over the short and long term or conventional
accounting measurements. His study of 75 large acquisitions between 1989 and 1993 suggested that the
operating performance of the acquiring firms is seen to experience a slight upward trend. But the
improved operating performance is offset by the high capital costs thereby creating no real economic
value add to the acquiring firm.
Many researchers tried to take a regional approach, wherein they looked at all the M&A activities in
the county and tried to assess the value proposition brought about by M&A.
Hoshino, Y. (1982) conducted a research on fifteen mergers in Japan in 1970 and analyzed the financial
performance over the span of five years prior to the merger. The results of the study were that of the
sample of the 15 mergers were that the sample exhibited a difference in financial performance wherein
most of the performance indicators showed deterioration in financial health post the merger. He probed
into the strange behavior of Japanese companies of resorting to M&A activities, where the results of his
research showed that M&As had adverse effects on the financial health and performance of the
acquiring company and does not create any value.
There are researchers who don’t believe that mergers have an adverse affect and these corporate
transactions lead to “average” if not more returns. (Michel, A., & Shaked, I., 1985) . The post merger
performance of the companies engaged in M&A activities were not more or less successful than the
comparable firms who did not engage in M&A activities or other peer companies. His studies
suggested that the merging companies exhibited average performance to high returns based on the
nature of the industry and company and economic factors.
(Stiebale, J., & Trax, M. ,2011) studied a set of firms from the U.K. and from France. He selected these
two European countries because they are a part of the top five countries with the highest M&A activity
in terms of volume of acquirers. Their main conclusions were that cross- border deals in the two
countries resulted in an improved growth in domestic sales, employment, and increase in capital in the
acquiring firms. These improved growth rates are also coupled with higher productivity growth in few
cases.

When researchers aimed to understand both the short term and long-term effects of an M&A, the
sample of companies also showed diverse results. Based on the short run stock performance, it was
seen that it is the target companies shareholders and not the acquiring companies shareholders that earn
abnormal returns. In the short run the new combined entity seemed is better off on an average and does
create shareholder value. In the long run, the results are contrasting. It was noticed that the acquiring
firms underperform their peers in the window of three t five years after the acquisition. But it was also
noted that this underperformance is limited to small acquirers and not the bigger sized companies.
When accounting measures were used, it was noted that in the long run the acquirers outperform their
peers, or are at par with their peers. (MIT Sloan Management Review, 2003).
There are very divergent views on the success or failure of an M&A in different countries and different
industries in the short as well as long term. But we are interested in looking at the value proposition of
M&As in the automobile sector.
Since the turn of the last century, the automotive industry has been facing a wave of merger activities.
The companies within the industry are compelled to undertake these corporate restricting decisions due
to an increasing pressure to be maintain a balance between superior technology and cost effective
production techniques and less expensive product offerings. All the previous research in the automotive
industry showed that acquiring companies are able to attain significant short-term gains on account of
market perception of synergy and potential value held in the transaction (Mentz and Schiereck 2006).
(Mentz and Schiereck 2006) in his research used a sample of 201 M&A transactions between 1981 and
2004 and concluded that there was positive abnormal returns to acquiring companies, of +1.6% in the
10 days following the announcement. These findings were in contrast to the previous research that
showed abnormal returns to the target companies rather than the acquiring company. But the contrasted
findings were justified by the author on the basis that the capital markets perceived M&A as means to
global synergies and higher operational efficiency.
The first to analyze the long term performance was (Mandelker 1974), who analyzed a sample of 241
mergers, and concluded that there was insignificant negative abnormal returns of −1.4% over a 40-
month-period following the announcement date.
In contrast (Malatesta, 1983) sampled 256 mergers in the 12-month period following the
announcement and found a significant negative return of −7.6%.
More recent studies like (Franks, 1991) did not find abnormal returns to acquirers and also mentioned
that previous research were due to lack of specific benchmarks
Research done by (Agrawal,1992) , (Loderer and Martin (1992), Kennedy and Limmack (1996),
Gregory (1997), and Rau and Vermaelen (1998) found negative abnormal returns between −1% and
−18% in the time period of 2 to 5years after the transactions.
A more recent study done by (Laabs, J., & Schiereck, D., 2010) sampled 230 horizontal merger
transactions in the automotive industry between 1981 and 2007. The results confirmed that there was
positive abnormal returns in the short run, but indicated that the acquirers were unable to sustain
positive long-term returns. The research quantified that there was a destruction of value of about 16%-
20% in the three-year period prior to the announcement. Therefore, it appears that the above-average
synergy potentials perceived by capital markets in the short-term perspective cannot be sufficiently
realized by the acquirers within the 3years following the transaction.

