- Two automotive manufacturers join forces
- Working together to survive the Great Depression of the 1920s
As early as 1916, during the First World War, the DMG Board of Management member Ernst Berge attempted to convince the DMG Supervisory Board of the benefits of merging the two great car manufacturers Daimler-Motoren-Gesellschaft and Benz & Cie. But the chairman of the Supervisory Board of DMG, Alfred von Kaulla from the Württembergische Vereinsbank, put an end to early plans for a merger, fearing this would hand too much influence to Benz & Cie.’s bank, the Rheinische Creditbank, whose director, Carl Jahr, also had a seat on the Supervisory Board of Benz & Cie. In 1919, Carl Jahr once again made efforts to attempt to pool the forces of DMG and Benz during the difficult post-war years. But again he was unsuccessful, his plans once again thwarted by von Kaulla. This merger sceptic died in January 1924.
Shortly afterwards, Carl Jahr presented a memorandum in which he explained how a merger would enable the two car manufacturers to safeguard their competitiveness and cut costs at the same time. In his opinion, the only way the two historic companies could survive the economic and political upheavals of the 1920s was through rationalisation. In 1924, Carl Jahr, the Supervisory Board member at Benz wrote, ‘the figures reduced to gold values spoke a sad language’. It was now high time for the two southwest German companies to start working together in order to restore them to competitiveness. Jahr urged them now to ‘dedicate to a common cause the financial and material sacrifices they formerly made in fighting one another – the more so now that they both belonged to the same banking group’.
For in the meantime the banking sector in Germany had also been forced to rationalise: following mergers with the banks used by DMG und Benz & Cie., the Deutsche Bank was now represented on both Supervisory Boards and therefore had considerable interest in pooling its investments in a single large and healthy company.
In the contract declaring a community of interests dated 1 May 1924, DMG and Benz & Cie. set the seal on a joint venture ‘while retaining their legal autonomy’ – and in a form which ‘excluded the pursuit of any special commercial interests’. In that sense, the community of interests, which was a common cooperative model in Germany at the time, bore a very close resemblance to a merger. This was also born out in the almost irrevocable term of validity of the community of interests contract, which was valid until the year 2000. Although a complete merger was the ultimate goal from the outset, for tax reasons this was not the preferred option in 1924.
Stock capital was fixed at 600 DMG to 346 Benz shares. From now on, profits would be split accordingly. A ten-man board was established as the supreme authority, which was chaired by the director of Deutsche Bank, Emil Georg von Stauß. Board of Management and Supervisory Board members were appointed deputy members of the boards of the other company; in this way, Carl Benz also had a seat on the Supervisory Board of Daimler. The contract regarded the two companies as a single business entity and empowered the new management to make sweeping changes to the corporate structure. The company of interests was obliged to have in place joint policies on programmes and models and to harmonise dividend policy.
On 8 May, one week after the signing of the contract, the two Supervisory Boards also approved the community of interests between DMG and Benz. In late May Mercedes-Benz Automobil AG was created as the joint sales organisation. And in November 1924 the two boards also agreed an integrated approach to materials procurement.
In terms of strategic alignment, however, the two companies initially went their separate ways. Whereas the Board of Management at DMG aimed at rapid mass production in line with the American model, the Benz directors were looking for cautious modernisation. The Stuttgart company intended to diversify into marine and aero engine construction and hoped to expand by adding a steelworks and a coal mine, in order to get mass production under way as soon as possible.
The immediate goal of the Mannheim company, on the other hand, was to become competitive again in the automotive sector, preferring to develop series production rather than start up costly mass production. Costs could be cut by buying all components and significantly reducing the number of models. This concept, the option ultimately agreed, was proposed by Carl Jahr in a memorandum. Ideally a plant should produce just one car – ‘as precisely worked through and as high-volume as possible’.
At least there was agreement at the start of the community of interests on standardising and simplifying models. In future each plant would produce only one model. Mannheim started building the 2-litre engines, and Untertürkheim the 4- to 6-litre engines. Gaggenau became the production facility for trucks under 4 tonnes, and Marienfelde turned out the heavy duty vehicles. In addition, the design departments were merged and body building concentrated at Sindelfingen.
Merger: the birth of a company with an illustrious name
By 1900, Benz & Cie. was already producing over 600 vehicles per year, six times more than DMG. Although Daimler-Motoren-Gesellschaft managed to narrow the gap drastically by 1925, when it built 2,287 vehicles, its production figures still fell some way behind the competition from Mannheim, which produced 3,624 vehicles in the same year. By the time of the merger, however, the companies’ key economic indicators were almost identical. In fact, with sales totalling 52.1 million Reichsmarks, Benz & Cie. was even lagging slightly behind DMG, which achieved sales figures of 52.8 million Reichsmarks. At this point Benz had a workforce of 7,250 employees and Daimler-Motoren-Gesellschaft 7,855.
