Deep Restructuring Expected At Daimler, After Election

Struggling Daimler is expected to introduce a tough cost cutting programme soon, but don’t expect any action until after the German election on September 27.

Investors have been urging action by Daimler for some time as the company’s losses have mounted.

In 2009’s second quarter Daimler managed a loss before interest and tax of €1 billion, 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. Most investors doubt whether the black stuff can be expected to return by the end of 2010.

But CEO Dieter Zetsche pleased investors with a pledge to cut costs by more than €4 billion in 2009. Zetsche made his remarks in an interview with the German newspaper Bild, although he said there would no forced layoffs.

Commerzbank analyst Daniel Schwarz reckoned that other interviews given by Zetsche added up to a plan for tough action.

“All of this sounds like deeper restructuring, potentially after the German general election in September. Taking all of Zetsche’s statements together, a cut in Daimler’s workforce seems inevitable. How else could Daimler balance demand and capacity and increase productivity without reaching former volumes,” Schwarz said in a report.

“We believe management could announce head-count reduction, cost restructuring and cost savings plans as soon as the fourth quarter,” he said.

Deutsche Bank said some savings will come for Daimler from its modular car construction strategy.

“We believe that in particular next year savings should be another €1 billion due to the full impact of the E-Class/CLK successor launch,” Deutsche Bank said.

There’s plenty of scope for bigger cuts, according to Commerzbank.

“We believe that for the foreseeable future, capacity in Europe exceeds demand by a significant margin, especially in the Truck segment,” Commerzbank’s Schwarz said.