 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Daimler AG manufactures upscale cars, trucks, buses, and vans. Its leading automobile brand is Mercedes Benz, while its vans, trucks, and buses carry the Daimler logo. The Company sold its Chrysler branch in 2007, and is trying to cope with the world-wide economic down-turn. It predicts that 2009 demand for vehicles will fall 15% compared to 2008, a figure which will be buffered by state-stimulus packages as seen in the US and China. The Company does not expect things to recover fully until 2010, a sentiment which matches Fed Chairman Bernanke's views. [1]
Daimler has much narrower margins than its Asian competitors because of its unionized German workforce. On the other hand, Mercedes enjoys superior brand recognition in India and China. Daimler's revenues in these areas have been growing at 25%+ annual compounded rates since 2006 despite the economic downturn, helped also by the widening acceptance of Western style vehicle-financing. Daimler trucks, in the meanwhile have been enjoying similar growth rates in Latin America, especially Brazil. As of July 2009, Daimler began talks with China's Brilliance Auto to start a joint venture to bring its commercial vehicle business to China. [2]
Despite its international expansion, Daimler Group predicts that its total revenue will decrease significantly in full-year 2009 (2008: €95.9 billion).[1]
Daimler's future success will hinge on the recovery of the auto-industry, the continued growth of emerging markets, and the prices of its industrial inputs such as aluminum and rubber which have stayed mercifully low in 2008-2009 due to recessionary conditions. Daimler is also spending billions of euros attempting to develop electric cars by 2012. [3] The company, however, sold 40% of its stake in Tesla Motors in July 2009 which may suggest that Daimler is moving away from this goal. [2]
Business Segments
Daimler AG (DAI)'s business segments are Mercedes-Benz Cars, Daimler Trucks, Daimler Financial Services, Mercedes-Benz Vans, and Vans, Buses, and Other. Vans Buses and Other excludes Mercedes Benz Vans.
The following graph shows how the revenue is distributed between these business segments. Notice that Mercedes Benz cars generate the lion's share of Daimler's revenue.[4]
The following graph shows Daimler's profit margins from 2006-2008. They are cumulative to normalize the abnormal 2008 negative profits. Of course, if negative profits continue Daimler will not have profit margins. That said, the most profitable segment was the Mercedes-Benz Van line, followed by the growing financial services line. It is interesting to note that these two lines both enjoyed strong growth rates in Europe and the United States despite the financial crisis.[4]
The effects of the economic decline are readily apparent when viewing the following graph of Daimler's earnings by segment.Notice that the Mercedes Benz segment has extremely volatile profits due to high Elasticity of car demand.[4]
While Daimler is a very international company, its operations are centered in Europe. The following graph shows how each segment fares in different parts of the world. When Asia and Latin America are not listed, it is because Daimler chose to classify them as "other markets" in a particular segment.[4]
It is these "other markets" that are accounting for Daimler's most rapid growth. Ex-Asia Japan, which includes China, Vietnam and Korea, have been growing at 25%+ annual rates in some segments since 2006 as shown on the following graph. On the other hand, it is very clear that US and Japanese demand for Daimler products has faltered, while Europe's has remained steady or even grown substantially (in the case of Vans and Buses especially).[4]
Sale of Chrysler
In May of 2007, private-equity group Cerberus Capital Management LP bought 80.1% of Chrysler. Daimler sold Chrysler because of prolonged unprofitability, expensive pension and healthcare obligations, and very limited cost-savings realized from component sharing and design cooperation between Daimler and Chrysler. As part of the deal with Daimler, Cerberus will take over pension and health care costs allowing Damiler to get out of $19 billion in retirement liabilities. Despite this, the fate of Chrysler will continue to effect Daimler in several ways. Foremost, DAI continues to own a fifth of Chrysler. Second, as part of the sale to Cerberus, Daimler remains liable for $1 billion in pension benefits if Chrysler becomes insolvent within five years of the transaction. Third, as stipulated in this contract, Daimler was obligated to provide $1.5 billion of loans to Chrysler in the first half of 2008.[5] Finally, selling Chrysler has forced Daimler to overhaul many aspects of its business in the United States, including Financial Services and various part sharing agreements Mercedes-Benz had with the former Chrysler division.
