Mercedes Benz Case Analysis

By Manojkumar Rajendran
Daimler-Benz started as a car manufacturing company, but diversified into aerospace, electronics
(aeg), debis (with activities in software, financial services, trading). Ownership structure of
Damiler-benz - deutsche bank 28%, Mercedes holding 25%, Kuwait investment office 14%,
remaining private investors.
It had two divisions - Passenger and commercial vehicles division.
There are few issues highlighted in the case before Chairman Helmut warner took over Daimler-
Benz in 1993:
Issue#1: From Exhibit 1, the per employee contribution to sales (number of
employees/sales in mi DM) in 1982 is 0.478% compared to 1991 statistic of 0.398%.
This implies the productivity of employees has gone down.
Issue#2: Huge labour costs in Germany (before the export strategy was aggressively
pursued) as compared to other nations. Labor utilized in final assembly accounted for 5%
of an automobile's total cost. German workers were among the highest paid in the world,
yet worked the shortest work week.
Issue#3: Mercedes' competitors like Toyota and Nissan pursued export strategy for
decades. Mercedes joined the bandwagon of export strategy much later. This delay in
decision had done much loss to revenues by then.
Issue#4: New S-class series launched in 1992 perceived as bulky and out of step with
demands for lean design and efficiency.
Issue#5: Given the strength of DM relative to U.S dollar, 10% import tax on cars costing
more than 30,000$ was levied by U.S government making German cars unaffordable by
Americans.

The strategies adopted by Helmut such as

shutting down the manufacturing plant at Ahrens Dorf at Germany in view of worsening
structural problems and overcapacity
focus the manufacturing base away from Germany to France/Britain (where highly
experienced & productive workers are available) and to Alabama where government
subsidies are huge
introduction of product models at different price points
cutting back on domestic employment in favor of production overseas

helped tackle the issues by a little margin if not by a huge margin. The other macroeconomic
factors also contributed to performance decline such as continuing European recession, a rise in
value of DM. The strategy missed an important issue: chronic unemployment in Germany could
lead to social tensions which further impacts the operations of company.
Exhibit 3: One could see the drop-in production units from 5,42,160 in 1989 to 5,29,428 in
1992. Commensurate dip in sales and net income in the same period from 89-92 is observed.
Exhibit 4: The decline in performance of Mercedes is evident from the 8.5% decrease in number
of units produced in 1992 compared to 1991 whereas its arch rival BMW saw an 8.1% increase
in number of units in 1991 to 592 units in 1992. Could also see the stiff competition from global
players like General Motors, Ford motors, Toyota, Chrysler, Volkswagen, Nissan from the huge
difference in number of units it produced vis-a-vis Mercedes.
Exhibit 6: Germany saw a huge increase in labour costs from 3$ in 1970 to 26.5$ in 1993
compared to other nations such as France, Japan, U.S where labour costs are very minimal
relatively speaking.
Exhibit 7: DM had fallen in value relative to U.S dollar compared to its neighboring country
France. Given the strength of DM relative to U.S dollar, 10% import tax on cars costing more
than 30,000$ was levied by U.S government making German cars unaffordable by Americans.