Daimler profit falls as Mercedes stumbles on diesel costs

[MUNICH] Daimler AG's profit slumped 14 per cent in the third quarter as earnings at the Mercedes-Benz cars division dropped on costs to fix the emissions systems of older diesel cars.

Earnings before interest and taxes declined to 3.46 billion euros (S$5.6 billion) from 4.04 billion euros a year earlier, the Stuttgart, Germany-based manufacturer said on Friday.

As the company flagged in advance of the report, Mercedes booked 453 million euros in charges for airbag recalls and upgrades of more than three million diesel vehicles over German government concerns about excess pollution from the models.

Excluding these costs, Mercedes's margins are 11.1 per cent and at a "very good level", Marc-Rene Tonn, an analyst at MM Warburg said.

Alongside the fallout from Volkswagen AG's cheating scandal, allegations of a decades-long German-car cartel have added to burdens from the disruptive shift to electric, self-driving cars. To respond to the changes sweeping the car industry, Daimler is pushing ahead with plans to grant its car and truck operations more independence in a move that could pave the way for spin-offs and other deals. The changes would mark its biggest corporate overhaul since the sale of Chrysler a decade ago.

"Now is the right time to examine - from a position of strength - whether we can position ourselves even better to shape the automotive era definitively and successfully from the top," Daimler chief executive officer Dieter Zetsche said.

Before the third-quarter figures, the stock had declined 2.5 per cent this year. Investor concerns about mastering the biggest car shift in decades have pushed Daimler, Volkswagen and BMW AG to the bottom four in Germany's benchmark DAX Index in terms of valuation multiples.

Daimler, stuck to its expectation of "significantly" boosting group earnings, revenue and vehicle deliveries for the year. Through the first nine months of 2017, operating profit is up 19 per cent to 11.2 billion euros.

The planned corporate overhaul comes amid signs that Mercedes's momentum is fading after an unprecedented expansion of its lineup. Burdened by the recall charges, the division's earnings tumbled 22 per cent to 2.15 billion euros in the third quarter.

Diesel's troubles represent a significant risk for Mercedes, which makes much of its money from big vehicles. The technology, which delivers power and fuel efficiency, is a key profit driver and important for reducing carbon-dioxide emissions to meet increasingly stricter environmental regulations.

The gradual decline of diesel demand has prompted Daimler and other German carmakers to accelerate the development of electric cars, which will initially be a drag on profit.

Amid the rampup, Daimler spent 2.3 billion euros on research and development in the third quarter, 21 per cent more than a year ago. The world's biggest maker of luxury cars and heavy trucks intends to slash four billion euros from spending by 2025 to offset weaker margins from battery-powered vehicles.

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