- 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.
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.