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Daimler AG navigated strategic divestments and back-office transformation with EY-Parthenon.
The better the question
Daimler AG needed to transform its enterprise globally to prepare its divisions for the future.
In the course of its 130-year history, motion and change have been an inevitable part of the business of Daimler AG. As one of the world’s largest automobile and commercial vehicle manufacturers, its ability to successfully navigate the events of over a century is testament to its foresight and ability to transform.
Ongoing challenges and trends across the automotive industry and beyond necessitated fundamental change at Daimler once again. From increased connectivity and new mobility services, to evolving customer expectations and growing competition from technology groups, Daimler understood that it needed to push its boundaries and strategically leveraged divestments to compete effectively in a highly dynamic environment.
In 2018, Daimler (now known as Mercedes-Benz Group AG and Daimler Truck AG) embarked on a carve-out of its major business units to ultimately create legally independent divisions under the umbrella of Daimler AG. To position Daimler more effectively and strengthen its corporate structure, the company decided to bundle certain units together. Mercedes-Benz Cars and Mercedes-Benz Vans bundled their activities under Mercedes-Benz AG, and separately, Daimler Trucks and Daimler Buses united under Daimler Truck AG. Daimler Financial Services AG and the mobility business were boosted by becoming part of the Daimler Financial Services group.
The new structure aimed to enable each unit to react quickly and with greater agility to fundamental changes in the marketplace. It also fostered greater entrepreneurism and provided each division with the ability to quickly take advantage of new market opportunities. Senior leaders wanted to increase the company’s attractiveness on the capital markets.
As a result of the transformation, cars and vans, trucks and buses, and financial services and mobility, separated into their own legal entities, with Daimler AG acting as their holding company. This structure enabled future flexibility and the chance to prepare any of these new group entities for the capital market. Later, the spin-off of Daimler Truck was decided and took place.
However, getting to that point required the transformation of a global organization with well-established business processes, operations and thousands of employees. In practice, this meant reorganizing hundreds of legal structures across 65 countries and the coordination of countless moving parts. Overall, it would be the largest transformation ever undertaken by the company in terms of scale, impact and its effect on each function.
Daimler recognized the complexity of embarking on a transformation program of this size and decided to seek the support of an external advisor who could provide specialized experience and insight across strategy, operations, finance, culture, technology and innovation. Crucially, Daimler wanted an advisor that could integrate seamlessly with the company and work with all parties – both internal and external – as one global transformation team.
According to Tim Zech, Global Head of Tax, Mercedes-Benz Group AG, Daimler’s long history with EY played a deciding factor in bringing the team onboard. “We were extremely familiar with the way EY teams works. Its core account management system enabled us to work with a few key decision-makers, creating a very agile and flexible process,” says Zech.
On top of this, trust was a core requisite. “It was crucial to have an advisor who not only understood our business, but who also understood our culture, the way we work, and how we like to collaborate,” says Dominik Wellmann, Head of National Tax and Transformation, Mercedes-Benz Group AG.
Daimler recognized that the combination of EY global capabilities, its similar mindset and culture made it the right organization to help transform and reorganize the organization.
The better the answer
Working globally helped ensure local transformation through corporate restructuring.
How EY can help
Our divestiture services can help you with portfolio management to improve value from carve-out, spin-off or joint venture. Get in touch today.
Read moreEY teams served as a lead advisor on the Daimler restructure for more than two years, with over 500 people working around the globe across all service lines. Artificial intelligence (AI)-based software applications, analytics technology, and dedicated digital platforms helped enable the teams to handle the load and make the restructure and subsequent carve-outs a reality. The program was steered by Daimler, with the main team headquartered in Germany. This Daimler team was primarily supported by EY global teams, with the EY team in Germany taking the lead.
This global set-up meant that EY teams could help Daimler to orchestrate various work streams at all times. From the beginning, strong organizational processes with internal tracking and reporting were integral to highlighting potential risks at each stage of the restructure.
During this period, one of Daimler’s key considerations was related to how the restructure would affect Daimler’s tax obligations across different jurisdictions. “One of the reasons the Daimler and EY teams focused so much on tax was because of the ripple effect of changing Daimler’s structure within each jurisdiction,” explains Zech. “We needed specialized support to ensure no mistakes were made and constant communication with various local and national tax authorities. Also, any action taken by the tax team needed to be fully aligned with the interests of legal, accounting and the wider business.”
