Daimler CEO Dieter Zetsche
The global recession has punctured the air of invincibility at Daimler AG, as the German automaker reported a 12 percent drop in revenue and a $1.95 billion loss in the fourth quarter.
The troubled fourth-quarter sliced the company’s net profit to $1.8 billion for 2008 from more than $5 billion as the company’s overall revenue dropped by 1 percent, according to the company’s annual financial report. The Mercedes-Benz division, the company’s flagship, lost money in the fourth and the company also reported that its wound up the year with negative cash flow of almost $5 billion, as the economic downturn took a heavy toll on Daimler’s resources.
“During the first half of 2008, we proved how well we perform under normal economic conditions. Many of our business operations were headed for very good results,” said Daimler Chief Executive Officer Dieter Zetsche.
Under the equity-method accounting, Daimler’s 19.9 percent interest in Chrysler reduced the Group’s earnings before interest and taxes (EBIT) for the year 2008 by $1.8 billion versus $482 million in 2007. In addition, the impairment of loans and other Chrysler-related assets, mostly devalued leases, led to charges of $2.35 billion.
The losses, the negative cash flow and weak outlook for sales in 2009 prompted Daimler’s Board of Management to trim the company’s annual dividend by 70 percent.
Daimler executives noted there were additional burdens on earnings from a shift in demand towards smaller models and from exchange-rate effects. The revaluation of leased vehicles’ residual values, necessitated by the significant weakening of the world economy in the second half of 2008, resulted in impairment charges of $595 million, they added.
Sales incentives and higher raw-material prices also had a negative impact on operating profit. These burdens on earnings were only partially offset by further efficiency improvements.
Zetsche, however, said that despite the difficult environment, the Daimler Group invested EUR8 billion to secure its future, EUR1 billion more than in the prior year.
“In order to reduce CO2 emissions even further and to offer vehicles compatible with the needs of the future over the long term, Daimler is working on the optimization of conventional drive technologies and the reduction of vehicle weight as well as on alternative drive systems such as fuel cells and electric vehicles,” the company said in its statement.