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Daimler issues third profit warning in a year

It is boosting provisions related to investigations into its diesel vehicles

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Daimler suffered a fresh setback when German regulators issued a mandatory recall for about 40,000 Mercedes GLK SUVs over potentially illegal software to skirt emissions rules.

Frankfurt

DAIMLER AG cut its profit forecast for the third time in a year, with the German carmaker's new leadership blaming longstanding proceedings around allegations of emissions tampering.

The company boosted provisions related to probes into diesel vehicles by a "high" three-digit million-euro amount. The charge cut Daimler's guidance for 2019 profit before interest and taxes to flat after previously targeting slightly higher earnings, according to a stock filing on Sunday. The shares fell as much as 3.9 per cent, the most in over four months.

The German manufacturer is facing investigations in Europe and the US over allegedly excessive pollution from its diesel vehicles. German authorities last year slapped Daimler with recalls and the company agreed to software upgrades for millions of cars in Europe, while escaping fines so far.

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Daimler's latest guidance cut, following two profit warnings related to trade, new emissions tests in Europe and a legal dispute on air conditioning coolant last year, marks a bumpy start for new chief executive officer Ola Kallenius and chief financial officer Harald Wilhelm. The company is working on "comprehensive measures" to rein in costs to restore profitability while making unprecedented investments on electric and self-driving cars.

The manufacturer has so far given little away on that push and the financial fallout of its diesel engine woes remains difficult to predict.

Daimler is set for more pressure "given the multitude of cyclical and structural issues", Citi said in a report to clients on Monday. "The key debate investors should be having is around the trajectory of the earnings decline rather than the ultimate destination." The shares were 3.6 per cent lower trading at 47.86 euros at 9.22am in Frankfurt trading, trimming gains this year to 4.2 per cent.

Global automakers are wrestling with increasing regulatory scrutiny and pressure on earnings amid record development expenses to roll out electric and self-driving vehicles. Governments have stepped up their oversight on diesel emissions in the wake of Volkswagen AG's 2015 cheating to dupe tests in 11 million diesel vehicles worldwide. The scandal has so far cost the world's biggest carmaker 30 billion euros (S$46.3 billion) in fines and provisions.

Daimler rattling investors again comes at an inopportune time. Last month, shareholders approved a new corporate structure that will give its divisions for cars, trucks and mobility services more independence. While Daimler's woes at the Mercedes-Benz cars division underscores the urgency behind the move, it could rally criticism from some investors to make deeper changes, including a separate listing for the sprawling trucks division. Such a step would echo a move by rival Volkswagen.

Daimler said on Sunday that the return on sales at its struggling vans unit is expected to be minus 2 per cent to minus 4 per cent. The division swung to a surprise loss in the first quarter as plans to produce a Mercedes-Benz pickup truck in South America derailed.

On the diesel issue, Daimler suffered a fresh setback when German regulators issued a mandatory recall for about 40,000 Mercedes GLK SUVs over potentially illegal software to skirt emissions rules. A spokesman declined to comment on a connection to the profit warning.

German authorities already slapped Daimler with a recall of 774,000 diesel cars in Europe last June over the use of prohibited devices regulating their emissions. The company continues to claim a clean engine record. BLOOMBERG