The study also highlighted that larger truncations tend to be more profitable in the long run owing to
experience and economies in scale. These findings were consistent with previous research done by
(Ferris and Park, 2001).
Methodology
The methodology adopted for our research, to analyse whether Mergers & Acquisitions create value in
the automotive industry is based on a top-down approach. We have read and analysed journals,
websites, books and articles to identify the reasons for companies to engage in an M&A transaction.
We considered the internal and external factors that influence the decisions & motives backing
mergers. We reviewed literature which essentially covered different ways to measure the value of a
merger and the different views on how value is perceived to be as described by various analysts. After
covering the motives of a merger, ways of valuation of the company post merger, defining the term
value, we studied further about the benefits post merger and the loopholes of a merger.
This macro study created a base for our next step. Building up on these factors, we adopted a detailed
case study method to analyse the research problem. We chose to study the case of Daimler and
Chrysler and chalked out a framework to see if the merger created value for both the companies. Our
framework consisted of splitting the case in three phases. Phase one evaluates the performance and
motives of both the companies individually prior to the merger. Second phase looks at the performance
of the companies post merger and the third and final phase explains the success or failure of the
merger.
The method used to study the case is based on both qualitative and quantitative measures. We analysed
the year on year performance of Daimler Chrysler from 1998-2010. We measured the companies on
their performance by looking at the evidences of the case, profiles of the company, reasons for their
merger, financial statements, financial analysis, calculating the contribution of Daimler Chrysler Group
as a whole and Chrysler Group separately. Primarily, the methods were observing the growth rate of
each year, profitability and efficiency ratios, comparing them with industry averages and checking the
value of the company in each phase.
We conclude the research project by providing recommendations based on the analysis of our findings
of the causes of our research problem and by stating if mergers create value for the company and as
perceived by their investors/shareholders.
Overview of the automobile industry
The automotive industry is considered one of the largest manufacturing industry globally as well as one
of the most important sectors by revenue. The automobile industry is characterized by high fixed-
costs and significant barriers to entry as well as exit.
There were many breakthroughs that shaped the global automobile industry. The industry went through
a series of structural changes from the early1970’s. We can say that the first major breakthrough was
the process of Globalization during the world wars that lead to the transfer of technology between the
developed nations – the technology transfer of Ford motors from USA to Japan and Western Europe.
The next major breakthrough in the automobile industry was the introduction of fuel efficient cars from
Japan due to the OPEC oil embargo on the US in 1973- 1974. There was a rapid expansion of the

industry during the 1990’s fuelled by Globalization. (1. Hiroaka, Leslie S. Global Alliances in the
Motor Vehicle Industry. Westport, CT: Quorum Books, 2001, p. 1).
Henry Ford’s system based on mass production, standardization is considered one of the major
revolutions in process technology. Totota’s “lean production” is considered another revolution in the
same field. This system was developed in Japan post the world war, when the country faced severe
shortages in resources. This was an efficient system to produce most efficiently with minimal or no
wastage or defects. It is this system that made just in time scheduling and production a norm for all
players in the automobile industry to improve efficiency.
With the passage of time, customers’ needs also were changing. The customers were not only
demanding variety in the design of cars but also the latest technology and lower costs. Thus the players
used this new lean production system that was characterized by flexibility to achieve economies of
scale economies. These economies of scale achieved by companies globally lead to massive
overcapacity, thereby resulting in lower price levels. The industry reacted to this massive overcapacity
by resorting to massive consolidation both nationally as well as internationally.
The Global automobile industry from 1995- 1998 were characterized by a number of trends that lead to
the merger of Daimler Chrysler. In 1998, when the merger announcement was made public the Global
automobile market size was 500 million units on the road, with nearly 50 million new registrations
recorded. The competition among the predominantly oligopolistic market was growing global with the
North American players holding nearly 50% of the commercial vehicle market and Western European
players holding 41% of the Global car market. The industry was shrinking in growth – was down -2.7%
in 1998 as well as in size with a wave of mergers. The high technology intensive industry had a high
risk of obsolesce and had extremely high entry and exit barriers. (ACEA - European Automobile
Manufacturers' Association)
The automobile industry globally can be characterized in the following way :
Global Market Dynamics – Up till the 1990’s the developed countries were busy expanding the
markets within the country of their domicile or region. Once they realized that these markets were
saturated they saw the need to exploit untapped markets. The big automobile manufacturers were no
longer confined to just to NAFTA and Europe, they were looking at all the markets globally. Their
expansion towards emerging markets was further supported by the growing income levels in these
countries as well as the changing consumer preferences.
Rampant globalization put forward tremendous new opportunities and challenges at such a rapid pace,
which the industry has not experienced before. The industry was not only a capital-intensive industry,
but also characterized by high risk and high rewards. The Global automotive industry was no longer a
single marketplace.
Many of the world’s biggest automobile producers aimed at reducing production costs by continuously
investing in emerging markets such as China, South east Asia and Latin America. The industry was
going through a revolution - "Go Global or Go Home." Such a market induced a global outlook
towards mergers, technologies, and sourcing, pricing and global integration. These became the main
drivers of cost and thus the backbone of what the automotive industry had in store for the future.
Consolidation – The industry was facing fierce competition with every producer eyeing the most
market share. The global automakers were divided into three tiers – Tier I consisting of General
Motors, Ford, Toyota, Honda and Volkswagen and the companies in the other two categories attempted
to merge or acquire smaller automakers to increase in scale to compete with the Tier I companies

