Daimler Posts Loss, Speeds Up Cutbacks -- WSJ
July 25 2019 - 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 (July 25, 2019).
BERLIN -- Daimler AG, the maker of Mercedes-Benz cars, said
Wednesday that it would step up cost-cutting efforts in the second
half of the year after reporting the company's first quarterly loss
in a decade.
Like other leading German auto makers, Daimler is caught between
a slowdown in sales and an increase in investment to develop
electric and self-driving cars. A tailspin in the luxury segment
after years of robust growth has hit its Mercedes brand, while
rivals BMW AG and Audi, a unit of Volkswagen AG, have hit rough
patches and recently switched out their top management.
Highlighting the troubles for luxury brands, shares of Aston
Martin Lagonda Global Holdings PLC, the brand made famous by James
Bond, plunged nearly 25% Wednesday after the company cut its
outlook on weak sales to dealers.
Slumping earnings of Europe's luxury-car brands, once the
industry's biggest earners, are now even trailing big-volume
manufacturers, which traditionally earn much lower margins. The
trend was highlighted by Peugeot on Wednesday, which reported a
profit margin in its core automotive business of 8.7%, surprising
analysts.
Despite the luxury-car industry's travails, Daimler's descent
into ill health is sudden and unexpected. The company produced
record earnings for years and has been flush with cash to spend on
new models, technology and factories.
At the end of 2018, the company had around EUR16.3 billion
($18.2 billion) in the bank, but by the end of June just EUR6.7
billion remained, according to its second-quarter report, its
lowest amount since the financial crisis.
Earlier this month, Daimler issued its fourth profit warning in
a year, lowering its overall outlook for 2019 after a bruising
second quarter. Earnings in the three months to the end of June
were dragged down by the Mercedes-Benz cars and Mercedes-Benz Vans
divisions, which reported losses before interest and taxes of
EUR672 million and EUR2 billion, respectively.
Daimler's problems include an array of one-off issues including
recalls of vehicles related to faulty Takata air bags, and criminal
investigations into the company's business and emissions systems
that prompted EUR4.2 billion ($4.7 billion) in extraordinary
expenses in the second quarter.
The Stuttgart-based car manufacturer said earlier this month
that these charges would result in a EUR1.6 billion loss before
interest and taxes, the company's first quarterly loss since the
fourth quarter of 2009.
Ola Källenius, a Swede who became chief executive of the premium
car maker in May, replacing longtime CEO Dieter Zetsche, said his
first task in the coming months would be to shore up the company's
operations and stem the outflow of cash.
"We are intensifying the group-wide performance programs and
reviewing our product portfolio in order to safeguard future
success," Mr. Källenius said in a statement as the company reported
details of its second-quarter earnings.
Mercedes-Benz, the leader among Germany's big three luxury
brands, has seen sales of its flagship passenger cars fall in
nearly every major market except China in the first half of the
year. Overall, Mercedes-Benz's car sales fell 4.7% to 1.13 million
vehicles world-wide in the first six months of the year.
Mercedes-Benz's U.S. sales fell 7.2%, the steepest regional
decline.
"Getting to the top of a corporation is a life-long ambition for
many hard-charging executives," said Max Warburton, an automotive
analyst at Bernstein Research. "But right now, it probably doesn't
feel like much fun."
Daimler swung to a net loss of EUR1.33 billion in the second
quarter from a profit of EUR1.73 billion a year earlier. Revenue
rose 5% to EUR42.7 billion.
Achieving a lasting turnaround may not be easy. In its interim
report, the company listed numerous investigations into its
business by regulators and public prosecutors in the U.S., Brussels
and Germany.
This week, Daimler's longtime Chinese partner, Beijing
Automotive Group Ltd., said it was acquiring 5% of the company,
bringing a second Chinese investor on board after billionaire Li
Shufu's Geely group took a nearly 10% stake in the company last
year. Having two rival Chinese auto companies as core shareholders
with nearly 15% of the company between them could make it harder
for the new management to focus on repairing the business, analysts
said.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
July 25, 2019 02:47 ET (06:47 GMT)
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