Daimler-Benz AG (DBAG) resulted from the merger between Benz & Cie. and Daimler-Motoren-Gesellschaft agreed by the annual meeting of shareholders of the two companies on 28/29 June 1926. This union between the two companies was formally established through a 1:1 stock swap, with Daimler-Motoren-Gesellschaft acting as the receiving company and changing its name to Daimler-Benz AG.
Berlin was deemed the site of company headquarters under commercial law, as had previously been the case for DMG, although the main administrative headquarters were located in Stuttgart-Untertürkheim. The new Board of Management was made up of an equal number of members from the boards of the two predecessor companies, so that there was no discernible leaning to one side or other. This was underscored by the fact that no board chairman was appointed.
It would be some time before the emergence of Daimler-Benz AG’s first leading figure – the former Benz employee, Wilhelm Kissel.
New vehicle models lead the way out of the Great Depression
The Great Depression of the late 1920s forced Daimler-Benz to make savings wherever possible also. This meant, for example, that company management returned increasingly to the policy of producing parts in-house instead of having them supplied by outside companies. Expanding the vertical range of manufacture would in this way compensate for insufficient utilisation of capacity.
Circumstances during this period also necessitated fundamental changes to the model policy: Mercedes-Benz launched a relatively small passenger car, since the general trend was towards smaller cars. The 170 model with 1.7-litre displacement was presented at the Paris Motor Show in autumn 1931. With a price tag of 4,400 Reichsmarks, it was roughly 25 per cent less expensive than the next cheapest model from Daimler-Benz. And it proved a great success, for with the other passenger cars in the 2.1-litre class it was able to compensate for the slump in sales in the prestige car and truck segments. In 1932, Daimler-Benz achieved total sales of approximately 5,800 passenger cars, 1,500 more than the previous year. Commercial vehicle sales, on the other hand, fell from around 2,000 to less than 1,600 during the same period.
Although Daimler-Benz produced more vehicles during the general economic upturn of the 1930s, the 7,970 units turned out in 1933 were almost doubled to around 15,000 passenger cars in 1935. At the same time, the company experienced below-average growth, for domestic vehicle registrations for the same period fell from 9.6 per cent to 6.4 per cent. Only with the advent of the 4-cylinder Mercedes-Benz 170 V did the company begin once again to earn market share from 1936 onwards. With sales totalling 90,000 units, the 170 model was the most successful Mercedes-Benz in the run-up to the Second World War.
In addition, the banker Emil Georg von Stauß, from Deutsche Bank, saw joint ventures as a way of surviving the economic crisis. In the early 1930s, for example, the Sindelfingen plant also produced bodies for BMW. There was even a strengthening of ties at management level. For although Franz Popp, BMW’s managing director, had been a member of the Supervisory Board of Daimler-Benz AG since 1926, the 1930s even saw a personal union between the Supervisory Boards of BMW and Daimler-Benz. This meant that DBAG was henceforth represented on the Supervisory Board of BMW and BMW at DBAG. It is not particularly surprising that Deutsche Bank should have had such influence on the companies, since the credit institute’s financial support played a significant part in enabling Daimler-Benz to survive the financial crisis.
At the lowest point of the Great Depression, the American car manufacturer Chrysler made an approach to Daimler-Benz. An employee of the Deutsche Bank Board of Management, a man named Lewinski, drafted a memo on behalf of his superior Emil Georg von Stauß and Daimler-Benz Board Chairman Wilhelm Kissel. This stated that Chrysler was looking for a German partner to assemble the 4-cylinder, 38 hp (28 kW) Chrysler model that had proved so successful in the US and offer it with a price tag of 4,500 Reichsmarks. However, Daimler-Benz had just brought out a vehicle in this price category in the form of the 170 model, and in addition Chrysler was unwilling to commit financially to a German company. Consequently nothing became of the German-American alliance at this stage.
Run-up to the Second World War
The profound social, economic, social and political crisis of the early 1930s helped the National Socialists to seize power on 30 January 1933. A raft of job creation measures and public investment set Germany aside from the rest of Eurosope. While other countries continued to battle with the impact of economic depression, the Germans could take pleasure in an “economic miracle” – albeit one for which they would pay a very high price. Armaments-related industry was controlled and financed by the state; support such as this became completely overt from 1935/36 onwards.
By late 1932, the German automotive industry was already experiencing the green shoots of recovery and could look to the future once again with greater optimism. In other words, the upturn arrived of its own accord – not with the advent of the National Socialists. Nevertheless, Adolf Hitler regarded general motorisation as critical for the ‘technological war’ of the future. Consequently, soon after the Nazis came to power the many facets of car manufacturing received relief and benefits in the form of tax breaks, a reduction in liability tariffs, and state sponsorship of motorsport events. The ‘Volkswagen’ or ‘people’s car’, designed in 1938 by Ferdinand Porsche, a former director at DMG and Daimler-Benz, was also born out of this concept of mass mobilisation.