Annual and Quarterly Earnings
Q3 FY2009 Summary
DAI announced a 21% loss in revenue between the third and second quarters in 2009 from €24,470 million to €19,310, driven by a 24% loss of revenue in the US market but coinciding with 18% and 23% losses in Western Europe and Other Markets as well.[6] Net profit, similarly, fell by 74% from €213 million to €56 million.[6]
Another driving force behind these losses was the 26% drop in 2009 third quarter unit sales.[6] Also, setting the backdrop for these losses were 34% decreases in investment in property, plant and equipment; a 6% decrease research and development expenditures; as well as an 81% plummet in earnings per share.[6]
Trends & Forces
Growing Consumer Interest in Fuel Efficiency
Daimler states that it's goal is: "to make diesel engines as clean as gasoline engines and gasoline engines as efficient as diesels."[7] Although Mercedes' lauded BLUETEC diesel technology certainly reduces diesel emissions considerably, it is unclear that Mercedes' has developed any unique technology or designs to improve the efficiency of gasoline engines. While technology at the Truck Division is certainly state-of-the-art, Daimler's competitors continue to produce trucks with similar fuel efficiency.[8] Daimler's automobiles provide a more difficult comparison because as a luxury marque, buyers often will opt for performance over fuel efficiency. This is especially true in the US market where Mercedes-Benz's smallest engine has 3.0 liters and six-cylinders, larger than the smallest engines sold in the US by other european luxury automakers such as BMW or Audi. In Europe Daimler markets many smaller gasoline and diesel engines, however the fuel efficiency of these models is similar to cars from other automakers, and Daimler has the lowest overall fleet efficiency of any major european automaker.[9] In an attempt to improve this, Mercedes will begin selling hybrid versions of its s-class and m-class in 2009.[10] Yet on the whole fuel efficiency is not a major selling point for Daimler automobiles.
Consumers are moving towards more environmentally friendly and fuel efficient automobiles. This is for a multitude of reasons including political tension in the Middle East, rising oil prices due to growing demand in the developing world (especially China), and increasing concern over global warming. Daimler's BlueEFFICIENCY program, begun in 2008, seeks to improve fuel economy by 12% for the company's entire fleet of vehicles. This initiative will consider everything from engine efficiency, to aerodynamics, to tire roll resistance.[11]
The United States government applied additional pressure to gas-guzzling car manufacturers in December of 2007 with a new energy bill that mandates 35 mpg for all cars, SUVs, and small trucks sold in the U.S. Daimler has initiated several joint ventures with other major automobile manufacturers to develop a number of alternative propulsion systems. For example, the Fuel Cell Corporation was co-founded with Ford to develop fuel cell technologies. Similarly, Bayerische Motoren Werke AG (BMW), GM, and Chrysler have teamed up with Daimler in another joint venture to engineer hybrid propulsion systems. As stated above, Daimler plans to continue increasing R&D spending through 2010 largely for the purpose of meeting the challenges of higher fuel prices and consumer demand for green technologies.
Commodities Costs
Daimler makes cars out of rubber, plastic and copper. From Summer 2007- Summer 2009, aluminum prices fell over 80%, along with other industrial metals due to weak demand for durables (cars, planes, trains, railroad tracks etc). [12] When and if durable demand picks back up, so will metal prices. On one hand, increased durable demand would likely signal an increase in demand for Daimler's cars. On the other hand, increased commodities costs would increase production expenses.
Emerging economies are likely to demand large amounts of commodities as they industrialize. While the economic downturn slowed industrialization, as of July 2009, spot markets (especially in China) are starting to show signs of reversal and increased commodity demand. [13]
Daimler's market-share in the emerging market is growing, but in a worst case scenario, Asian competitors would take over the growth markets. They would boost demand for commodities, thus increasing Daimler's operating costs, eroding the company's already slim margins.
Influential Labor Unions in Germany
Because a significant portion of DAI's labor force is unionized, attempts to reduce labor costs are typically met with stiff resistance. Moreover, as about 165,000 out of 272,000 employees are employed in Germany, the company also struggles with that country's rigid labor laws that make layoffs exceedingly difficult.[14] Also, Daimler's Supervisory Board consists of 20 members, 10 selected by shareholders and 10 elected by Daimler's employees.[15] This means that employees have the same degree of influence over important decisions as shareholders. These factors make Daimler less flexible in adjusting to changing market conditions than automakers who can easily layoff workers or make other changes to the business without consultation or agreements with employees.
Strong Demand from Emerging Markets
Although the vast majority of DAI's sales continue to be in Western Europe and North America, the company's sales continue to grow rapidly in the developing world, and especially in the BRIC nations which now account for 20% of Daimler's sales. Consumers in these developing economies recognize the cache of the Mercedes marque. Daimler is seeking to take full advantage of its brand names by organizing a number of joint ventures with local companies in these regions. For example, in 2007 Daimler reached an agreement with the Indian Hero Corporation for that company to produce and market Daimler designed trucks in India.[16]
Daimler's car business has grown most substantially in ex-Japan Asia, especially China. In China, Mercedes-Benz Cars sold 28,200 locally produced and imported vehicles for the first half of 2009, an increase of 40% from the same time in 2008. The second half of 2009 is expected to see continued strong momentum. Through a liquidity partner in China, Daimler's finance portfolio in China has grown over 100% since 2008. [1]
There has also been large growth in Daimler's Latin American Truck business, which is centered in Brazil.