Structural excess capacity -The consolidation phase of the industry lead to a serious problem of
overcapacity. This was a serious risk in the industry.
In 1998, the global light vehicle production was approximately 52 million units, with a capacity of
around 75 million units, which resulted in a capacity utilization of near 70%. The global capacity
increased by four million units in 1998 from 1997 and this lead to a fall in the capacity utilization by 5
% year-on-year. Even though the global production and capacity was expected to increase, the global
capacity utilization was to be lower than 75%. This was a serious problem as this excess capacity was
not only cyclical that adjust according to varied global demand patterns but was by and large was a
structural problem driven by the ultra competitive industry dynamics. This excess capacity was a result
of aggressive strategies adopted by the companies with the aim of expansion. (ACEA - European
Automobile Manufacturers' Association)
This structural overcapacity lead to market instabilities, lower margins and threatened the survival of
many automobile manufacturers The industry got drawn into a vicious circle wherein the fierce
competition urged the players to expand into new markets, thereby increasing the idle capacity. This
idle capacity was to be eliminated with further expansion and the cycle continued. The actions of the
automakers were characterized by massive investments, driven mostly by pre decided corporate
objectives and not market reality.
Growing Importance of Technology – The automobile industry became very technology centric. The
customers demanded state of the art technology at very competitive prices. Cars had started to become
a indicator of social status and the car manufacturer also created product lines based on such status
segmentations. In order to meet these customer demands, producers had to cooperate of invest to
reduce R&D expenses. Another important issue that cropped up in the 1990’s was the growing
awareness of the detrimental effects of pollution. The governments of the developed countries started
enforcing regulations of many “environmentally unsafe “ industries such as the Automobile industry.
This put increased pressure on the producers to invest in facilities as well as fuel-efficient cars that
would lower their emissions.
Many tried to understand the reason for such massive consolidation. The growing shareholder era and
growing accountability to shareholders drove such irrational corporate objectives. Looking at the
biggest automobile manufacturer of 1998 General Motors, which was ranked #1 in 1998's Fortune 500
ranking by revenue, but was only ranked #42 in terms of market value. This was the case with most of
the automobile manufacturers, wherein there was a growing pressure to justify such a low rate of
return. The industry players reacted by consolidating thereby increasing their leverage and size.
The Daimler – Chrysler merger
Company Selection
Our next approach to understand value creation was to select a transaction. The transaction wasn’t a
random selection but indeed a series of steps and approach. Using S&P Capital IQ as our primary
database the following were the steps undertaken in the company selection process:
1. We took all the historical mergers, acquisitions, restructuring, buybacks, private placements, shelf
registrations, spinoffs in the auto industry from 1996 -2010. This included all the global companies

2. Since we were interested in only pure mergers and acquisitions we eliminated all the restructuring,
buybacks, private placements, shelf registrations and spinoffs.
3. We also eliminated partial mergers and stake acquisitions.
4. Bankruptcy filings and restructurings that happened during the global financial crises were excluded
from the study.
5. True mergers and acquisitions were sorted in descending on the basis of the transaction value
6. Based on our screening analysis the following companies emerged at top.
7. Based on the screening, Daimler Chrysler emerged as a true winner based on historical deal value.
We still studied all the seven transactions and Daimler Chrysler was our choice of study.
Overview of the companies
Daimler
By 1995, Daimler Benz Group was in financial dilemma. The company had geographical coverage in
200 countries and was operating in 35 units, of which many units were making little or no profits. Over
its history, the company had gone in to diversified amalgamations and had incurred huge losses in
1980’s. The company required dramatic changes and rigorous measures to regain its losses and get a
competitive edge. The company’s reported operating losses of USD 3995.1, the production volumes
were small and R&D expenditure was higher than the industry average. Apart from these internal
factors, External factors such as devaluation of the dollar also impacted the aviation business of
Daimler. Realignment of European currencies also had a negative impact on company’s income.
Date Target Ticker Transaction Type Status Value US$ Mln In Billions Buyers
05/07/1998 Old Carco LLC - Merger/Acquisition Closed
57,095.15 57,095,150,000.0
Daimler AG
(XTRA:DAI)
06/01/2009 Motors
Liquidation
Company,
Substantially
All Assets
- Merger/Acquisition Closed
55,279.55 55,279,550,000.0
General Motors
Company
(NYSE:GM)
05/14/2007 Old Carco LLC - Merger/Acquisition Closed
7,176.0 7,176,000,000.0
Cerberus Capital
Management, L.P.
01/28/1999 Volvo Car
Corporation
6,450.0 6,450,000,000.0
Ford Motor Co.
(NYSE:F)
08/13/2009 Porsche
Automobil
Holding SE
(DB:PAH3)
DB:PAH3 Merger/Acquisition Closed
5,799.26 5,799,260,000.0
Volkswagen AG
(DB:VOW)
07/04/2012 Dr. Ing. h.c.F.
Porsche AG
5,585.12 5,585,120,000.0
Volkswagen AG
(DB:VOW)
04/05/2011 Stake in 20
Companies
and Assets
4,214.98 4,214,980,000.0
SAIC Motor
Corporation
Limited
(SHSE:600104)

