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Daimler's CEO Zetsche stumbles on his victory lap

Investors shocked by warning that earnings this year will be significantly lower than expectations

Mr Zetsche spent the last few years breathing new life into Daimler, reclaiming the luxury-leader position from BMW.


DAIMLER AG chief executive officer Dieter Zetsche has spent the last few years breathing new life into the maker of Mercedes Benz cars, reclaiming the luxury-leader position from BMW AG with fresh designs and a slew of new models. The turnaround made Mr Zetsche a celebrity in German business circles, winning him accolades both inside and outside the company. But as he prepares to hand the keys to a new CEO after a dozen years at the helm, he's starting to look tarnished.

On Friday afternoon, the company shocked investors with a warning that earnings this year will be "significantly" lower than market expectations. The announcement sent Daimler's shares to their lowest since 2013. Daimler had already cut its outlook in June, breaking a years-long streak of earnings releases that were predictable and generally positive. Daimler stock is down almost a third this year, far worse than BMW or Volkswagen AG.

Friday's announcement didn't go down well with the financial community, with analysts at Jefferies bemoaning the "annoying lack of disclosure". Juergen Pieper, an auto analyst at Bankhaus Metzler in Frankfurt, called the warning "disastrous" and Daimler a "falling star".

It's a humbling turn for Mr Zetsche, 65, who had all but reinvented himself and the company he leads in recent years. While retaining his trademark walrus mustache, Mr Zetsche came to represent a younger, sportier Daimler with cars from the GLC coupe to the racy GT roadster that made the German competition look outright dowdy. He accelerated a push into electric vehicles to make up ground lost to Tesla Inc, promising a US$12 billion spending offensive and 10 fully electric models by 2022.

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But Daimler, like its German rivals, has been on a rocky ride lately. The trouble started three years ago when Volkswagen AG admitted cheating on diesel emissions, sending shock waves through the industry and haunting carmakers to this day. Daimler, while always maintaining that it didn't cheat, was forced to recall 774,000 vehicles in Europe following a tense meeting with the government in June.

Less than two weeks after that meeting, the company slashed its outlook for the first time, though it wasn't only the diesel issue that dimmed Daimler's prospects. The trade war between the US and China was gaining momentum, weighing on German carmakers that had spent years beefing up their presence in the crucial US market. With tensions rising, they started to feel the blow-back as exports of once-popular SUVs to China dropped.

The surprises have come hard and fast for Mr Zetsche this year. In February, Chinese billionaire Li Shufu announced that he had bought 9.7 per cent of Daimler, making him the biggest single shareholder. Then in September, Mr Zetsche announced that he would leave the CEO position and hand the reins next year to Ola Kaellenius, a Swede who has worked at Daimler his entire professional life. Mr Zetsche won't leave the company outright, instead moving to the post of supervisory board chairman when that position opens up in 2021.

But following the second warning this year and the ensuing share slide, Mr Zetsche's hope of leaving on a high note has been put in doubt. Daimler had gone to great lengths to make the management transition as orderly as possible, in no small part because Mr Zetsche's promotion to the top job a dozen years ago followed the messy divorce of Daimler and Chrysler.

His first years were spent reviving Germany's most iconic brand. Mercedes at the time was falling badly behind BMW and Audi with a reputation for staid sedans and conservative design. His low point came in early 2013 when the board decided to only renew his contract for three years rather than the customary five - a serious vote of no confidence from senior management.

But Mr Zetsche pulled off a surprise rebound, starting with a new A-class. The car's aggressive styling kicked off a model offensive that greatly enlarged Daimler's lineup, attracting younger buyers who previously would have dismissed Mercedes as their parents' vehicle of choice. Mr Zetsche himself emulated the rejuvenation: out with the pin-striped suits and ties, in with the sneakers, figure-hugging shirts and sport blazers. Only the mustache stuck.

With Friday's disappointing outlook, Mr Zetsche risks running out of road. And while Daimler can take solace in again leading the luxury pack, investors are bemoaning the thin returns this year and a company still stuck in a major transition to a still-unclear electric future.

"The share price hasn't really done spectacularly during his tenure," said Sven Diermeier, an analyst at Independent Research GmbH who rates the stock a hold. "It has never been the case that all areas of the company were firing on all cylinders." BLOOMBERG

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