The automotive manufacturers had sufficient capacity to meet rising demand. In 1933, passenger car production rose to 92,300 units, more than twice that of the previous year. In December 1933, Daimler-Benz became Germany’s third largest automotive manufacturer, with a market share of 11 per cent. By 1936 annual production in Germany had reached 250,000 passenger cars. The workforce employed in the motor vehicle industry increased threefold between 1932 and 1936, and by 1938 the German automotive industry had an 8.2 per cent share of global car production – but twice that of the 3.7 per cent achieved in 1933. Moreover, the manufacturer’s succeeded in selling more and more cars for export, while at the same time the German government restricted imports: in 1938 66,600 passenger cars were exported, with just 8,090 cars imported.
As with the boom in the German economy as a whole, the upturn at Daimler-Benz was driven chiefly by domestic demand initiated by the state. Exports at Daimler-Benz AG rose between 1933 and 1937 from 7.5 to 11.3 per cent; but in 1938 they fell again to 8.7 per cent. For Daimler-Benz the export business brought unavoidable losses, so that in 1936 for example there was a deficit of 7 million Reichsmarks for an export volume of 26 million Reichsmarks. A shortage of foreign currency and restrictions in the supply of raw materials were presumably the reason why the company nevertheless kept the export business going.
In the pre-war years, foreign trade was subject to authorisation. While the regime had no problem with exports to allied countries such as Spain, Italy, or Japan, business dealings with France or the US were frowned upon. Since this basically resulted in the loss of Western industrialised nations as export markets, Daimler-Benz began looking increasingly to sales markets in southeast Europe, South America and the Far East.
Shortage of materials
Growth in the industry slowed markedly from 1936 onwards on account of arms manufacture. Materials became scarce. After significant increases in the previous years, passenger car production increased by only 28,000 units from 1936 to 1938. The reason for this was a bottleneck in supplies such as rubber tyres in 1936. In addition, on 1 May 1937 a quota system was introduced for iron and steel.
Following the attack on the Soviet Union in June 1941 the National Socialists (Nazis) told German industry to step up armaments production. Even before the outbreak of war, the regime had prescribed for companies which products were to be given priority mrpduction status. The ‘total war,’ as it was labelled, called for a ‘total war economy.’ And since the army dispatched an increasing number of men from the factories to the front line, the companies were forced to look to women and forced labourers as replacements. The latter group included prisoners-of-war and internees from the concentration camps, deprived of their rights by the Nazi regime and forced to suffer inhumane working conditions.
From 1937 onwards, Daimler-Benz AG increasingly turned to armaments manufacture, including the LG 3000 truck DB 600 and DB 601 aeroengines, because that was what the Nazi leaders demanded. In 1936, the Genshagen plant was built at a well-hidden site in the forests south of Berlin in order to create additional capacity close to the Marienfelde plant for aeroengine production. In the run-up to the war arms production increased steadily as a fraction of company turnover. By summer 1941, no one on the Board of Management at Daimler-Benz AG under Chairman Wilhelm Kissel believed the war would be a short one with a swift return to the production of civilian vehicles. The largest corporate division was truck production; on the other hand, passenger car production – which since the start of the war had been restricted to vehicles for military use – went into decline and by late 1942 had virtually ceased altogether. The company now accelerated the production and assembly of military components for the German Army, Air Force and Navy. Also the parts production and repair of military vehicles and engines gain great importance. Increased armaments production also called for new workers, since many employees were already fighting as front-line soldiers. To begin with the company employed women in order to meet the required unit numbers. But since this new workforce was insufficient, Daimler-Benz also use forced labour. These prisoners-of-war, abducted civilians and prisoners from the concentration camps were accommodated close to the plants: forced labourers from Western Eurosope were housed in hostels, private quarters or schools. ‘Eastern workers’ and prisoners-of-war were interned in poor conditions in barrack camps. Prisoners from the concentration camps were guarded by the ‘Schutzstaffel’ (SS) of the NSDAP (National Socialist German Workers Party) in degrading and inhumane conditions. They were ‘loaned’ to companies for a fee. By 1944, almost half of the 63,610 Daimler-Benz employees were civilian forced labourers, prisoners-of-war or concentration camp prisoners.
After the war Daimler-Benz admitted its complicity with the Nazi regime and worked closely with the initiative ‘Erinnerung, Verantwortung und Zukunft’, a foundation of German industry, which called for humanitarian compensation for former forced labourers.