If E continues to stand for "excessive" in the current populist environment Daimler is in trouble.
The old Daimler-Benz and the old DaimlerChrysler had a certain swagger that missing these days at Daimler AG. Certainly the worldwide Great Recession and the collapse of auto markets have spooked carmakers from one end of the globe to the other. After speaking with Daimler officials ahead of the company’s annual shareholders meeting, it’s apparent that the big automaker has been chastened by the events of the past two years.
For years, Daimler and its executives from the Mercedes-Benz unit believed the inherent appeal of German luxury vehicles left the company virtually immune to the recessions and economic downturns. This time it’s different, however. Mercedes-Benz sales have dropped more than 20% during the first quarter and brave talk about making up the fall in the U.S. with new sales in China and Russia have turned out to be so much smoke. The downturn in the U.S. also has sidetracked Mercedes’ ambitious plans to make American consumers fall in love with its expensive diesel engines.
But what’s really got Daimler executives spooked now is that the critical U.S. market could undergo a fundamental shift away from the kind of luxury cars that had characterized the “master of the universe culture” that dominated Wall Street from the early 1980s right up until the collapse of Lehman Brothers last September. A New York Times/CBS poll indicates 74% of all Americans think anyone making more than $250,000 per year should pay more taxes, and in this kind of environment luxury buyers are bound to become a bit more cautious, and perhaps thinking the unthinkable — maybe a Lincoln isn’t so bad after all.
Thus, Daimler has limped through the winter with factories running on short work weeks. Moreover, the automaker is expecting to report a loss for the first quarter even though the German government, through one of the country’s ubiquitous social programs, is helping pick up some of the cost of keeping plants running during the recession. Daimler also announced last week more that more production cuts are planned.
In addition, Daimler’s stock price has tumbled from the lofty highs enjoyed after it severed ties with Chrysler in the autumn of 2007. Instead of trading at 100 Euros per share the stock has been trading at around 30 Euros per share and even the injections of several billion dollars of new capital from Abu Dubai hasn’t done much for the stock price, though it has shored up the company’s balance sheet, which was showing signs of bleeding endless amounts of red ink after taking a frightful beating in 2008.
Like other companies, Daimler has always used cost-cutting when it hit a bump in the road but the idea of holding back on spending never really sat well with the company’s luxury image and aristocratic airs. But cost-cutting now prevails in every corner of the company, insiders report.
Daimler has already announced it planned to cut its dividend, a decision that’s certain to be questioned at some length during the shareholders meeting and there are reports that it could be cut again.
In addition, the failures of Chrysler continue to haunt the Daimler. While Daimler head Dieter Zetsche bristles at the notion that Cerberus could take Daimler to court over the Chrysler deal, the divorce from Chrysler still isn’t really complete even though its 19.9% stake is now technically worth zero on Daimler’s books.
Chrysler is always in the background every time the shareholders meeting is called to order because more than $36 billion of shareholders’ money vanished in what turned out to be a disaster for both companies.
Juergen Schrempp once talked grandly about using the Chrysler deal as way to change German and European business practices and customs. It didn’t happen. Instead, Daimler is hoping it can survive the industry’s present ordeal just like any other automaker and without the old Daimler mystique.