Market Share
| Manufacturer | May-06[17] | May-07[18] | May-08[18] |
| GM | 25% | 24% | 19% |
| Toyota | 15% | 17% | 18% |
| Ford | 17% | 17% | 15% |
| Chrysler | 13% | 13% | 11% |
| Honda | 9% | 9% | 12% |
| Nissan | 6% | 6% | 7% |
| Hyundai | - | 5% | 6% |
| BMW | - | 2% | 2% |
| Volkswagen | - | 2% | 2% |
| Daimler | - | 1% | 2% |
| Manufacturer | Rank | 2007 | 2008 | Change in Production | Manufacturer | Rank | 2007 | 2008 | Change in Production |
| GM | 1 | 13.0% | 11.9% | -11% | Suzuki | 11 | 3.6% | 3.8% | 1% |
| Toyota | 2 | 11.8% | 13.3% | 8% | Chrysler | 12 | 3.5% | 2.7% | -25% |
| Volkswagen | 3 | 8.7% | 9.3% | 3% | Daimler | 13 | 2.9% | 3.1% | 4% |
| Ford | 4 | 8.7% | 7.8% | -13% | BMW | 14 | 2.1% | 2.1% | -7% |
| Honda | 5 | 5.4% | 5.6% | 0% | Mitsubishi | 15 | 2.0% | 1.9% | -7% |
| PSA | 6 | 4.8% | 4.8% | -4% | Kia | 16 | 1.9% | 2.0% | 2% |
| Nissan | 7 | 4.8% | 4.9% | -1% | Mazda | 17 | 1.8% | 1.9% | 5% |
| Fiat | 8 | 3.7% | 3.6% | -6% | Avtovaz | 18 | 1.0% | 1.2% | 9% |
| Renault | 9 | 3.7% | 3.5% | -9% | Faw | 19 | 1.0% | 0.9% | -6% |
| Hyundai | 10 | 3.6% | 4.0% | 6% | Tata | 20 | 0.8% | 1.1% | 36% |
Competition
Because DAI produces so many different kinds of vehicles for so many different markets, the company competes with a wide spectrum of generally smaller and more specialized firms. For example, Daimler's luxury automobiles vie with those from Bayerische Motoren Werke AG (BMW), Lexus (Toyota Motor (TM)), Audi (Volkswagen (VLKAY)), Jaguar (Tata Motors (TTM)), and Cadillac (General Motors (GM)). However, in Europe where DAI sells its smaller and more affordable A and B class cars, DAI also competes with more mainline marques such as Renault, Volkswagen, Opel (GM), Citroen, and Ford Motor Company. While DAI is the largest truck producer in the world, competition for innovation and quality remains intense with other large truck producers such as PACCAR (PCAR), AB Volvo (VOLV), Navistar International, and MAN trucks.
The Mercedes-Benz is very competitive in terms of both reliability and performance, though it is consistently outdone by Lexus, as found by JD Power Associates in a 2009 study. Its S-Class won the runner up The following graph shows that Mercedes falls in the middle of the premium (above average) car market.[13]
References
- ↑ 1.0 1.1 1.2 Company Website, 2009 Outlooks Report
- ↑ 2.0 2.1 News Updates, Reuters
- ↑ Attempts to create electric cars with Tesla
- ↑ 4.0 4.1 4.2 4.3 4.4 [ http://www.sec.gov/Archives/edgar/data/1067318/000104746909001917/a2190793z20-f.htm | Daimler 2008 Annual Report, p. 15-45]
- ↑ DAI Q2 2008 Earnings Call
- ↑ 6.0 6.1 6.2 6.3 Daimler Interim Report Q3 2009
- ↑ 2007 Annual Report, page 100
- ↑ http://gizmodo.com/354434/most-high-tech-18-+wheeler-ever-almost-puts-optimus-prime-to-shame
- ↑ http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348990&story_id=10329196
- ↑ DAI Q2 2008 Earnings Call
- ↑ http://www.greenbiz.com/news/2008/06/23/daimler-takes-aim-fuel-efficiency-across-entire-fleet
- ↑ |Falling metal prices
- ↑ 13.0 13.1 |Emerging Markets Monitor on Commodity Prices
- ↑ 2008 Q1 Interim Report http://www.daimler.com/Projects/c2c/channel/documents/1525225_dai_ir_2008_report_q1_2008_e.pdf
- ↑ 2007 Annual Report, page 110
- ↑ http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080421&id=8510987
- ↑ [http://oica.net/wp-content/uploads/world-ranking-2007.pdf OICA - World Motor Vehicle Production, 2007]
- ↑ [http://oica.net/wp-content/uploads/world-ranking-2008.pdf OICA - World Motor Vehicle Production, 2008]
- ↑ Suite 101: Top Selling Cars in Europe in 2007
| ||||||
|
|
