“pricing has been un-naturally high for at least two years, and this is now starting to normalise”
Mercedes made its profit warning a week before the Paris Car Show, and didn’t respond to reports from Germany that it is planning a new cost cutting programme of more than €1 billion.
In September Daimler announced to investors that EBIT (earnings before interest and taxes) profits will fall short of the first half’s €2.57 billion because of deteriorating markets in Europe and China. In July, Daimler said Mercedes 2012 operating profit would be the same as last year’s €5.2 billion.
A day after the profit warning, Reuters reported from Stuttgart that the exact size of cuts hadn’t been decided but they would be significantly more than €1 billion. Job cuts weren’t on the cards, although the extent of the measures was still up in the air. After the Paris show’s press day, newspaper reports from Germany suggested Mercedes was negotiating output cuts with the unions at Sindelfingen, its biggest plant, making S, E and C class vehicles and which produces the biggest profits for the company.
Deutsche Bank saw this as proof, if it was needed, that times were getting hard.
“While the magnitude of the (production cuts at Sindelfingen) has not yet been decided, we believe it clearly bodes ill to the coming quarter’s earnings performance as fixed cost coverage will be under pressure and product mix will be skewed to downside before successor versions of S/E class will hit the market,” said Deutsche Bank analyst Jochen Gehrke.
Pricing pressure has been on the cards for a while, Citi Research said.
“We believe pricing has been un-naturally high for at least two years, and this is now starting to normalise,” said Citi Research’s Harald Hendrikse.
Neil Winton – October 1, 2012
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