Daimler vows to cut costs after one-offs bring loss

Daimler reduced its sales outlook for Mercedes-Benz cars and said €4.2 billion in one-off expenses hit earnings, mainly at the cars and vans divisions. (AFP)
Updated 24 July 2019

Daimler vows to cut costs after one-offs bring loss

  • Company reduced its sales outlook for Mercedes-Benz cars and said €4.2 billion in one-off expenses hit earnings
  • Daimler pledged to cut costs in response but provided few details

FRANKFURT: Luxury carmaker Daimler said it would intensify cost cuts after legal risks for diesel-related issues and the cost of replacing Takata airbags triggered $1.74 billion (€1.56 billion) loss before interest and taxes in the second quarter.
The company reduced its sales outlook for Mercedes-Benz cars and said €4.2 billion in one-off expenses hit earnings, mainly at the cars and vans divisions, contributing to an operating loss at group level, compared with a €2.6 billion profit in the second quarter last year.
“We can’t help but note that this is the lowest level of money in the bank since the depths of the financial crisis,” Bernstein Research analyst Max Warburton said. “Raising Daimler’s operating performance is not going to be a quick fix.”
Daimler pledged to cut costs in response but provided few details under new Chief Executive Ola Kaellenius, who took up the top job two months ago.
“In general, we are intensifying the group-wide performance programs and reviewing our product portfolio in order to safeguard future success,” Kaellenius said on Wednesday.
Rival Aston Martin also announced cost cuts and its shares tumbled after it lowered its outlook for operating profit on slowing demand, while peer Peugeot bucked the industry downturn with a sharp increase in first-half profit.
Daimler will provide details about potential cost cuts and its strategy on November 14 during its capital markets day.
Earlier this month, the Stuttgart-based carmaker had given an initial outline of earnings in what amounted to its fourth profit warning in 13 months, saying its 2019 group EBIT would be “significantly” lower than last year.
The Stuttgart-based carmaker said it now expects unit sales for Mercedes-Benz Cars to be at the prior-year level, revising its previous forecast of achieving a slight increase, following a sharp slowdown in demand in China.
Daimler said on Tuesday that China’s Beijing Automotive Group Co. Ltd. has bought a 5 percent stake in the company, cementing their long-standing alliance.
Unblocking supplier bottlenecks which have delayed production of Mercedes-Benz GLE and GLS models will help push sales of luxury cars in the second half of 2019, Kaellenius said.
“Daimler is blaming supplier bottlenecks and quality issues pretty much across all divisions for its poor financial performance. These are certainly not external factors outside of management’s control,” analysts at Evercore ISI said.
Daimler made a provision of €2.6 billion to cover diesel-related expenses in the first half of 2019 after German regulator KBA ordered a recall of 60,000 Mercedes-Benz GLK models, claiming the vehicles made use of illegal engine software. Daimler has appealed the KBA ruling.
The carmaker declined to break down in detail how much of the amount was allocated for recalls, updates and potential fines and litigation.
Daimler’s diesel pollution levels are being investigated by prosecutors in Stuttgart, Germany, where it is headquartered, as well as by the US Environmental Protection Agency and the California Air Resources Board.
Pressure to clean up combustion engines has come at a time when the industry has to invest heavily in electric and self-driving vehicles, and cope with slowing growth in China, weak markets in Europe and a rise in global trade tensions.
Passenger car sales slowed 3 percent during the quarter and the return on sales at Mercedes-Benz Cars swung to a negative 3 percent in the quarter, down from 8.4 percent in the year-earlier period.


Huawei given 90 days to buy from US suppliers

Trader Tommy Kalikas works on the floor of the New York Stock Exchange, Monday, Aug. 19, 2019. (AP)
Updated 33 min 1 sec ago

Huawei given 90 days to buy from US suppliers

  • Shortly after blacklisting the company in May, the Commerce Department initially allowed Huawei to purchase some American-made goods in a move aimed at minimizing disruption for its customers

WASHINGTON: US Commerce Secretary Wilbur Ross said Monday the US government will extend a reprieve given to Huawei Technologies that permits the Chinese firm to buy supplies from US companies so that it can service existing customers, even as nearly 50 of its units were being added to a US economic blacklist.
The “temporary general license,” due to expire on Monday, will be extended for Huawei for 90 days, he told Fox Business Network Monday, confirming an expected decision first reported Friday by Reuters. He also said he was adding 46 Huawei affiliates to the Entity List, raising the total number to more than 100 Huawei entities that are covered by the restrictions.
Ross said the extension was to aid US customers, many of which operate networks in rural America.
“We’re giving them a little more time to wean themselves off,” Ross said.
Shortly after blacklisting the company in May, the Commerce Department initially allowed Huawei to purchase some American-made goods in a move aimed at minimizing disruption for its customers.
The extension, through Nov. 19, renews an agreement continuing the Chinese company’s ability to maintain existing telecommunications networks and provide software updates to Huawei handsets.
Asked what will happen in November to US companies, Ross said: “Everybody has had plenty of notice of it, there have been plenty of discussions with the president.”
When the Commerce Department blocked Huawei from buying US goods earlier this year, it was seen as a major escalation in the Sino-US trade war.
The US government blacklisted Huawei, alleging the Chinese company is involved in activities contrary to national security or foreign policy interests.

BACKGROUND

The US blacklisted Huawei, alleging the Chinese company was involved in activities contrary to national security or foreign policy interests.

As an example, the blacklisting order cited a pending federal criminal case concerning allegations Huawei violated US sanctions against Iran. Huawei has pleaded not guilty in the case.

The order noted that the indictment also accused Huawei of “deceptive and obstructive acts.”
At the same time the US says Huawei’s smartphones and network equipment could be used by China to spy on Americans, allegations the company has repeatedly denied.
Huawei, the world’s largest telecommunications equipment maker, is still prohibited from buying American parts and components to manufacture new products without additional special licenses.
Many Huawei suppliers have requested the special licenses to sell to the firm. Ross told reporters late last month he had received more than 50 applications, and that he expected to receive more. He said on Monday that there were no “specific licenses being granted for anything.”