Daimler AG

Daimler got its start and its original name (Daimler-Benz) from two German engineers, Gottlieb Daimler and Carl Benz, who separately set up companies in the 1880s to build engines. Both men had worked for firms that made locomotives, and both had become fascinated with the possibilities of the internal combustion engine -- a concept that had been around for decades but remained impractical.

In 1882 Daimler joined with Wilhelm Maybach to form a new business to produce a lightweight portable engine. In 1885 they put such an engine on a two-wheeled vehicle, producing what was in effect the world's first motorcycle. The following year they put the engine on a carriage. In 1883 Benz established a firm ostensibly to produce stationary gas engines. In actuality he used the opportunity to continue his experiments with portable internal combustion devices. By 1885 he, too, was testing a horseless carriage.

The world took little notice in 1886 of the arrival of an invention that would later transform everyday life. Customers did not flock to the Daimler and Benz companies, yet the entrepreneurs maintained their faith in automobiles. Over the next few years Daimler and his partner Maybach put their engines on street cars and boats. They also sold the French rights to the device to a company that made the technology available to the industrial giant Peugeot. Yet Daimler was still facing resistance from his financial backers who wanted him to concentrate on the established and reliable business of making stationary gas engines. Benz also faced obstacles, but by the early 1890s his cars were selling briskly in France, which embraced the automobile much more readily than did Germany.

It was in the final years of the 19th Century that the automobile age truly began, and Benz was the largest producer of horseless carriages in the world. Benz and Daimler also created trucks, buses, and other motorized vehicles.

The next stage of automobile development was brought about at the instigation of Emil Jellinek, a German entrepreneur living in the French resort Nice. Jellinek commissioned Daimler to produce four cars if they could reach a speed of 25 miles per hour, 10 mph more than the existing limit. Later he put in another order for six vehicles, with the stipulation that the cars have four- rather than two-cylinder engines that would be located in the front.

Finally, in 1900—just after Daimler died—Jellinek persuaded the company to build an entirely new car that was lighter, lower, wider, and longer, with a 35-horsepower engine. Jellinek offered to purchase 36 of the cars—which he wanted to name Mercedes after his daughter—in exchange for the exclusive sales franchise for Austro-Hungary, France, Belgium, and the United States. The Mercedes made its first splash in 1901, during the week of road races held each spring in Nice. It dramatically outperformed all of the other vehicles and was tirelessly promoted by Jellinek. The car became the driving machine of choice for aristocrats and the wealthy, who at this time were just about the only people able to afford automobiles.

Benz was initially left in the dust by the success of the Mercedes, but by the late 1900s the company followed the path of Daimler in setting up foreign sales operations. It also produced a racing car called the Blitzen which, with a top speed of more than 130 mph, was the fastest automobile in the world.

During the First World War Daimler and Benz turned to military production, with Daimler making airplane engines and trucks while Benz made tanks. After the war both companies suffered from the shortage of raw materials and the slump in the car market brought on by the general economic instability of the German economy. Merger talks between the two companies, which had begun tentatively in 1919, became more serious. In 1924 Daimler and Benz combined their sales and promotion departments, and coordinated their product lines; two years later the companies merged completely to form Daimler-Benz AG.

During the 1930s Daimler-Benz enjoyed the support of the Hitler regime, which regarded the success of Mercedes in auto racing as a boost to national prestige. Hitler himself liked to appear in parades and other public events in his convertible Mercedes. In 1933 the company began receiving a government subsidy for its racing activities. Daimler-Benz also benefited from Hitler's elimination of the tax on auto sales and his autobahn highway construction program.

During the Second World War, Daimler-Benz was an important component of the German military effort, producing aircraft engines as well as trucks, tanks, and other martial products. In 1944 the company's factories were heavily bombed by Allied planes. After the defeat of Germany, Mercedes had the stigma of having been Hitler's personal car, but the company set out to rebuild itself. By 1950 Daimler-Benz was producing nearly 34,000 cars a year, a record for the firm. A new series of Mercedes, the 300 line, was well received, and went on to become a favorite luxury car for international celebrities.

By the mid-1950s Daimler-Benz came to be controlled by industrialist Friedrich Flick, who bought up shares at depressed prices soon after the war. The other major investors were the Quandt brothers (who controlled BMW) and Deutsche Bank, which had long held roughly one-quarter of the company. Together these three investors controlled some 80 percent of Daimler-Benz shares.

The company was making great strides, yet Daimler-Benz was still light years behind the mighty U.S. automakers. The company realized that the American market was key to its growth. Sales were initially limited to New York and Los Angeles. Later in the 1950s the company arranged for Studebaker-Packard to distribute Mercedes, but that company (whose days were numbered) was not adept at selling luxury cars. In the mid-1960s Daimler-Benz set up its own sales company, Mercedes-Benz of North America.

Daimler-Benz was not hard hit by the oil crisis of the early 1970s, because Mercedes customers, the world's elite, were undeterred by higher gasoline prices. Its trucks were also enjoying strong demand, though that trend ended by the early 1980s, just about the time that Daimler-Benz acquired the U.S. heavy truck maker Freightliner. In 1982 the company bowed to the new interest in smaller cars and introduced a compact Mercedes, known as the Baby Benz. It initially became quite popular, attracting many customers who had never before dared to buy a Mercedes.

