When Daimler AG commemorated its 125-year anniversary last January, it was proud to announce that its market valuation was 17 billion euros ($23 billion) higher than that of BMW AG. However, this lead has significantly narrowed. Mercedes-Benz’s lead over BMW reached 39 billion euros in 2007 but it has now fallen to just 700 million euros.
The challenges that Daimler faces in widening the gap is the drop in demand for several older models as well as the price of launching new and more compact cars. Arndt Ellinghorst, a Credit Suisse analyst in London, said that due to Daimler’s size, it will take a considerable amount of time “to change course.”
He added that Daimler’s management may think that the “ship is impregnable, but it's clearly taking on water." Daimler and BMW have similar market valuations but BMW’s workforce is less than half Daimler's 270,000 staff and it reported 38% less revenue in 2010. This narrowing gap is indicative of Daimler’s decreasing dominance in Germany’s luxury car market.
It proves that investors assign little value to Daimler's trucks business, which has posted 24 billion euros in sales, or to the stake it owns in European Aeronautic, Defence & Space Co. Juergen Meyer, a fund manager at SEB Asset Management in Frankfurt, said that the premium auto business is Daimler's most profitable division and that people can invest in this segment in its pure form in BMW.