German Auto Giant Mercedes On Cost-Cutting Drive

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Mercedes-Benz plans to save €1.65bn (£1.4bn) by cutting more than 1,000 jobs in the latest sign German carmakers are struggling to make big investments in electric car technology.

Carmakers around the world are spending billions on developing battery-powered electric vehicles but at the same time sales of internal combustion engines are slowing in the face of economic weakness and scandals over emissions.

Mercedes-Benz’s premium cars division will bear the bulk of the job cuts, its parent company, Daimler, said on Thursday, with cuts of €1bn from its wage bill expected by 2022. Management and contractors will be particularly affected, while the vans and trucks divisions will together cut €650m in staff and other costs.

Management positions will be cut by around 10%, and the company said it would also seek more than 300 million euros from cutting personnel costs – plus another 250 million euros in fixed costs – at its trucks business.

The iconic German automaker has been struggling with falling profits, hurt by expensive recalls linked to its diesel engines, softening demand amid a global slowdown especially in its key Chinese market, and a costly switch to autonomous, electric vehicles (EVs).

Stuttgart-based Daimler also flagged that tougher emissions rules in the European Union would further put pressure on its bottom line in 2020 and 2021. It said it would need to sell more EVs to meet the new emission norms, which call on carmakers to substantially bring down harmful emissions from cars.

Daimler said it would cap investment in property, plant, and equipment and in research and development at current levels, with plans in place to reduce investment in the medium term.

Carmakers are on the verge of a key period in the transition away from reliance on fossil fuels, with strict rules on carbon dioxide emissions coming into force on 1 January 2020. Manufacturers will face heavy fines if the average emissions of cars sold in the EU are above 95g of CO2 per kilometre.

Daimler shares fell by 3% in early trading on Wednesday, to €51.97. It made earnings before tax of €10.6bn in 2018 but has given repeated profit warnings during 2019 and analysts forecast earnings before tax of about €6.3bn for 2019, according to average estimates from S&P Global Market Intelligence.

As well as the global race for electrification, Daimler faces the prospect of further legal costs in relation to alleged breaches of emissions regulations. The scandal over diesel emissions cheating technology has also dented the rival German carmaker Volkswagen.

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