The team also grappled with the fact that tax legislation changed in some jurisdictions during the course of the restructure. This caused the concern that Daimler would need to navigate unexpected tax consequences. Continuous interaction between cross-functional teams meant that a cascade of local and regional communication and information helped the organization keep control of its tax compliance and avoid negative tax consequences, while continuing with the overall reorganization.
“The teams had to make sure that Daimler complied at all times globally with tax and other legal rules and obligations, while also helping to ensure a seamless transformation of the business worldwide with the project and the operational teams, within a certain time period,” Zech notes. “We needed a tax team (from Daimler and EY teams) who was highly skilled and experienced and who could maintain a high level of motivation to stay focused over the whole time period.”
The scale of the reorganization required Daimler to split and transform an array of processes within each business division. For example, the restructure required the dismantling of the company’s fully integrated IT system, which was particularly important for tax purposes. The company needed to separate its IT systems and processes so that each legal entity had its own functioning system. One of the first steps the Daimler and EY teams took was a complete examination of Daimler’s IT system landscape, the location of the most relevant systems, and their importance.
Given the relevance of IT to each business line, this phase required intense communication between all teams to make sure everyone was up to speed. “We needed to inform IT of the explicit reasons behind restructuring the existing IT system and the direct tax implications of not doing this correctly,” explains Zech. Throughout this phase, the EY teams’ capabilities in tax and technology supported direct and frank discussion with each IT lead, uniting tax and IT in their understanding of the program.
“Our complete trust in the EY team meant that we were extremely comfortable with the team interacting with our business leads, even on their own,” says Wellmann. “Not having to be with them at every meeting gave us more time to handle competing priorities, given the complexity of the project.” The program was not only about assets, but even more about people. The new structure meant that all Daimler employees needed to be reallocated. Getting the allocation of employees right was not only vital for tax compliance but just as important to ensure the operational excellence of the group. However, the corporate restructure was a very sensitive topic and addressing the concerns and needs of the employees and their representatives at all stages of the project was one of the main goals of the overall project management. "The EY team understood how important this was for us and helped us to tackle this topic in a very emphatic way,” says Zech.
Throughout the program EY teams deployed numerous resources to support Daimler’s back-office function in its assessment of critical and non-critical work. Working through these needs quickly, with a large number of resources, help ensured strong business continuity and helped prepare Daimler to witness first-hand the benefits of enhanced agility, flexibility and customer centricity. “One of the key roles the EY teams played was in bringing these people together, helping them to navigate difficult challenges, and offering continuous constructive feedback to make the restructure and carve-out a success,” says Zech.
The better the world works
The final step was positioning Daimler on a path to growth after corporate restructuring.
The successful creation of three legally independent divisions offered Daimler greater agility, closer customer proximity, and the ability to be innovative and grow. The corporate restructure also put Daimler Truck AG in an advantageous position for its potential spin-off.
“One of the reasons the corporate restructure was so successful was the constant communication between all teams and repeated conversations about ‘why’ it was happening and why the envisaged specific way of separation was so important,” explains Zech. “Failure to constantly explain this over a two-year period could have bred resistance and tension within the company. It was important for us to have broad consent for the final push from several stakeholders.” Instead, communication was deemed the responsibility of all leaders – not just the communications team – and therefore every function felt recognized and heard on topics ranging from tax and legal to operations and accounting. “We discovered that being open and transparent, even on difficult issues, helped us greatly during the entire program,” says Wellmann.
Overall, EY teams advised on the transformation of more than 800 legal entities in more than 60 countries, covering Daimler’s processes, employees, assets, contracts and systems. Dedicated professionals at EY provided cross-functional skills and experience to deliver the work.
The EY teams’ open culture proved a significant advantage, says Zech. “They had a great team spirit – we could completely trust whatever they were working on, with the trust and understanding that they were doing their best for the program. Incidentally, this was also one of the most common pieces of feedback we received from other external parties throughout the program.”
Ultimately, the corporate restructure of the 130-year-old company was a vital step in ensuring Daimler’s future viability and offered its leadership a mandate for continued future transformation.
