Abu Dhabi, UAEMonday 23 September 2019

Daimler crashes to second-quarter loss of €1.5bn

Luxury German car maker reduces its sales outlook for Mercedes-Benz cars after its earnings tumble from €2.6bn profit in the second quarter last year

Mercedes star Daimler's HQ in Stuttgart. The luxury car maker's profits were hit by costs relating to airbag problems. AFP
Mercedes star Daimler's HQ in Stuttgart. The luxury car maker's profits were hit by costs relating to airbag problems. AFP

Luxury car maker Daimler said it would intensify cost cuts after legal risks for diesel-related issues and the cost of replacing Takata airbags triggered a €1.56 billion (Dh6.38bnn) loss before interest and taxes in the second quarter.

The company reduced its sales outlook for Mercedes-Benz cars and said €4.2bn in one-off expenses hit earnings, mainly at the cars and vans divisions, contributing to an operating loss at group level, compared with a €2.6bn profit in the second quarter last year.

"We can't help but note that this is the lowest level of money in the bank since the depths of the financial crisis," Bernstein Research analyst Max Warburton said. "Raising Daimler's operating performance is not going to be a quick fix."

Daimler pledged to cut costs in response but provided few details under new chief executive Ola Kaellenius, who took up the top job two months ago.

"In general, we are intensifying the group-wide performance programs and reviewing our product portfolio in order to safeguard future success," Mr Kaellenius said on Wednesday.

Daimler will provide details about potential cost cuts and its strategy on November 14 during its capital markets day.

Earlier this month, the Stuttgart-based car maker had given an initial outline of earnings in what amounted to its fourth profit warning in 13 months, saying its 2019 group earnings before interest and tax would be "significantly" lower than last year.

Daimler said it now expects unit sales for Mercedes-Benz Cars to be at the prior-year level, revising its previous forecast of achieving a slight increase, following a sharp slowdown in demand in China.

Daimler said on Tuesday that China's Beijing Automotive Group Co Ltd (BAIC) has bought a 5 per cent stake in the company, cementing their long-standing alliance.

Unblocking supplier bottlenecks that have delayed production of Mercedes-Benz GLE and GLS models will help push sales of luxury cars in the second half of 2019, Mr Kaellenius said.

"Daimler is blaming supplier bottlenecks and quality issues pretty much across all divisions for its poor financial performance. These are certainly not external factors outside of management’s control," analysts at Evercore ISI said.

Daimler made a provision of €2.6bn to cover diesel-related expenses in the first half of 2019 after German regulator KBA ordered a recall of 60,000 Mercedes-Benz GLK models, claiming the vehicles made use of illegal engine software. Daimler has appealed the KBA ruling.

The car maker declined to break down in detail how much of the amount was allocated for recalls, updates and potential fines and litigation.

Daimler's diesel pollution levels are being investigated by prosecutors in Stuttgart, Germany, where it is headquartered, as well as by the US Environmental Protection Agency and the California Air Resources Board.

Pressure to clean up combustion engines has come at a time when the industry has to invest heavily in electric and self-driving vehicles, and cope with weak markets in Europe and a rise in global trade tensions.

Passenger car sales slowed 3 pe cent during the quarter and the return on sales at Mercedes-Benz Cars swung to a negative 3 per cent in the quarter, down from 8.4 per cent in the year-earlier period.

Updated: July 24, 2019 01:56 PM

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