In 1995, when Jurgen Schrempp took over as CEO of Daimler Benz, the Board under his leadership
were determined to streamline the business and decided to restructure and realign the company to
complement it with the industry standards. The major criterion of restructuring was profitability and
increasing the shareholder value. The company took rigorous measures by eliminating the sources of
loss that had a negative impact on the company’s income and focused on its core business of
manufacturing high quality automobiles. The Board closed down its unprofitable and non-core
subsidiaries and was now operating with 23 units as compared to 35 units previously. Company’s
concentration was mainly profitability and market position centric. As a part of restructuring, the
company merged few of its internal business and one of them was merger of Mercedes-Benz with
Daimler-Benz Group. Mercedes-Benz contributed almost 80% to the total profits of the Daimler parent.
The Board under Schrempp leadership redefined the goals and targets of its business units and
realigned the management such that the company’s performance is clearly reflected on a timely basis to
the board. One of the key indicators was to earn 12% return on capital employed in all of its business
units. In 1993, Daimler Benz was the first german company to be listed on New York Stock Exchange.
In light of this move, CEO Schrempp responded by reporting results on US GAAP.
Another aggressive measure involved layoffs of thousands of employees in various divisions to
accelerate its decision process with the Daimler-Benz Group. The restructuring was an impeccable
move as by 1997it became the most profitable company in the entire industry. The profits had risen by
69% in 1997 as compared to 1996. In 1997, revenue from sales in Germany were 33% , 25% were from
other states in European Union, 21% from US & Canada. Revenues and Operating profits demonstrated
an upward trend as explained in the graph 1.1. The COGS and current liabilities were being handled
smoothly with liquidity positions getting stronger. The restructuring also aimed at increasing the
shareholder value and the EPS also shows a rise post the implementation of action plan. (Refer graph
1.2)The concentration on its core business turned out to be right move for Daimler, with 71% of
revenues coming from automotive segment in 1997.
The new structure was now in place at Daimler and although the company was growing at a rapid pace,
this was only the first step towards its recovery. Schrempp and the management were looking to
expand its horizons as they now had a strong base in Europe. Daimler-Benz aimed to create a more
integrated system and have better accessibility of U.S markets through mergers and acquisitions.
Though Daimler Benz was progressing, there were a few concerns with expansion and acquisition in
US markets.
Chrysler
The history of Chrysler Corporation dates back to June, 1925 when it was founded by Walter Chrysler
(Peterson.M, 1986), when the Maxwell Motor Company (established 1904) was restructured to be
Chrysler Corporation (Briant.D.D). From the year 1926, Maxwells were being sold as Chryslers to the
United States with a lower costing, 4 cylindered cars. By the year 1936, due the superior engineering
and testing that went into making of the Chrysler cars, it propelled the company to the number 2 spot in
the United States car market, which they secured with them till the year 1949.
Chrysler differentiated themselves from the other two major car manufacturers in the United States,
namely, General Motors and Ford Motors by making their cars Unibody. This technique, now being
adopted as a worldwide standard, offered various benefits such as greater rigidity to the body of the
vehicle, better handling and crash safety features (Zatz. D, 1960). Chrysler also were the first to
introduce computer for designing their unibody vehicles. By the 1970's, Chrysler was hit by the U.S
anti-trust laws which prohibited automakers from forming consortiums which were prevalent in

Japanese and European car market. The major benefit sought after from the consortiums formed by the
foreign competitors was to reduce the cost of the vehicles on regulatory requirements and emission
rules. With the rising fuel costs, the demand for fuel efficient cars increased and Chrysler was caught
off guard here. They had to start tuning their engines to meet the emission regulations, in the process
the fuel efficiency on the engines went down. By the year 1973, when oil prices started rising, the
demand for fuel guzzler vehicles, as the Americans call them, went down. For a company like Chrysler,
these fuel guzzlers made a bulk of their product line (Wikipedia).
A hurried introduction of two Chrysler cars, namely, the Dodge Aspen and Plymouth Volare in the year
1976 brought with it huge warranty costs for the company due to below standard construction and
faulty designs. This killed the long standing loyalty created by their other cars like the Dart and Valiant
. In 1977, Chrysler Europe practically collapsed and was offloaded to Peugeot during the
succeeding year. By 1980, Chrysler Australia, which was producing the locally conceptualized Valiant
and Sigma, was sold to Mitsubishi Motors and the name was eventually changed to Mitsubishi Motors
Australia Limited (Unique Cars and Parts). The oil crisis affected the U.S markets further to only
deteriorate the markets for Chrysler large trucks and cars. The company at this stage had no other
compact line of vehicles to fall back upon for supporting their stage in crisis.
Realizing that the company could go out of operations with the ever rising crisis, Lee Iacocca, the then
Chief Executive Officer at Chrysler approached the U.S Congress for funds. The U.S Congress passed
the Chrysler Corporation Loan Guarantee Act of 1979 and extended a USD$ 1.5 billion loan guarantee
to Chrysler Corporation (CCLGA P.L 96-185, 1979). The U.S military would go on to buy bulk orders
of Chrysler Dodge pick-up trucks and Chrysler avoided bankruptcy.
Following a slow recovery, Chrysler launched a number of small sized vehicles for which there was an
ever growing demand. But along with this line of compact cars, Chrysler re-introduced their Imperial
line of flagship cars. This time re-introduced with superior technologies in the car, the engine had a
fully electronic fuel injection, making it the first of its kind in the U.S (Briant.D.D).
In February, 1982 Chrysler announced the sale of Chrysler Defence, its defence subsidiary which was a
profitable entity to General Dynamics for USD$ 348.5 million. The sale was eventually completed in
the month of March of 1982 for a revised sum of USD$ 336.1 million (New York Times, 1982).
The company managed to improve their sales by selling their minivans and k-cars units and by 1983,
were able to pay off the Government backed loans, many years ahead of time, thus providing the
Government with a profit of approximately USD$350 million (Hickel, James.K,1983).
In 1987, Chrysler got into the news again for the wrong reasons with some 40,000 of their units being
sold with faulty odometers. The company settled the case out of court with the complainants (Miles,
M.A & Herron, C.R for New York Times, 1987). In the same year, Chrysler acquired American Motors
Corporation (AMC) for their Jeep brand. This deal increased the size of the company but also increased
their debt by USD$ 900 million (Time Magazine). Chrysler also went on to buy the Italian super car
maker Lamborghini in the year 1987, and then sold it off in 1994 (Holusha for New York times, 1987).
1988 onwards, Chrysler acquired Gulfstream Aerospace, Electrospace Systems among others to protect
Chrysler from the volatility of the car market and industry. But these deals reduced the working capital
with the company from USD$ 14.3 billion to a mere USD$ 1.7 billion. By 1992, Lee Iacocca was
forced into retirement with his questionable acquisitions and was succeeded by Robert Eaton (Martin
Puris).

