Daimler vows to cut costs to fight political, economic risks

Bloomberg

Daimler AG is preparing a “comprehensive” cost-cutting program to secure profitability as the German automaker fights through a US-China trade spat, slowing demand in Europe and North America and surging expenses to develop electric vehicles.
The Mercedes-Benz manufacturer is stepping up efforts to shore up margins and counter pressures that are unlikely to blow over anytime soon. After a 29 percent drop in 2018 net profit, Daimler cut its dividend for the first time in nine years and forecast only a “slight” increase in earnings before interest and tax this year.
“The environment will remain extremely challenging in 2019,” said Chief Executive Officer Dieter Zetsche. “That’s why why we must continue working intensively on our efficiency,” as profitability is a “prerequisite” for investing in new technologies.
Zetsche, who was presenting Daimler’s earnings for the last time, declined to specify the extent of the cost-cutting targeted, saying the measures are just being initiated and haven’t yet been defined. The shares fell as much as 3.6 percent on the cautious 2019 outlook, which includes a small increase in revenue.
The car industry has come through a difficult few months marred by trade tensions and declining sales in the US and China, the world’s two biggest car markets. Demand headwinds add to the strains caused by spending to develop self-driving, electric vehicles — investment that will take years to pay off. Daimler’s research and development spending rose to 9.1 billion euros ($10.4 billion) in 2018, and the company said capital expenditures would remain high this year.
The pressures prompted two profit warnings by Daimler last year, partly due to China’s trade spat with the US, which led to added tariffs on its Alabama-made SUVs. The company, which is also the world’s largest maker of heavy trucks, warned of geopolitical risks and a slowing global economy this year. It expects worldwide demand for cars to be flat in 2019.
Daimler shares fell 2.9 percent to 51.38 euros as of 10:47 a.m. in Frankfurt, the most in a month. The stock has tumbled 26 percent over the past 12 months, valuing the company at 55 billion euros.
Earnings declined in all divisions except heavy trucks in 2018. Profitability in the key Mercedes-Benz Cars unit narrowed to 7.8 percent from 9.4 percent a year ago, revealing the strains of investing in major technological shifts while also battling trade wars and volatile political and economic developments. For this year, Daimler forecast a profit margin of 6 percent to 8 percent for Mercedes — below target levels as lucrative SUVs get overhauled and spending on electric vehicles, like the new EQC sport utility vehicle, dilute earnings.
“We cannot and will not be satisfied with this,” Zetsche said. “That’s why we have started to develop comprehensive countermeasures” with the goal of returning to target levels of 8 percent to 10 percent by 2021.