It is the biggest change at German car maker Daimler in 10 years. The plan has been months in the making, hundreds of experts have been working on it and it’s a multi-million-euro project that will impact thousands of workers. Finally, on Thursday, the management and board signed off on the company’s ambitious, new strategy to radically restructure the maker of Mercedes-Benz cars.
According to “Project Future,” by January 2020, Daimler will regroup from five business units to three, each independent under a new holding company called Daimler AG. It may need to: The firm also announced that profits in the second quarter were 30 percent less than the same period last year, and in June it was forced to recall almost 800,000 diesel vehicles after they were found to be fitted with illegal software that masks emissions.
“The new organizational structure allows Daimler to be ready for the ever-quickening changes in the mobility sector and the strategic challenges that come with that,” said Manfred Bischoff, the chairman of Daimler’s supervisory board.
Dieter Zetsche, the CEO, says it’s not enough just to retain Mercedes’ pole position in the industry with new models and technological improvements – structural and strategic changes are also necessary.
Unite and conquer
What this means in real terms is that, instead of being separate divisions, cars and vans will come together under the Mercedes-Benz AG umbrella, while trucks and buses will now both be found under Daimler Truck AG. The firm is the world’s biggest commercial vehicles maker. The third new division is the one that will see the least changes: the finance and mobility services sector is already a fairly independent division, but will be renamed Daimler Mobility AG. There’s no news yet on who will run the three new divisions.
The changes mean that 700 sites need to be reorganized at an estimated cost somewhere in the three-digit millions. The company has committed to securing jobs until the end of 2029, and will also invest a further €35 billion ($40.8 billion) in its German sites.
The idea is for Daimler to be able to deal with the demands for autonomous and electric vehicles, as well as growing competition from other car makers and mobility-tech services like Uber. It is also hoped that the restructuring will boost share prices and allow the different divisions to enter into new partnerships more quickly. But there are no plans to sell anything off. It is expected that Daimler’s shareholders will sign off on Project Future in May 2019, at their annual general meeting.
Not everyone is as impressed as the board members though. “We need to take a careful look and decide whether the planned holding company with three independent divisions really makes sense,” said Winfried Mathes, an analyst at Deka Investment. “From our point of view, there is the danger that investors may only participate in the subsidiaries, which could devalue the holding company.”
The other issue is Daimler’s second-quarter numbers. They did not make pleasant reading. Between April and June, the company reported earnings before interest and taxes of €2.6 billion – that is 30 percent less compared to the same quarter last year. Revenue was down 1 percent to €40.8 billion euros and profit in every one of Daimler’s five divisions – cars, trucks, vans, buses and services – also eroded. In particular, Mercedes-Benz cars were doing badly, with EBIT down 20 percent compared to the same time last year.
It’s a serious problem, said Jürgen Pieper, a senior adviser on the auto industry at Bankhaus Metzler, a private bank. “The company has disappointed at all levels,” he said and he could “see no single reason to buy Daimler shares,” at the moment. Some fundamental questions need answering, he said – including why, after 2017’s record year for the company, things had gone so wrong? This indicates leadership problems. “They’re going in the wrong direction,” Mr. Pieper added.
Benz the rules
Daimler argues that it is dealing with fallout from the beginnings of a trade war between the US and China. It produces its sports utility vehicles in Alabama and because the Chinese have put tariffs of up to 40 percent on US-made cars and car parts, this hurts. The recall in June of 774,000 diesel cars and vans across Europe because they had been fitted with illegal defeat devices probably didn’t help either. The firm also faced a €418 million late fee for a delay in delivery of the world’s first satellite truck-toll-collecting project on German highways.
After 63 months, during which Mercedes kept breaking sales records, June 2018 was the first month during which sales figures fell, year on year.
Judging from the announcements yesterday, Daimler appears to be taking the various setbacks philosophically. After the announcements were made, its stock rose by 2.4 percent. However, as one capital markets expert points out, so did those of other carmakers – and it was most likely because of news of a potential trade deal between the US and the European Union.
Despite having issued a profit warning in June, Daimler’s prognosis for the whole year remains unchanged: A small rise in sales and revenues and a small fall in operating profit. Time for Project Future.
Franz Hubik covers the auto industry and the energy sector for Handelsblatt in Düsseldorf. To contact the author: firstname.lastname@example.org