Best-laid Plans, and All That: Daimler Cuts Likely to Continue

Matt Posky
by Matt Posky
best laid plans and all that daimler cuts likely to continue

Daimler plans to turn up the volume on cost-cutting measures due to operating losses in the second quarter that haven’t officially manifested. CEO Ola Källenius believes the damage caused by the pandemic response will be too severe to proceed with business as usual for the rest of 2020. At the company’s annual meeting, held Wednesday, the CEO told shareholders to anticipate additional measures to protect profits.

“Our previous efficiency goals covered the upcoming transformation, but not a global recession. That’s why we are further sharpening our course,” Källenius said, noting that the company is currently in talks with labor representatives. Considering the automaker enacted a plan bent on reducing its workforce by at least 10,000 to save an estimated €1.4 billion ($1.6 billion) by 2022, we doubt those discussions are super cordial.

Despite its second-quarter earnings report not landing until July 23rd, Daimler said it expects a significant decline in sales. Sales of the mainstay Mercedes-Benz brand declined almost 19 percent in the first half of 2020, though Automotive News reports that the manufacturer’s Chinese deliveries returned its best second-quarter volume on record. June also looked pretty healthy from a global perspective, with Källenius noting they actually surpassed the previous year.

That makes Daimler look a bit greedy on its face, though a short-term gain in demand after a prolonged dip isn’t indicative of anything other than people’s ability to finally make it back to the dealership. It also doesn’t absolve the company from mistakes made prior to the pandemic. Those original cuts have absolutely nothing to do with COVID-19, but the 10,000 additional jobs prognosticated by Automobilwoche in June would, assuming Daimler pulls the trigger on the extra round of cost cutting hinted at by Källenius.

From AN:

A string of profit warnings, several of which predated COVID-19, exposed misguided investments and the vulnerability of Daimler’s business, Deka Investment said ahead of the meeting.

“We look back at a lost year for Daimler,” Ingo Speich, Deka’s head of sustainability and corporate governance, said in prepared remarks. While Speich supports Kallenius’s cost-cutting and focus on cash generation, he said the CEO carries some responsibility for Daimler’s woes because he served as development chief under Zetsche.

Daimler shares have declined 24 percent this year, giving the automaker a market capitalization of about 40 billion euros ($45 billion), less than a fifth of Tesla’s valuation.

Tesla’s valuation is ludicrous at the moment, so that last bit can be mostly overlooked as a helpful comparison. We also don’t know how much value to place upon the opinion of a “head of sustainability,” as their job title literally forces them to endorse green tech at every turn. Speich predictably crapped on Mercedes’ EQ line of all-electric vehicles, ignoring the fact that Tesla seems to be the only automaker that has turned EVs into profits; demand for them is nowhere near strong enough to support the rest of the industry.

You’re probably wondering why he’s quoted, then. Deka Investment owns about 5.4 million Daimler shares, making it one of the many financial backers that are just fine with the job cuts but totally averse to waning profits or a lessened commitment to electrification. That’d be fine if the stance wasn’t frequently at odds with itself. While zero-emission vehicles are presumed to become mainstream transportation eventually, aggressive investments in green product development these past few years has negatively impacted the profitability of most major automakers.

It seems boneheaded to expect any manufacturer to miraculously churn out truly desirable ZEVs without burning through billions in R&D funds, but that seems to be what many shareholders are demanding. Tesla, which has been around since 2003, has only recently started turning a profit — aided heavily by its ability to sell carbon credits to mainstream brands that still build combustion cars. Yet investor expectations remain untempered by the realities of the market, making Daimler’s issues all the more complicated. It will also require a solution that’s more creative than simply minimizing overhead via continued staffing reductions and hoping demand jumps through the roof in 2021.

[Image: Franz12/Shutterstock]

Join the conversation
2 of 4 comments
  • Schmitt trigger Schmitt trigger on Jul 08, 2020

    Mutilating oneself towards profitability.

  • Inside Looking Out Inside Looking Out on Jul 08, 2020

    May be GM buys them (no marriage of equals this time, sorry Dr.Z) and makes Daimler-Benz division "The New Standard of The World"? And let Cadillac to fend off Tesla. Or Tesla buys Daimler-Benz and makes it a a junior sub-brand of itself?

  • V16 It's hard to believe that the 1980 Thunderbird was approved for production.The Edsel had more curb appeal.
  • Jimbo1126 (Turning pencil to eraser end...) Really, it's just GM. Been disappointed by their products too many times.
  • Golden2husky 78 Concept is pretty awesome to me -
  • Redapple2 Make mine a 110 Defender- diesel.
  • Redapple2 What is the weight of the tractor? What is the range at full load? What is the recharge time? Not a serious product if they are HIDING the answers.