In the year 1995, Lee Iacocca assisted billionaire Kirk Kerkorian in taking over Chrysler in a hostile
manner, which eventually failed. However, in the following year, Kerkorian and Chrysler made a 5
year agreement that included a gag order preventing Iacocca from speaking publicly about Chrysler
(Detroit News, 2002).
The Merger
Structuring of the Transaction
To create a merger of equals following was the structure of the transaction. The merger was a stock
merger and no cash was exchanged to create a ‘merger of equals’.
Structure of the transaction
1 Daimler = 1 Daimler Chrysler (DCX)
0.45 Chrysler Corporation = 1 Daimler Chrysler (DCX)
Particulars Daimler Benz Chrysler
Daimler Benz Ordinary Shares 569.3
Chrysler Common stock Outstanding 646.7
Exchange Ratios 1.005 0.6235
Share holding 572.2 422.2
Daimler Chrysler Ordinary Shares 1003.2
The transaction was structured as to neither the acquirer nor the acquired company suffered any losses
on the stock transaction. The merger agreement was signed on May 6, 1998 and the deal was closed in
200 days. Daimler Chrysler became the first global share trading in 21 markets of the world
simultaneously. As Daimler Chrysler was now headquartered in Germany, S&P dropped it out of the
flagship S&P 500 Index.
Daimler Chrysler 3 Phase Approach
Our historical analysis suggested that Daimler Chrysler was already demerged in 2007 and sold to
Cerberus Capital Management. To proceed with our study we decided to follow a three phase approach
to understand the process of value creation.
1. Pre Merger (1995- 1997)
2. Merger of Equal (1997- 2006)
3. Post Merger/ Disintegration (2007 – 2010)

Rationale for Daimler Chrysler Merger
Daimler’s Dilemma
In the early nineties Daimler – Benz AG was making significant losses due to operational inefficiencies
resulting from the unrelated diversification and acquisition of the loss making units in the 1980’s. It
actually resulted in the largest corporate financial loss in German corporate history (The Daimler
Chrysler Merger). In 1995 Jurgen Schrempp took over as CEO of the company and initiated a massive
restructuring effort. Within a short span Daimler Benz liquidated twelve non-core subsidiaries, and
initiated cultural changes in the company by aligning employees to focus on profitability. A massive
restructuring of the brand was underway.
Schrempp turned around Daimler and made it the post profitable company in the entire automobile
industry. This improved Schrempp’s position in the company and increased faith in the eyes of the
board (Neubauer, Steger, Radler). Restructuring efforts paid off however they weren’t sufficient for the
long term vision of the company. There was a problem. Daimler Benz was extremely focused on one
prime brand Mercedes – Benz, and its reach in North America was nonexistent (Neubauer, Steger,
Radler). It missed the U.S boom of 1990’s and brand failed to capture even 1% of the U.S domestic
market. The strategic team felt the urgent needed and began to look for possible suitors.
Chryslers Puzzle
Chrysler had always been the underdog and had brought itself back four times from bankruptcy since
the world war one. It was a daring and risk taking company, often termed as ‘the comeback kid’. In the
1990’s when U.S consumers were focused on imported cars, Chrysler had repositioned itself and took a
massive risk by designing products aligned with the bold and daring spirit of the Americans such as the
Dodge Ram, Jeep Grand Cherokee, and LH Sedan. (Waller David). The risk paid off and Chrysler’s
market share increased to 23% in 1997, revenues were at all time high, and product development costs
shrank dramatically (Waller David).
In spite of doing well, Chrysler had a puzzle to solve. It was still significantly smaller in the ‘big three
league’, which comprised of Ford, GM and Chrysler. It had very little presence in Europe and outside
North America. Eaton recognized this and called it the ‘the perfect storm’ (The Daimler Chrysler
Merger). He saw the brewing consolidation in the North American market and seeked international
diversification. Eaton’s vision was clear, in a fiery speech in 1997, Easton said, “There may be a
perfect storm brewing around the industry today. I see a cold front, a nor’easter, and a hurricane
converging on us all at once (The Daimler Chrysler Merger). It was clear that the company was serious
about its plans. Eaton recognized the coming age of overcapacity in the auto industry. Eaton reasoned
that by 2002 supply would exceed demand as there would be eighty more plants opened up leading to
an overcapacity of six times Chrysler’s current production (Neubauer, Steger, Radler). Chrysler had to
act.

