I think the worst thing that happened in the merger was that Mercedes threw away was the exceedingly rare spirit of cooperation that Chrysler had with the UAW. Yes, you read that right - the UAW was cooperating with an automaker and *didn't* view them as the enemy! (The above articles WheatKing linked reference this, I'm expanding on the theme here.)
What happened with the UAW at Chrysler was that around 1979, when it was clear Chrysler was going to hell in a handbasket was that Chrysler sat down with the union and said, "Look, you know we haven't been doing well. You may think that we're hiding money or massively overpaying execs. Here's the real books. Go over them yourselves. Maybe you can come up with a better answer, but even if we cut everything on our side to the bone, we have very little time to live unless you help us. If you don't help us, we'll all be out of jobs, both management and labor, and there's nothing we can do."
The UAW (apparently) took the books, had their accountants go over them and the proposed management-side cuts and came back to the table a few days later white as a sheet; apparently the UAW accountants had determined that it was actually *worse* than the Chrysler accountants had claimed. The UAW immediately agreed to the concessions that Chrysler needed and then offered up some additional voluntary concessions, in exchange for restoration plus bonuses if Chrysler managed to survive and prosper. Then the UAW started working with management to fix the problems and get good product out the door, to the point where shop stewards would sit on the drunk, the lazy, and the troublemakers and tell them "Work, do your job right, or we're ALL out of work, even management."
Between this, the bailout, and all the other now-well known factors, Chrysler paid back the loans early and was back on their feet by 1990 as the most agile and most innovative of US makers. The UAW membership rightfully had a feeling of ownership and of having worked to help save the company; and, as the above article showed, the management was willing to get into the trenches and work with them. (There is a possibly apocryphal story about how one day a bunch of assembly line workers at the K-car plant got desperately sick - not faking, really sick - so a bunch of engineers and management came down to the plant and filled the vacancies that day so the product would get out the door.) That extended to more and more cooperation and involvement in the process of making cars on both sides, and even contract negotiations became far less adversarial than usual. Right before the Mercedes takeover, the UAW workers were even starting to be directly involved in product planning sessions, not just engineering practicality discussions. This is why Chrysler, while still having some of the typical UAW issues, had far, far fewer of them than GM or Ford.
Mercedes shows up, announces a few years later that they "vill be runningk ze operations vith proper decorum" from now on", and with that threw away the one time in post-war history that the UAW had actually done something to benefit everyone involved instead of just themselves. With that isolation of labor and management, the UAW justifiably felt betrayed and went back to their old practices.
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A great example of how bad Mercedes screwed up is to look at the interiors of a Dodge Cirrus before the takeover and the current Sebring. Sad to say, but the current interior is obviously cheaper and made of inferior materials to the older car. The switchgear is actually worse. And sure, the Cirrus was obviously parts-bin-engineered, but it was *good* parts in that bin to begin with. Not the highest quality, but good! To use the Mercedes comparison, no, it wasn't quite on par with the S-class, but it was almost as good as the W202 C-class. And the older cars' interiors actually held up well over time, something that I haven't seen on post-takeover designs.
No, Mercedes gets the blame for this one. Sorry.