How do you solve a problem like Daimler? The German luxury carmaker stalled on electric cars; fell prey to most every vehicle scandal going (deploying diesel emissions cheat devices and Takata’s exploding airbags); and was obliged to unstitch a disastrous merger. Newbie chief executive Ola Kallenius has already presided over four profit warnings since taking the reins in May and — as of Tuesday — a stonking 60 per cent-plus fall in profits and a shrunken dividend. That is a low base from which to rise.
Mr Kallenius’s answer is to scythe overheads. He aims to shave €1.4bn off the payroll by 2020, a move that will cost the group €2bn over the next two years. It will also cut materials expenses and streamline the product line-up. Capital expenditure as well as research and development budgets will get a trim. Management seeks a “significant” increase on last year’s €1.4bn of free cash flow. That is needed. Covering the €2.4bn dividend forecast implied by S&P Capital data will not be easy. Indeed, Daimler on its own numbers has not covered its payout in recent years. There may well be more regulatory and legal bills coming. Daimler had €5.5bn of these last year alone.
The group also anticipates small decreases in sales this year. No surprise there. China, the world’s biggest car market, was already falling off a cliff even before the coronavirus shuttered production at factories and part makers. Vehicle sales fell 8.2 per cent to 25.8m vehicles in 2019. Last year Daimler sold more Mercedes-Benz in greater China — nearly 700,000 — than in its two next-biggest markets, Germany and the US, combined.
Daimler’s problem, as with certain European banks, is that it has company-specific woes superimposed on industry-wide ones. Resolving all its issues is as tough as tackling the frolicsome, singing nun from The Sound of Music. Daimler will bring back Dieter Zetsche, Mr Kallenius’s handlebar-moustached and highly paid predecessor, as chairman of the supervisory board next year. This man, who presided over many of Daimler’s stumbles, will not be welcomed by investors.
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