Daimler cuts 2018 profit outlook on trade war and EU emissions control

Daimler is one of the biggest global companies to cut its profit outlook and blame trade tensions. (Reuters)
Updated 21 June 2018
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Daimler cuts 2018 profit outlook on trade war and EU emissions control

  • Daimler’s revised forecast comes as US President Donald Trump is proposing to impose tariffs on imported vehicles
  • Daimler is one of the biggest global companies to cut its profit outlook and blame trade tensions

FRANKFURT: Daimler on Wednesday said profit would fall in 2018 as new import tariffs on cars exported from the United States to China would hurt sales of high-margin Mercedes-Benz sports utility vehicles.
Daimler earnings before interest and taxes (EBIT) would now be slightly below the previous year’s level, rather than slightly above, the company said in a regulatory filing late on Wednesday.
Daimler’s revised forecast comes as US President Donald Trump is proposing to impose tariffs on imported vehicles on grounds that trade imbalances on many products threaten US national security.
He is separately promising to impose tariffs on up to $200 billion of Chinese goods. China has warned it would retaliate with levies on US products, potentially including the Mercedes-Benz sport utilities shipped to China from Alabama.
Separately on Wednesday, the chief executive of Volvo Cars warned that higher tariffs could undermine the Chinese-owned automaker’s plans to hire up to 4,000 workers at a new vehicle assembly plant in South Carolina.
Stocks in a wide range of companies have see-sawed in recent weeks as investors tried to assess the risk to corporate profits from the Trump administration’s trade policy.
Daimler is one of the biggest global companies to cut its profit outlook and blame trade tensions. The German industrial firm’s revised forecast came on the same day as reports that German automakers backed a proposal that the European Union drop tariffs on vehicles to defuse trade tensions.
While the United States and China have not yet imposed new tariffs, Daimler said it expects that to occur, and that the automaker will not be able to recover the costs from customers.
“Fewer-than-expected SUV sales and higher-than-expected costs, not completely passed on to the customers, must be assumed because of increased import tariffs for US vehicles into the Chinese market,” it said in a regulatory filing.
Daimler also said a new vehicle certification process based on stricter fuel efficiency test procedures will hit sales in the second half of the year, and warned that earnings at its Mercedes-Benz Vans unit would suffer because of a vehicle recall for diesel-engined models.
Daimler was ordered last month to recall its Mercedes-Benz Vito vans fitted with 1.6-liter diesel engines because Germany’s motor vehicle authority, KBA, said they breached emissions rules. Daimler has said it will appeal the decision.
As a result, EBIT at its Mercedes-Benz Cars division would now be slightly below the previous year, and significantly below the previous year’s level in the vans division, Daimler said.
South Korean automakers fell in morning trade on Thursday, while Japanese peers gained moderately, paring earlier losses.
Japanese and South Korean automakers for the most part do not ship vehicles made in the United States to China. Most of the vehicles sold in China are made locally through their Chinese joint ventures, along with imports from Asia.
But analysts said the US trade spat with China raises concerns about knock-on effects on other countries, like potential US auto tariffs on all vehicle imports.
“South Koreans have higher portions of vehicle imports in the US than peers, making them vulnerable to US potential tariffs,” Kwon Soon-woo, an analyst at SK Securities, said.


Chinese president Xi urges financial risk prevention while seeking stable growth

Updated 23 February 2019
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Chinese president Xi urges financial risk prevention while seeking stable growth

  • China’s economy is growing at its slowest pace in almost 30 years
  • Preventing and resolving financial risks, especially systemic financial risks, is a fundamental task

BEIJING: China should seek stable development of its economy while not forgetting to fend off risks to its financial system, Chinese President Xi Jinping said, state news agency Xinhua reported on Saturday.
China’s economy is growing at its slowest pace in almost 30 years, spurring policymakers to bolster growth by easing credit conditions and cutting taxes.
“It is necessary to focus on preventing risks on the basis of steady growth, while strengthening the countercyclical adjustment of fiscal policy and monetary policy and ensuring that the economy operates in a reasonable range,” Xi said.
Preventing and resolving financial risks, especially systemic financial risks, is a fundamental task, the agency cited Xi as telling a study session for senior Communist Party officials on Friday.
On Wednesday, Premier Li Keqiang reiterated that China would not resort to “flood-like” stimulus such as it unleashed in past downturns.
But after a spate of weak data, investors are asking if Beijing needs to speed or boost support to reduce the risk of a sharper slowdown.
Until now, China has refrained from cutting benchmark interest rates to spur the slowing economy, which would ease financing costs but risk adding to a mountain of debt.
To free up more funds for lending to small and private businesses, the central bank has cut the reserves that banks need to set aside five times in the past year.
Last month, Chinese banks made the most new loans on record, a total of 3.23 trillion yuan ($481 billion). A central bank official said previously that no credit floodgate had been opened, and the lending jump showed recent easing steps were working.
China’s financial sector must serve the real economy, Xi said, but stable growth and risk prevention must be balanced.