PSA Peugeot Citroen SA and DaimlerChrysler AG

In 1997 executives of the automobile firm PSA Peugeot Citroen SA observed that their competitors began to merge. Daimler acquired Chrysler to become Daimler- Chrysler AG. General Motors Corp. purchased a 20 percent stake of Fiat’s auto division and held an option to purchase the remaining 80 percent. Ford Motor Co. purchased Jaguar, Land Rover, and Volvo.

PSA resisted the pressure to mimic the acquisition activity of its competitors. The firm had learned the hard way about the cost of making an acquisition. In 1974 the French automobile maker Peugeot acquired Citroen, and the result was disappointing. The firm’s CEO Jean-Martin Folz had stated that managers cannot easily bring out new products when they are distracted by the challenge of integrating two firms. And PSA was intent on bringing out new products.

PSA’s competitors faced disappointments of their own. One of the most dramatic examples involves Daimler- Chrysler AG. Prior to its takeover of Chrysler in 1998, Mercedes was the number one luxury brand in the world, known for top quality, and it sold more luxury automobiles in the United States than any other automobile firm. At the time of the takeover, Mercedes’ CEO Jürgen Schrempp predicted that the combined firm would become the most profitable automobile manufacturer in the world.

By the end of 2004, Mercedes had slipped from first position in the United States to fourth position. Beginning in 2002, the quality of its automobiles began to slide. Its engineers began to add features that they found intriguing but were not valued by its customers. As for Chrysler, it lost $2 billion in 2000, and $1 billion in the second quarter of 2003. In late 2003, Chrysler introduced a new successful model, the 300C. Although its profit improved, the overall profitability of DaimlerChrysler continued to disappoint investors. In July 2005, under pressure from shareholders, CEO Schrempp announced that he would retire at year-end, three years before the expiration of his contract.

As DaimlerChrysler slipped, PSA did well. Between 1998 and 2002, PSA’s sales grew by 62 percent (to $61.8 billion). PSA became the world’s sixth-largest automobile firm, surpassing Honda Motor Corp. and Hyundai Motor Co.

Case Analysis Question

1. Discuss the main lessons to be learned from the behavior of the executives at PSA and DaimlerChrysler. In your discussion, compare the behavior of executives at PSA and DaimlerChrysler with executives in the examples described in the chapter text.