Daimler targets $1.1billion in savings with Mercedes job cuts

Daimler plans to slash headcount at its Mercedes-Benz cars division to help manage the disruptive shift to self-driving and electric vehicles.

The job cuts are aimed at saving more than 1 billion euros ($1.1 billion) by the end of 2022, Daimler said Thursday. The Stuttgart-based automaker plans to eliminate 10 percent of management positions as part of the effort to boost results.

After two rapid-fire profit warnings earlier this year, new CEO Ola Kallenius is under pressure to map out a strategy to revive flagging earnings, while at the same time ensuring that Daimler doesn’t lose its technology edge.

A costly transition to electric vehicles, together with legacy diesel issues, has forced Mercedes to drop its EBIT margin outlook to a 3 percent to 5 percent range for 2019. With global demand for cars softening, Daimler has little choice but to cut costs to eventually return Mercedes’ profitability to its long-standing range of 8 percent to 10 percent.

The road to get there will be long one. Excluding the fallout from trade wars, Daimler is targeting an operating profit margin of at least 4 percent next year and 6 percent in 2022. The trucks division will target a return on sales of more than 5 percent in 2020 and 7 percent in 2022.

At the five-star Corinthia Hotel in London, the successor of veteran Dieter Zetsche faces investors face-to-face Thursday at his first big strategy presentation since taking charge of the German auto icon in May. The company’s returns have fallen well below the margins of French mass-market rival PSA Group.

Profitability at Daimler’s sprawling commercial vehicle operations — including Mercedes-Benz trucks in Europe, Freightliner in North America and Fuso in Asia — has also trailed rival Volvo AB for years.

Among the strategy highlights:

  • To strengthen the free cash flow, investment in property, plant and equipment and in research and development will be capped at the 2019 level and be reduced in the medium term.
  • Daimler plans to prioritize investments with a goal of keeping net liquidity above 10 billion euros ($11 billion).
  • Mercedes Trucks in Europe plans to reduce variable costs by 250 million euros ($275 million) and personnel costs by 300 million euros ($330 million) by the end of 2022.
  • Daimler’s mobility services unit will counter higher regulatory capital requirements with efficiency and digitalization measures.

“Daimler urgently needs to move away from its ‘spray and pray’ investment philosophy and toward a materially more focused, sharpened allocation of its funds,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a note prior to the presentation. “Otherwise, the group will simply be unable to self-fund its premium mobility aspirations.”

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