Daimler & Chrysler
Earlier in 1995 both Daimler and Chrysler had started looking for options to generate revenues from
markets outside their home country (Neubauer, Steger, Radler). Both companies had evaluated the
possibility of establishing separate companies in Europe and U.S but somehow the plans never
materialized. Independently both Chrysler and Daimler’s boards and executive team recognized the
consolidating auto industry and there was an impending necessity to create large globally based
enterprise which captures the three most important markets America, Europe and Asia, as being
regionally focused was no longer sufficient (Dias Wije).
During the 1998 International Auto Show in early January. Jurgen Schrempp decided to meet Robert
Eaton. Within the next month merger talks had secretly begun between the two companies and
clandestine meeting had begun to take place. On May 7, 1998 the CEO’s of Daimler Benz AG and
Chrysler Corporation announced their willingness to get into a ‘a merger of equals’. Daimler Benz AG
was represented by Goldman Sachs while Chrysler Corporation was represented by Credit Suisse First
Boston. The rationale was clear as initial due diligence suggested that the combined company would be
the fifth largest automaker in the world with a projected annual revenues of 132 billion dollars. It
would be the largest industrial merger in history and a biggest ever trans-border acquisition of an
American corporation (Dias Wije).
Due diligence had suggested that the newly formed DaimlerChrysler AG will have no layoffs, total
workforce will be close to 440,000 employees and the combined market capitalization close to 100
billion. The expected corporation was expected to create synergies and induce savings in research and
development, procurement functions, product design etc. The classical economy of scale argument was
proposed for all fronts and it was expected that cost savings worth 1.4 billion will be realized in the
first year of the merger itself. Further savings upto three billion dollars can be achieved in the next
three years (Annual report 1998). Daimler and Chrysler also planned to create the first of its kind
global registered share (GRS) and under this facility Daimler Chrysler share will start trading
simultaneously on twenty one markets around the world which would include New York and Frankfurt
(Karolyi).
One important rationale used by the executives of both companies was that Daimler and Chrysler had
very different product lines and the merger would complement and add. While Daimler existed
primarily in high price luxury segment, Chrysler dominated the medium and low price segment. They
also had a minimum geographic overlap. Basically Daimler will be able to leverage Chrysler’s North
American presence by increasing sales of luxury car without disturbing Chrysler’s network of mass-
market customers (Schmid, John). Similarly, on the other end Chrysler can penetrate the European
market deeper without disturbing Daimler’s arena. Chrysler will be able to use safety innovation from
Daimler and also the fuel cell technology that will make Chrysler the dominant player in developing
non-combustion engine cars (Surowiecki, James). On Daimler’s end it will be able to leverage the front
wheel drive technology of Chrysler and also lean production systems. Chrysler made four times the
number of cars manufactured by Daimler with fewer than half the workers (Surowiecki, James). There
was also an urgent need to improve Daimler’s development time and a reduction in costs of product
development; while on the other hand Chrysler had to improve its quality and engineering. Daimler’s
research and development cost per vehicle was over two thousand dollars per vehicle while Chrysler
had a much lower cost of five hundred and ninety dollars and another point to note is that it took sixty
days to manufacture a car in Germany.

Merger performance evaluation
To analyze the Daimler Chrysler merger, the first step was to dissect the financials according to the
three phases. We extracted the Chrysler Financials from the annual reports filed from Daimler to
understand what division of the company was problematic and where was the ultimate value erosion.
In order to evaluate how successful the merger of Daimler Chrysler was and analyze the performance
of the company through the three phases – the pre merger, merger period and post merger period, we
adopted a study of the value creation through the accounting based measures. We studied the
performance through the following measures:
1. ROE
2. EBIT/Revenue – EBIT is the bottom line KPI used by automobile manufacturers
3. Dividend payout ratio
4. EPS
5. Cash flow per share
6. R&D/ Sales – R&D is a very important factor used as a KPI by automobile manufacturers
7. R&D / EBIT
8. Return on Assets
Return on Equity
This is our fundamental model to analyze whether Daimler Chrysler merger created value or not.
Before the merger both Daimler AG and Chrysler were returning more than 20% on their equity.
However after the merger the return on equity started dwindling and almost turned negative during the
dot com crises. Return on equity barely reached 10% again, and in the final years the company Daimler
Chrysler never earned more than 8% on their equity. This leads us to the fundamental question as to
why did the ROE start dwindling.
The measures used above are the key measures we have used in our analysis based and we have
included our rationale as to why we used those measures.
EBIT/Revenue
EBIT is one the main bottom line KPI used in automobile industry for inter company as well as intra
company comparison. In a capital-intensive industry such as the automobile industry, it helps compare
companies based on their actual operating profits without considering depreciation and amortization,
which is a sizeable non-cash expense for automotive industries.
In the phase 1 stage of our analysis (3 years prior the merger announcement), shows that the EBIT
margins were displaying an upward trend after their restructuring measure and recorded an EBIT
margin of 4% in the financial year before the merger announcement. Chrysler also recorded very strong
margins mainly due to the smaller proportion of expenses and larger sales as opposed to Daimler that
was focused on the high-end luxury market.
In the phase 2 of our analysis, we saw that the EBIT margin of the newly merged company increased
substantially to almost 7% in 1998, and both Daimler and Chrysler contributed equally to this upward
trend. But since 2000, the margins of the Chrysler subdivision fell drastically. This downward trend

