Daimler Being Optimistic

Daimler (DAI), the largest luxury carmaker in Europe, expects that the company will deliver a much better performance compared to this year. It is expected that the recovery will be palpable from the fourth quarter of this year.

Daimler witnessed a 17.5% fall in global vehicle sales at its premium Mercedes brand in the first seven months of the year, and a 48% dip in sales at its trucks business in the first half.

To cope with the slackening demand, Daimler has opted for short working hours at its plants. However, the company is not looking for any forced layoffs in the near future.

In the Mercedes-Benz Cars division, Daimler’s focus on the world’s most fuel-efficient and lowest CO2 emission car, smart fortwo – launched 2 years back – gained success in 2008 with a 35% rise in unit sales. The company now plans to make an electric smart microcar along with Tesla Motors, the maker of luxury electric sports cars in the U.S. The companies plan to make 1,000 of the vehicles in 2009.

By the end of 2010, the Mercedes Car Group intends to achieve a return on sales of 10% despite increased expenditure for more efficient and alternative drive systems. By 2010, in the Trucks division, Daimler intends to achieve an average return on sales of 8% throughout its business cycle.

The company has the advantage of an extremely versatile product range in the Truck division. This includes economical and environment-friendly trucks with the BLUE TEC technology for European markets, the new generation of the Actros launched at the end of January 2008, and the new Cascadia heavy-duty truck under the Freightliner brand for North America.

Daimler expects increased involvement in the emerging markets of the BRIC countries (Brazil, Russia, India and China). The company has targeted the emerging markets of Russia, India and China to push sales. The Mercedes-Benz Cars division in China, enjoying greater growth potential, is one of the most important markets for the S-Class.

In the Truck division, the company performed well in the emerging markets such as Brazil, Eastern Europe, Indonesia, Middle East and Turkey in 2008. However, we maintain our Neutral recommendation on the stock.

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