Daimler CEO Dieter Zetsche the automaker is taking efficiency measures to reduce costs as it forecasts lower earnings.
Daimler AG expects its earnings to fall in the third and fourth quarter as the economic conditions in Europe in general and in the car business in particular continue to deteriorate.
Daimler CEO Dieter Zetsche said at a Stuttgart press conference that Mercedes-Benz Car, including Smart, has already taken efficiency measures in response to the market decline and is setting up a savings project dubbed “Fit for Leadership.” Daimler’s earnings before interest and taxes at Mercedes-Benz Cars totaled $6.7 billion. The unit’s first-half operating profit fell 10 percent and Zetsche said second-half earnings will decline from the first six months of 2012.
“The overall environment in Europe is deteriorating, with more negative developments than expected,” Zetsche said. Overall, the operating profit of Daimler’s passenger car division would fall short of the sum it had earned in 2011, the German carmaker said in an earnings forecast.
“We experience mounting difficulties with the market situation in Europe,” Zetsche said in a statement, adding that markets on the continent were developing “more negatively” than originally expected by the automaker.
In addition, the competitive environment in the Chinese market has become “significantly fiercer,” he said.
In July this year, Daimler’s luxury car division reported the first decline in sales in three years, but reclaimed growth in August.
However, the slump in European markets has worsened in September, proving a mounting burden on the earnings of all European makers. After years of robust growth in Asian markets, the situation there also appears to be turning around on the back of slower economic growth in China and weaker demand for cars.
Up until, now German luxury makers have avoided the crisis, thanks in part to strong exports to China and the U.S.
Fiat, Peugeot, Renault, Ford and Opel have all faced varying degrees of financial difficulties since the first of the year. European car sales for 2012 are now expected to drop to their lowest level in 17 years, according to recent estimates by analysts.
Porsche said also that it would build fewer cars next year, reduce investments and cut costs to combat weaker markets.
Although key Mercedes markets such as Germany have begun to contract only since the start of the third quarter, Daimler reassured investors in late July that it still expected its cars business to achieve flat earnings this year, analysts noted.
“Daimler’s warning … reaffirms its status as the most unlucky of the German OEMs (manufacturers). No other German automaker seems as prone to misfortune and misses,” wrote Bernstein analyst Max Warburton, who had predicted in June that Daimler would be forced to cut its earnings guidance.
Mercedes suffers from far more significant problems in China than its competitors, which Zetsche has partly blamed on its local sales organization. China sales grew only three percent last month, whereas BMW sold 38 percent more cars and Audi ‘s increased by 24 percent.