was not noticed in such an amplified extend on Daimler. Chrysler reported negative margins and
recorded the lowest EBIT margin in 2006 (the immediate year prior to the demerger) of -3%.
EPS
Daimler’s restructuring in 1995 increased EPS from -7.79 to 7.61 by 1997. Restructuring had redefined
the goals of the company and had focused on increasing the profitability and shareholder value. By
1997, the company’s efforts were showing up in their results. However, restructuring didn’t serve the
long term goal of the company and in 1998, Daimler started to look for alternatives to expand and
grow. After filtering its alternatives, the company entered in to a merger with Chrysler AG in 1998.
DaimlerChrysler AG, combined profits had remained majorly consistent during the merger phase, but
weren’t showing an increasing trend. The same was reflected in the Earnings per share of
DaimlerChrysler AG. Company also incurred losses in the years of financial crises and dot.com bubble
which resulted in lower earnings per share. Overall the company’s performance was average as
compared to their performance before the merger. Company’s decision to merger didn’t solve their
purposes. The shareholder’s interpreted the figures of EPS as a sign of lower earnings, an unstable
financial position and was an indication of taking measures for improvement. The earning power of the
company was affected as the Chrysler division of the Group wasn’t contributing majorly. Taking in to
consideration, analysis and impact of Chrysler division on EPS, the group in 2007 had to let go off
Chrysler and de merge themselves from Chrysler AG. The merger efforts didn’t pay off and the
damage had to be controlled. Post the demerger, Daimler regained its stability. The overall
performance of the Daimler’s EPS is depicted in Graph 1.4 (appendix)
Dividends per Share
Both Chrysler Corporation and Daimler Benz AG paid healthy dividends before the merger and
continued improving dividend payments till 2000. The dot com crises slowed down the economic
activities in 2001, and they had to take a cut. Further when the financial performance of Daimler
Chrysler was weakening, the company continued to pay dividends even when the net losses were not
supporting it.
Upon analysis, it came to our notice that German companies pay dividends based on cash flow and not
on income. This we believe is another important cultural difference between the two companies as in
spite of the merger being a merger of equals; the merger was never a merger of equals. Daimler
continues to run the company according to the policies which it believed was fit.
R&D/Sales & R&D/ EBIT
Research and development is a very important expenditure for the automobile industry. Automobiles
thrive on innovation and without significant research and development it is difficult to be competitive.
One of the most important findings in our analysis of value creation was difference in spend in the
research and development between the two divisions. Since the beginning of the merger the Daimler
Chrysler’s expenditure to sales reduced from 6% to 3%, which is a significant drop for an automobile
company. Upon further inspection it came to our notice that research and development for Chrysler
division was very close to 3% throughout the history, while of Daimler’s was significantly higher.
There is a clear mismatch between the two divisions of the company.

How can a division survive without investing enough in research and development? We believe this
could be one of the major factors in the destruction of value of the two companies. This to less
competitive products for Chrysler division and hence the entire Daimler Chrysler corporation was
suffering due to this.
Return on Assets
The asset utilization ratio is an analysis tool identifies whether a company is putting their assets to good
use, or are the assets being piled on in the company and not being utilized to its capacity. Chrysler as a
company, heavily driven by technology and managing high sales volumes, maintained a utilization
ratio of USD$1 on average over three years between 1995 to 1997 (S&P Capital IQ). This means that
Chrysler was able to derive USD$1 of every USD$1 investment in its assets. Daimler on the other hand
had a healthier utilization ratio which averaged USD$1.21 over the same period (S&P Capital IQ). It is
interesting to know that the industry average for automobile sector is usually between USD$0.5 to
USD$0.8 (Hillman.H), which also reiterates that fact that both Chrysler and Daimler were able to
manage their companies in a very efficient and profitable manner when they were separate.
The efficiency came down drastically from the year 1998 onwards all the way till 2008, the period
during which Daimler and Chrysler were merged into one company. The asset utilization ratio during
this tenure of courtship was averaging USD$0.79 (S&P Capital IQ), which was down from their
individual performances prior to the merger. The assets were sitting idle and capacity was being wasted
with both companies trying to figure out the best mix to utilize the resources. The merger should have
improved the performance as was intended, but it turned down the possibility of taking advantage and
pulled down the efficiency of the companies, which later on had adverse effects on their financials and
eventually lead to them splitting up in 2008.
While we analyse the above uantutatuve measurements, it is not surprising that the merger was finally
called off in 2007, when Daimler sold Chrysler to Cereberus Capital for US$7.8 million. The merger
was a failure. Apart from the quantitative fators mentioned above, there were several qualitative factors
that fuelled this fall of such a huge merger.
Cultural Clash
The deterioration of the performance of the company was attributed to qualitative factors also apart
from the quantitative factors explained above.
DaimlerChrysler success depended on two extremely different cultures. Daimler, a german company
had a methodical decision making model, while Chrysler had more of a permissive and creative way of
working. Chrysler working culture was American driven, adaptable and resilient, whereas Daimler
culture embedded values of empowerment, efficiency. These cultural differences soon caused problems
in every level of the company. There were huge differences in the pay structures of both the companies.
Even the dividends paid were out of the cash flows, which was the germanised way of paying
dividends unlike other companies who paid dividends out of profits. The management had dominance
of Germans with more of Daimler representatives in the management. Americans and Germans had
different working styles which was evident from instances such as Germans preferred long reports and
Americans preferred little paperwork and short meetings. The newly merged teams had conflicting
goals and couldn’t contribute productively. All the attempts to build the gap failed and situation
became chaotic. Both the companies failed to realise the synergies. The initial thought process of
merging to complement each other’s working styles and cultures was proving to backfire instead.

