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Daimler AG (DAI)Stock (Transportation Industry, Auto Makers Industry, Manufacturing Industry, Luxury Industry)
 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. In 2007, the firm had revenues of €99.4 billion and earnings of €3.985 billion. Daimler's margins are tight because nearly two-thirds of its workforce is in Germany and the United States, two countries with high labor costs. Also, the company is still adjusting from the divestment of Chrysler in the summer of 2007. DAI still owns 20% of Chrysler, but the sale of its majority stake has reduced costs and increased margins from 20.6% in 2006 to 24.1% in 2007 (Chrysler is not considered in either year).[1] Since separating from Chrysler, Daimler AG has introduced a number of new vehicles such as the c-class and Smart Fourtwo. These small cars are much cheaper to produce than earlier vehicles - the new c-class is 25% cheaper to make than the previous model - and capitalize on consumers' desire for fuel efficiency, especially important as oil prices continue to rise. With respect to emissions and fuel efficiency, Daimler is an industry leader in the development and production of clean diesel technology. An E320 with BLUETEC diesel technology was voted the "World Green Car" for 2007 in recognition of its significantly cleaner emissions than comparable diesel automobiles produced by competitors.[2] To maintain its lead in this area and establish preeminence in technologies such as Hybrid and Fuel Cell Vehicles, electric vehicles, and ethanol, Daimler increased its R&D budget in 2007 to €4.1 billion from €3.7 billion in 2006, and the company says it will continue to increase research spending through 2010.[3] Daimler ranked 25th in the 2006 J.D. Power quality survey, but rose to 5th in 2007.[4] Daimler's international reputation has been especially important in boosting Daimler's sales in Brazil, Russia, India, and China (known as the BRIC countries). The rapidly increasing demand for automobiles in emerging markets is an opportunity for an internationally diverse manufacturer like Daimler.
[edit] Company Overview  Daimler produces diverse lines of passenger cars, SUVs, sports tourers, minivans, pickups, and commercial vehicles. Daimler manufactures its products in over 40 different countries worldwide, and sells in over 200 countries. It helps buyers to finance its products with an extensive financial services branch. In the first quarter of 2008, recession worries in the United States hurt sales in North America, which alongside flat sales in Europe and slight increases in Japan, resulted in very slight sales increases worldwide for DAI.[7] Mediocre performance in these markets was partially offset by strong demand for all Daimler products throughout the developing world. Nevertheless, large increases in the price of raw materials such as rubber, steel, and oil continue to pinch Daimler's profit margins.
[edit] Business Segments
In the chart below, "Services" refers to the company's financial sector (including its German bank, which acts like any bank in giving out loans and financing individuals).
Source: 2005-2007 Annual Reports As seen in the chart above, both the Mercedes-Benz Group and the Trucking Group have been able to both decrease their number of employees, reducing their cost of labor, but also at the same time increase unit sales. [edit] Sale of ChryslerIn 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.[12] 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. [edit] Trends & Forces[edit] Growing Consumer Interest in Fuel EfficiencyDaimler states that it's goal is: "to make diesel engines as clean as gasoline engines and gasoline engines as efficient as diesels."[13] 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.[14] 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.[15] In an attempt to improve this, Mercedes will begin selling hybrid versions of its s-class and m-class in 2009.[16] 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.[17] 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. [edit] Increasing Commodities CostsAs with all automotive companies, Daimler's production costs are very sensitive to changes in the cost of the major materials used to make automobiles: rubber, plastic, copper, steel, and aluminum. Respectively, the prices of these commodities have increased 45%, 20%, 23%, 66%, and 40%, since the beginning of 2008.[18][19][20] Strong demand from emerging markets for these commodities continues to increase the price of Daimler's raw materials and this trend will likely be long term.[21] [edit] Influential Labor Unions in GermanyBecause 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.[22] Also, Daimler's Supervisory Board consists of 20 members, 10 selected by shareholders and 10 elected by Daimler's employees.[23] 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. [edit] Strong Demand from Emerging MarketsAlthough 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.[24] During 2007, Daimler's sales increased 64% in China, 61% in Russia, and 17% in India.[25] Despite this, Mercedes faces fierce competition from other car makers, as all major auto producers are looking to these developing markets to drive sales growth. This has been most evident in China, where Lexus is outselling Mercedes-Benz by a considerable margin. [edit] CompetitionBecause 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. 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.  
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