Daimler profits plunge in 2019 on 'dieselgate' costs

The entrance to the headquarters of German car producer Daimler AG is seen in Stuttgart, southern Germany, on Tuesday (Feb 11). Mercedes-Benz parent company Daimler reported plunging profits for 2019, after setting aside billions of euros to deal with potential fallout from the industry-wide "dieselgate" emissions cheating scandal. - AFP

STUTTGART: Daimler's chief executive Ola Kallenius suffered a grim first year in post in 2019 as profits tumbled at the Mercedes-Benz parent company due to billions in costs from the "dieselgate" scandal, while thousands of job cuts lie ahead.

"We cannot be satisfied with our bottom line," Kallenius said in a statement Tuesday (Feb 11), pointing to "measures to cut costs and to increase cash flows" after net earnings slumped 64% year-on-year, to 2.7 billion euros (US$2.9bil).

Top of Stuttgart-based Daimler's list of problems is dieselgate, a cash black hole that sucked in some 4.0 billion euros last year in provisions for "governmental and legal proceedings and measures".

The total charges mounted to 5.5 billion when counting in a mass recall of vehicles fitted with faulty airbags from supplier Takata.

On top of those costs, massive investments in new technology like battery-powered and automated cars weighed on profitability.

But a bright spot came on the sales side.

Against the backdrop of softer demand in global auto markets, Daimler was able to maintain unit sales at around the previous year's level of 3.3 million, while boosting revenue 3.0% to 173 billion.

Those figures are the foundation for Daimler's more positive 2020 outlook, calling for revenue "stable" at last year's level, with operating profit "significantly above" 2019's 4.3 billion euros.

In July, Daimler reported its first quarterly loss in a decade for April-June, while last month it warned that its full-year financial results would come in below expectations.

Germany's KBA transport authority has ordered more than a million Daimler-built vehicles recalled, mostly over dieselgate.

The firm still contests whether "motor control functions" fingered by regulators are in fact illegal.

But it agreed to pay an 870-million-euro fine for selling infringing vehicles, weighing on both the cars and vans divisions.

Daimler's vans unit was especially hard hit, reporting an operating loss of 3.1 billion euros, while the measure at the flagship cars division was slashed in half, to 3.4 billion.

With performance flagging, bosses plan to offer shareholders a dividend of just 90 euro cents, down from 3.25 euros in 2018 and well short of the 1.53 forecast by analysts.

But investors were not cowed by the headwinds, sending Daimler's share price up 2.2 percent to 44.00 euros around 0830 GMT, against a 1.0 percent rise in the DAX index of blue-chip stocks.

Like carmakers across the sector, Daimler has ambitious plans to slash carbon dioxide (CO2) emissions from its vehicles, aiming to avoid swingeing fines under tighter EU regulations that come into force this year.

Meanwhile tight margins on newer models and a bleaker economic outlook mean the funds to power investment must come from cost savings.

Kallenius hopes to find 1.4 of a promised 1.6 billion euros in annual savings by 2022 from job cuts.

A reduction of more than 10,000 posts from Daimler's worldwide staff of 300,000 has already been announced, mostly via non-replacement of departing employees, early retirement schemes and voluntary redundancies.

Aside from the slimmer headcount, the firm will also "simplify" its model range, eliminating little-sold or low-margin cars and slashing investments where it sees little prospect of them turning profitable.

One victim of the cutbacks has been car-sharing scheme "ShareNow", which Daimler operates with rival BMW.

A "complicated" market prompted the manufacturers to announce in December the brand would withdraw from North America as well as London, Brussels and Florence.

"We are determined... to signficantly improve profitability," Kallenius said Tuesday.

"We will take the necessary actions to enhance our financial strength." - AFP
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