Mercedes isn’t looking too reliable these days

When Volkswagen AG admitted rigging diesel emission tests in September 2015, its German rival Daimler AG sounded pretty dismissive in defending the compliance of its own Mercedes-Benz vehicles. “We categorically deny the accusation of manipulating emission tests regarding our vehicles,” the luxury car giant said.
If Daimler shareholders concluded from that statement that the company wouldn’t have to recall any diesel vehicles, or that it wouldn’t face any financial or legal repercussions related to its diesel emissions, they’ve been sorely disappointed.
This was Daimler’s third profit warning in 12 months and all have involved unexpected diesel costs to some extent. The shares gave up about 2 billion euros of market value on June 24– more than twice the expected hit to profit – which suggests investors fear this won’t be the end of it. On diesel, Daimler is in danger of being seen as unreliable counsel.
Daimler has, though, recalled millions of diesel vehicles since 2015 after several models were shown to have belched out far more nitrogen oxide pollution when driven on streets than when tested in the laboratory. In fairness, Mercedes is by no means the only carmaker where that’s been the case. But national regulators have at times seemed oddly reluctant to investigate or punish such large employers.
Mercedes’s latest recall came over the weekend when thousands of GLK diesel SUVs were called back to the garage because of software that the regulator said potentially distorted test results.
The car giant has a new chief executive and new chief financial officer and therefore a rare opportunity for a fresh start. Getting to grips with the diesel problems, and communicating about them more transparently, needs to be a top priority.
There’s a danger it will become a millstone instead. Daimler has invested heavily in a new diesel engines and recent tests have shown them to be relatively clean. Selling lots of those vehicles would help lower the carbon dioxide emissions of the Mercedes fleet and thus avoid regulatory fines. However, another barrage of negative diesel headlines won’t help reassure a still skeptical car-buying public.
At a time when heavy spending on electric and autonomous driving technology is putting pressure on Daimler’s cash flow, unexpected diesel costs are the last thing it needs. No wonder it’s been so vocal about the need to cut costs. Mercedes-Benz’s corporate slogan is “the best or nothing.” Right now it feels like the latter.
—Bloomberg