Daimler: putting it right in China

After a disappointing 2012, Daimler is predicting a modest sales recovery in 2013, with emerging markets in the driving seat.

The company, which on Thursday unveiled patchy annual results, is hoping that a recent revamp of its Chinese operations, combined with a pick-up in the Chinese car market, will make a big difference in the coming years. It needs to – rivals Audi and BMW have left Daimler trailing in China, the world’s largest single market.

The company’s 2012 results were expected to be underwhelming: Daimler had warned back in October that it would miss its earnings before interest and taxes target of €9bn for 2012. In the end, Ebit came in at €8.6bn, a 2 per cent decline from 2011. Net profit was up 8 per cent to €6.5bn, and revenues rose 7 per cent to €114bn.

As Chris Bryant reported for the FT, Daimler issued a cautious outlook for 2013 saying that income from ongoing businesses would be in the “magnitude” of last year and earnings from its core Mercedes-Benz car division would decline slightly.

The shares rose 1.72 per cent in early trading on Thursday, after a near 2 per cent increase on Wednesday. Clearly, investors were relieved.

But the China news was bad. Dig into the regional breakdown, and there’s one figure staring out that is a bit awkward: China unit sales. For Mercedes-Benz cars, it was down 7 per cent to 208,494 in 2012 from 2011, the only significant regional fall (there was a tiny drop in Germany of 735 cars).

Van sales in China were bad too: the company had sales of 8,836 units in the country for 2012, down 35 per cent from 2011′s 13,514 units. Europe also saw a drop, but of 8 per cent – nothing like as big.

Overall, company revenues in China fell 2.8 per cent in 2012 from €11.1bn to €10.8bn, compared to overall Asian revenues of €25.1bn, up 11 per cent. Even western Europe was flat.

Daimler is already confronting the challenge. Firstly, back in December it appointed a new board member for Greater China, Hubertus Troska, previously in charge of the Latin American and European truck division. This increases the board positions to eight.

The company has also put out some bold targets for China. In its China Sales Initiative 2015 launched at the end of 2012, Daimler put a target of selling 300,000 cars in China in 2015. That’s nearly 100,000 more than in 2012. The company is also planning “220 dealerships in approximately 100 cities”, expanding at about 50 per year, and is ramping up local production.

But most revealing is the increase in stakes in Chinese operations. Daimler will pay €640m to acquire a minority stake in the car division of Beijing Automotive, its Chinese joint venture partner. It will acquire 12 per cent of BAIC Motor, which is China’s fifth-largest domestic carmaker by sales, ahead of BAIC’s IPO this year. It also increased its stake in sales company Mercedes Benz China from 51 per cent to 75 per cent in the second half of last year.

Car manufacturers can’t afford to miss out on China. Although the double-digit boom is over, car sales in the country are still expected to increase 7 per cent in 2013.

Daimler has a lot of lost ground to recover.

Related reading:
Daimler under pressure to change gear
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Daimler shares rise on talk of China stake
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Daimler takes stake in Chinese carmaker
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China’s car market to triple by 2020
, FT (2011)