Daimler to deepen cost cuts after expected quarterly loss

BERLIN -- Daimler will deepen cost cuts because of an expected second-quarter operating loss and despite some signs of a recovery in demand for luxury cars, CEO Ola Kallenius said.

Daimler said sales of its Mercedes-Benz brand dropped almost 19 percent to about 870,000 cars in the first half, although the brand achieved its best second-quarter sales so far in China.

Despite the rebound in China, the business losses racked up in recent months would not be recovered by the end of the year, demanding more cost cuts, Kallenius told shareholders at the automaker's annual meeting on Wednesday.

"Our previous efficiency goals covered the upcoming transformation, but not a global recession. That’s why we are further sharpening our course," Kallenius said, adding that the company was in talks with labor representatives about savings.

A restructuring plan that Kallenius unveiled in November, foresaw cutting the company’s work force by more than 10,000 to save 1.4 billion euros ($1.6 billion) in personnel spending by 2022.

Another 10,000 jobs could be axed through 2025, Automobilwoche, a sister publication to Automotive News Europe, reported last month, citing unidentified company sources. Daimler, which had about 299,000 employees at the end of last year, called the report speculation.

Daimler reports second-quarter results July 23. The automaker said it expected a significant decline in sales for the period, a negative adjusted group operating profit and negative free cash flow in the industrial business.

The company expects a recovery to levels before the coronavirus crisis would take a long time.

Kallenius cited expectations by the International Monetary Fund for 2020 to record the worst worldwide recession in almost a century.

"The group's unit sales, revenue and earnings are likely to be lower this year than in 2019," he said, adding that Daimler could increase production swiftly once demand picked up again.

"Already in June, global retail car deliveries were slightly above the prior-year level again," Kallenius said.

Kallenius faced critical questions at his first annual general meeting since taking over the automaker. Kallenius took over the CEO post from Dieter Zetsche in May 2019.

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 sells about ten times as many electric cars as Daimler, and the German company’s Mercedes-Benz EQC full-electric crossover, released last year, is “too late, too expensive and too boring,” Speich said.

Deka holds about 5.4 million Daimler shares, a roughly 0.5 percent stake, according to Bloomberg data. Daimler’s largest investor is Chinese billionaire Li Shufu with a 9.7 percent holding, followed by the emirate of Kuwait with 6.8 percent and the automaker’s joint-venture partner in China, BAIC Motor Group, at 5 percent.

Daimler completed a corporate overhaul last year to give its cars, trucks and mobility-services operations more independence, but management has yet to explain how they intend to earn back the related expenses. Investors have been urging Daimler for years to consider a separate listing of the trucks division, but those calls haven’t resonated within the executive ranks yet.

Bloomberg contributed to this report