“The best or nothing” was the motto coined by Gottlieb Daimler, founding father of the eponymous carmaker. The Mercedes-Benz owner is still the world’s top-selling premium carmaker. But it is among the worst placed of its peers to cope with the challenges assailing the industry.
The pandemic has compounded its problems. The resulting market contraction will result in deeper restructuring than already planned, according to boss Ola Källenius, in a webcast hosted by Daimler’s main labour union.
It already had plans to reduce the payroll by €1.4bn by the end of 2022. But cost cutting is made harder by a deal struck with employees promising no compulsory redundancies until 2029. Roughly six out of 10 of the company’s employees are based in Germany. That centralised model has left Daimler more exposed to tariffs and pushed up its cost base.
That was not a problem in the past, thanks to high operating profit margins. Those averaged 9 per cent in its car division for the five years to 2018. But costs have soared as the business belatedly ramped up the production of electric vehicles. Daimler — noted for its gas-guzzling sports utility vehicles — has been forced to spend heavily to have a chance of meeting new European emissions standards. Profit margins more than halved to 3.6 per cent in 2019.
Daimler’s shares have fallen 26 per cent so far this year, more than for German rivals. Even so, Daimler’s shares look expensive compared with peers. Its enterprise value-to-forward ebitda multiple is 18, compared with 14 for BMW and 10 for VW. That could reflect speculation about the intent of its Chinese rivals Geely, which has a 10 per cent stake, and BAIC, which owns about 5 per cent.
Takeover talk appears ill-founded. Germany has tightened rules on foreign acquisitions. A merger with BMW, sometimes whispered about, would hardly be less controversial. The threats facing Daimler call for radical action. Its scope for reform is limited. Avoid.
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