The ownership of Daimler-Benz changed during the mid-1970s: The Quandt family sold its shares to Kuwait, while Flick sold most of his to Deutsche Bank. In the mid-1980s the company sought to shield itself against the vagaries of the auto business by diversifying. Within one year, it purchased MTU, a producer of aircraft engines and diesel motors for ships and tanks; 66 percent of Dornier, a manufacturer of space systems, commuter planes, and medical equipment; and 80 percent of AEG, a leading appliance and electronics company.

Competition in the luxury car field began to heat up in the early 1980s, as BMW, Audi, Jaguar, Volvo, and Saab challenged market leader Mercedes. Daimler-Benz responded by bringing out a new line of mid-size cars, but they were plagued by technical problems. This and other controversies led to the forced resignation of Chairman Werner Breitschwerdt, who was succeeded by Finance Chief Edzard Reuter, champion of the effort to convert Daimler from a car company into an industrial conglomerate.

Once in the top position, Reuter continued the transformation. He created a new subsidiary, Deutsche Aerospace out of MTU, Dornier, and AEG assets as well as the 1989 acquisition of a majority interest in Messerschmitt-Bölkow-Blohm (MBB), the aerospace company that was Germany's representative in the Airbus consortium. This move positioned Daimler-Benz to become Europe's leading aerospace and military supplier.

While this transformation was taking place, Daimler-Benz began to face greater competition in its primary business. The Japanese automakers were moving upscale, challenging the European leadership of the luxury car market with new offerings such as the Lexus from Toyota and the Infiniti from Nissan. Mercedes was also challenged by its domestic rival BMW, which in 1993 overtook it in worldwide sales for the first time.

At the same time, Daimler’s military business was suffering from the decline in orders that accompanied the end of the Cold War. The commercial aircraft market was also weakening. By the mid-1990s, when Reuter was succeeded by Jürgen Schrempp, the consensus was that the diversification strategy had gone too far and that Daimler-Benz had to shore up its auto and truck business.

He sought to do so in a big way with the May 1998 announcement of a $36 billion acquisition of Chrysler Corporation, the number-three U.S. automaker. The massive merger catapulted Daimler into fifth place among the world’s motor vehicle producers.

Chrysler had been built out of the ailing Maxwell Motor Co. in the 1920s by former GM executive Walter Chrysler. It jumped to number three among U.S. carmakers with the purchase of Dodge in 1928, and held that position, managing to survive—sometimes just barely—while dozens of other companies fell by the wayside. Lee Iacocca, who took over as president in 1978, brought the company out of a deep slump, thanks in large part to $1.2 billion in loan guarantees from the federal government. By 1987 Chrysler was strong enough to purchase its smaller rival American Motors for $1.5 billion.

Within a year after the Chrysler takeover was completed, Schrempp was reorganizing the combined company, which had been renamed DaimlerChrysler. He forced out some key U.S. executives, but gave the Chrysler operation more autonomy as one of three separate automotive businesses along with Mercedes-Benz and commercial vehicles.

Back in Europe, DaimlerChrysler reached agreement in 1999 to merge its aerospace business with France’s Aerospatiale Matra. They were later joined by CASA in the creation of the European Aeronautic, Defense and Space Company, or EADS in 2000. That same year DaimlerChrysler agreed to pay more than $2 billion to acquire a one-third stake in Mitsubishi Motors.

When U.S. sales continued to slump, observers began to wonder whether Daimler had made a big mistake in buying Chrysler. In October 2000 the Wall Street Journal wrote: “The mother of the recent wave of global megamergers is looking more and more like a megaflop.”

In an effort to stop the decline at Chrysler, Schrempp replaced the operation’s U.S. chief executive with Daimler veteran Dieter Zetsche, who announced a 20 percent reduction in the carmaker’s workforce. Chrysler started to rebound, thanks in part to the popularity of new models such as the retro-styled PT Cruiser, but then the Mercedes operation began to suffer from quality problems and lagging sales. In January 2005 DaimlerChrysler had to turn to an investment arm of the government of Dubai for a $1 billion capital infusion. Later that year, Schrempp was forced to resign and was replaced in the top spot by Zetsche.

Zetsche sold off the company’s holdings in struggling Mitsubishi Motors, and promoted Japanese-style flexibility in Chrysler’s plants. Still, Chrysler began suffering, along with General Motors and Ford, from the dramatic rejection of gas-guzzling SUVs by Americans in the face of rising fuel prices. In February 2007 Chrysler announced major layoffs and plant closings. Zetsche also let it be known that the company was considering a spinoff of Chrysler.

General Motors reportedly considered making an offer for Chrysler, and corporate raider Kirk Kerkorian, who had tried to buy the company before the Daimler merger, also made a bid. But in the end, an 80 percent stake in the U.S. carmaker was sold to private equity firm Cerberus Capital Management for $7.4 billion, most of which was to take the form of capital investments. Daimler received less than $1 billion in cash, but rid itself of billions in healthcare and pension liabilities. It also rid itself of the Chrysler portion of its name. But rather than reverting to Daimler-Benz, the company decided in October 2007 to begin calling itself simply Daimler AG.

In 2009 Daimler divested its remaining holding in Chrysler, which was in the process of entering an alliance with Fiat. Daimler also sold a 9.1 percent stake in itself to Abu Dhabi’s Aabar Investments PJSC.