Opposing culture and management styles were a hindrance in their decision making. Daimler and
Chrysler weren’t ready to compromise and eventually doomed to failure.
Daimler Post Merger
Daimler AG has fared well again after the disintegration and demerger with Chrysler AG. Compared to
its competitors the company was able to sustain itself in the global financial crises and maintain the
steady line or revenues. The company was back again to investing more into its research and
development and profit margin increased. Cash on hand started remaining steady and investments in
property, plant and equipment one.
It was bitter marriage, but Daimler AG fared much better than its partner Chrysler AG.
Limitations of our research
Following are the limitations of our research:
• Our analysis includes a case study approach based on Daimler and Chrysler merger and is
limited to that company.
• Due to time constraints our research is limited to only an unsuccessful merger. There are quite a
few success stories in this industries
• Our analysis is limited to accounting based measures of value analysis.
• We only used a limited time frame from 1996- 2010 for our research.
Conclusion
Based on secondary research and analysis and through the limited case study approach of a
single company (Daimler Chrysler AG), we conclude that mergers and acquisitions do not create value
in the long run. Our conclusion is supported by our in depth analysis of accounting based measures and
qualitative based measures. Even though the size of the mergers and acquisitions deal does affect the
value proposition of the combined entity very seldom do the merger company perform better than the
individual entities in the long run.

Appendix
Chrysler performance pre-merger
In USD million
Source: S&P Capital IQ
25575
33548
40831
49363 49601
57587 56986
22922
28396
32382
38032
41304
45842 46743
854 902
4677
6767
4444
7099
5563
0
12005
16093
18864 19657
24057
25708
0
10000
20000
30000
40000
50000
60000
70000
1991 1992 1993 1994 1995 1996 1997
Revenues
COGS
Operating Income
Current Liabilities

Chrysler performance pre-merger
US$/share
Daimler AG: 2007-2010
USD million
-1.64
1.11
-3.81
5.06
2.68
4.83
4.15
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
1991 1992 1993 1994 1995 1996 1997
Basic EPS
Basic EPS
-20000
0
20000
40000
60000
80000
100000
120000
140000
Revenue
Cost Of Goods Sold
Operating Income
Total Current
Liabilities

Daimler AG: 2007-201
USD/share
Layoff of Employees
Source : Company Documents
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
0
2.0
4.0
6.0
8.0
10.0
EPS
EPS

Applied Research Project
Shareholder value – ROE
(%)
Source: S&P capital IQ
Profitability - EBIT/share
USD/share
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
1995 1996 1997 1998
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
1995 1996 1997 1998
Daimler Group
1998 1999 2000 2001 2002 2003 2004 2005
Daimler Chrysler
1998 1999 2000 2001 2002 2003 2004 2005
Daimler division Chrysler / division
Page 23
2005 2006
2005 2006

Profitability - R&D/sales
(%)
Profitability - R&D/EBIT
(%)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
1995 1996 1997 1998
Daimler
-600.00%
-400.00%
-200.00%
0.00%
200.00%
400.00%
600.00%
1995 1996 1997 1998
Daimler
1998 1999 2000 2001 2002 2003 2004 2005
Daimler division Chrysler Division
1998 1999 2000 2001 2002 2003 2004 2005
Daimler division Chrysler Division
Page 24
2005 2006
2005 2006

USD/share
Source : S&P Capital IQ
Efficiency- fixed asset turnover
-10
-8
-6
-4
-2
0
2
4
6
8
10
1995 1996 1997 1998 1999
EPS of Daimler Chrysler
1.1x
2.1x
3.1x
4.1x
5.1x
6.1x
7.1x
8.1x
9.1x
1996 1997 1998 1999
fixed asset turnover
1999 2000 2001 2002 2003 2004 2005 2006
EPS of Daimler Chrysler
1999 2000 2001 2002 2003 2004 2005
Daimler Chrysler
Page 25
2006
EPS
2005 2006

Daimler ag after Demerger(%)
(8.0%)
(3.0%)
2.0%
7.0%
12.0%
Return on Assets
%
Return on Equity
%
Net Profit Margin
%
EBIT Margin
2008
2009
2010

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