Daimler planning a €1 billion cost-cutting program at Mercedes-Benz

Article by Christian Andrei, on September 24, 2012

A program to reduce costs and boost profits at the Mercedes-Benz premium cars division of Daimler will offer a volume of much higher than 1 billion euros ($1.3 billion), two sources told Reuters. Daimler gave a warning last Thursday that it was reducing its full-year profit target at Mercedes because of the dwindling market in Europe and China.

This had made investors in German companies like BMW and Audi worried. In Stuttgart last Thursday, CEO Dieter Zetsche told reporters that the company is preparing for a “challenging environment." He said that the earnings before interest and tax (EBIT) at the luxury cars unit in 2012 will be lower than last year's level.

Previously, Daimler said that the division will be comparable with the 5.2 billion euros ($6.79 billion) of earnings last year. Zetsche said that the second-half EBIT at Mercedes unit will be lower than the first-half result, when it posted earnings of 2.57 billion euros. This indicates that there will be a shortfall of a minimum of 60 million euros.

The sources also said that just how big the cost-cutting program would be at Mercedes (which does not visualize job cuts) has so far not been determined since there are more measures being considered.

Spokesman Mathias Schmidt said that BMW, its rival and the best-selling premium brand in the world, is maintaining its prediction for pretax profit and car deliveries rising in 2012, with an 8% to 10% automotive Ebit margin.

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