Scandal, Recalls Hurt Daimler AG -- WSJ
October 21 2017 - 3:02AM
Dow Jones News
By William Boston
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 21, 2017).
BERLIN -- Daimler AG on Friday reported a sharp fall in
third-quarter profit, as its flagship premium car brand
Mercedes-Benz was hammered by airbag-related recalls and the cost
of fixing emissions controls on diesel vehicles.
The downbeat results from Daimler, the first of Germany's big
auto makers to report this earnings season, could signal more bad
news to come from the industry as the fallout from the diesel
emissions-cheating scandal that began with Volkswagen AG in 2015
continues to spread throughout the auto industry.
Daimler said net profit fell to EUR2.18 billion ($2.58 billion)
from EUR2.60 billion a year ago, while earnings before interest and
taxes -- the measure most closely watched by investors -- declined
14% to EUR3.46 billion. Profit was hit by currency fluctuations and
charges -- EUR230 million to cover recalls connected to airbag
issues and EUR223 million to fix or swap tainted diesel
vehicles.
Total revenue -- including Mercedes-Benz, Daimler Trucks and a
growing stable of car-sharing and ride-hailing operations -- rose
6% to EUR40.8 billion.
Daimler's earnings came just days after it said it was taking
steps to consolidate its five business divisions into three
separate registered companies, sparking speculation that the
businesses could be spun off to investors.
The company has dismissed suggestions of a possible breakup,
with Chief Finance Officer Bodo Uebber saying the move simply
creates "the best-possible structure for the future."
"We do not intend to spin off these businesses," he said
Friday.
Separately, Mr. Uebber said the company had applied for key
witness protections in an ongoing European Union investigation into
potential antitrust violations in the European auto industry. The
move comes after Volkswagen revealed earlier this year that it had
alerted European regulators to potential competition issues related
to cooperation agreements between German car makers that might have
suppressed costs of technology.
Car makers have said that they routinely cooperate in a variety
of industry working groups and committees to achieve
standardization of new technology. Daimler hopes that by aiding the
EU's inquiries any potential fines could be reduced.
During the third quarter, Daimler's truck division posted a
strong rise in earnings but its Mercedes unit went in reverse.
As well as charges, earnings were hurt by costs related to the
launches of Mercedes' new flagship S-Class, X-Class light-utility
vehicles and the company's first electric heavy truck.
Research and development spending on new vehicles and products,
part of the company's push to build electric cars, digital
services, and develop self-driving vehicle technology, also rose in
the quarter to EUR2.3 billion from EUR1.9 billion.
Mounting costs related to the industry's diesel emissions woes
were among the biggest headwinds hitting Daimler's bottom line.
In the face of threats to ban diesel vehicles from cities to
reduce pollution, Daimler and other auto makers recalled millions
of diesel vehicles to tweak software to improve emissions
controls.
For older vehicles that couldn't be fixed through the software
update, auto makers are offering up to EUR10,000 in discounts for
owners who trade in an old model to purchase a new car, regardless
if the new vehicle is diesel, gasoline or electric.
"Around 60% of the vehicles affected in Germany have been
updated," Mr. Uebber told reporters on a conference call.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
October 21, 2017 02:47 ET (06:47 GMT)
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