Decks Cleared For Cost Cutting Action At Mercedes

Daimler CEO Dieter Zetsche did the rounds at Frankfurt, sounding optimistic here, lauding Mercedes new products there, but no word on where the expected axe will fall to slash costs and cut capacity.

With the election now out of the way, action will not be long delayed.

According to Bernstein Research analyst Max Warburton, Mercedes is making progress towards restoring profitability, but tough action is still needed, and may even be taken in Germany.

“German headcount cuts look increasingly likely – could Daimler close German capacity?” says Warburton in a report, adding that Daimler  has cut headcount by about 17,000 in the last year, mostly in North America and Japan. Warburton says the main Sindelfingen assembly plant might be slimmed down and the German A class plant might be closed and moved to Hungary.

Truck sales halved
Daimler’s finances are not in good shape. In 2009’s second quarter Daimler lost €1 billion before interest and tax, compared with a profit of €2 billion in the same period of 2008. Revenues fell over 30 per cent to €19.6 billion as car sales dropped by almost one fifth and truck sales halved.

Zetsche has already signed up to cuts worth more than €4 billion in 2009.

Deutsche Bank also expects tough action to be centred on Germany.

“We still believe that post the German election, Daimler will start to act and believe that first signs are starting to become visible – according to press reports (FAZ) the company is considering moving C-class production from Sindelfingen to Bremen, which would make between 2,500 and 4,000 workers redundant,” Deutsche Bank said in a report.

Other reports speculate about the likelihood of Wolfgang Bernhard, now head of the commercial vehicle subsidiary, being promoted, says Bernstein’s Warburton.

“We continue to see Wolfgang Bernhard as one of Daimler’s greatest management assets and must assume that he will not remain CEO of the relatively small LCV business indefinitely. Bernhard’s historic style may not sit easily with Daimler’s preferred “softly, softly” restructuring approach, but his expertise on fixed and variable cost cutting will surely be useful in the wider company,” Warburton said.

Improving trend emerging
Warburton said Mercedes sales are recovering, but mix remains a concern.

“The prospects for premium automaker sales remain unclear given their heavy reliance on “Anglosphere” markets and the prospects for profitability also remain questionable given the reliance on high-powered vehicles to drive margins. However it is clear from global sales date that Mercedes and its peers are seeing an improving trend,” Warburton said.