With European auto sales sliding to their lowest level in decades last year, the impact has been available, even for the industry’s strongest, most globalized players. That notably includes Daimler AG, which is scrambling to find ways to slash costs after watching its earnings before interest and taxes, or EBIT, drop by 10% in 2012 despite record sales at Mercedes-Benz Cars.
The group’s net profit did rise to 6.5 billion euros, compared to a 6 billion euro net profit for 2011. Last year’s results, however, included a one-time gain on the sale of 7.5% of Daimler’s shares of EAD, the European aerospace and defense company.
Despite putting a spin on 2012 as a year with “some great achievements,” Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars, acknowledged that, “Notwithstanding our success and the numerous pioneering investments in 2012, it is a fact that we did not reach our own targets for earnings and profitability,”
With additional challenges facing the company in some key markets such as China, Zetsche stressed that, “To ensure that our future growth is even more profitable, we have implemented detailed measures in all divisions that will further increase our efficiency.”
With its liquidity dropping by 500 million euros, Daimler announced it was holding the line on dividends and will recommend paying shareholders 2.20 euros per share, the same as in 2012, at the company’s Annual Shareholders’ Meeting to be held in April
“With this dividend continuity, we are emphasizing the attractiveness of our shares and expressing our gratitude to the shareholders for their trust in our company,” stated Bodo Uebber, Member of the Board of Management of Daimler AG for Finance.
Zetsche tempered the company’s outlook for 2013, saying Daimler had to watch developments both in the European and global economies.
According to current estimates, worldwide demand for automobiles is likely to grow this year by approximately 2 to 4%. This growth should be primarily driven by the ongoing expansion of the Chinese market and a moderate increase in demand in the United States.
Mercedes is facing tough battles in both of those markets, however. It narrowly lost the U.S. luxury sales crown for 2012 to BMW. Meanwhile, it recently announced a shake-up of its Chinese operations after a series of setbacks that included sharp price-cutting.
“No impetus is to be expected from the Western European market,” the company cautioned. “Demand in Japan will probably decrease significantly, with a perceptible negative impact on the growth of the world market,” a Daimler earnings statement warned.
Worldwide demand for medium and heavy trucks – where Daimler is a major player — can be expected to increase perceptibly in 2013. However, this will mainly be driven by the significant recovery in China, which was responsible for a large proportion of the global drop in demand last year.
A significant recovery of up to 10% is expected for the Brazilian market thanks to better economic prospects and the continuation of favorable financing conditions, Daimler forecast.
Daimler spent a significant amount of cash as 2012 drew to a close preparing for the launch of new products that could be key to its performance in 2013 and beyond.
That included the expansion of production capacities for the new compact A- and B- class models at the Rastatt plant in Germany and at the new plant in Kecskemét, Hungary. The Hungarian facility will produce the new CLA model soon to go on sale in the U.S. Meanwhile, at the core German plant in Sindelfingen, Daimler made heavy investments preparing for production of the all-new S-Class flagship.
In Tuscaloosa, Alabama, and Bremen, Germany, preparations are already under way for production of the new C-Class, set to launch in 2014.