Daimler Warns of Economic Instability in Wake of Strong Earnings

Economic storm clouds are gathering, but Daimler CEO Dieter Zetsche sees a silver lining for the auto maker’s Mercedes-Benz brand.

“We see the clouds and increased risk; at the same time we see our order intake,” Zetsche says as Daimler reports strong second-quarter and first-half earnings. “We (were) not able to fulfill the demand in the first half to the full extent because of lack of production.”

Development of MSA platform for A-Class below cost target.

So the auto maker is increasing output in anticipation of continuing, albeit weaker, demand.

Asked during a webcast with industry analysts to identify which model lines have suffered most from inventory shortages, Zetsche replies: “It would be easier to tell you where it’s not the case.”

But in a statement that outlines Germany-based Daimler’s 30% second-quarter net profit gain and its 50% first-half improvement, compared with like-2010, the auto maker cites “critical” circumstances that could determine whether the current global economic slowdown is temporary.

And a healthy U.S. economy is the linchpin.

If there is oil-price relief and Japan’s earthquake-and-tsunami-ravaged industrial machine resumes top speed in the year’s second half, as expected, “that would then allow at least moderate growth,” Daimler says.

“But there would be a serious setback for the U.S. economy if no political agreement on raising the federal debt ceiling could be reached quickly,” the auto maker warns.

“That would trigger considerable irritation in the capital markets and would have global effects through higher price volatility.”

The worldwide climate for new-vehicle sales is promising, Daimler adds. While demand in China and India has cooled somewhat, both markets are tracking ahead of 2010.

Brazil shows double-digit growth rates, while government-backed purchase incentives have fueled 40% growth in Russia.

North America and Western Europe, Daimler’s “core markets,” displayed “dynamic recovery” from the recent recession.

The auto maker credits the redesigned Mercedes-Benz C-Class for the brand’s car-business second-quarter earnings of E206 million ($296 million), up from like-2010’s E127 million ($182 million).

Globally, Daimler’s Mercedes division sold 357,636 cars in the second quarter, up 6% compared with prior-year, while the auto maker recorded 527,644 total deliveries, including trucks, vans and buses, for a 6% jump.

Through June, Daimler was just shy of the 1 million mark for vehicle sales, but its 989,386-unit total still was 10% higher than like-2010.

Zetsche expects the year’s second half to produce stronger results than originally anticipated.

“That is true for cars and is pretty much true for trucks as well,” he says, noting the fourth quarter likely will herald a new era for the Mercedes brand with the launch of an all-new B-Class car in November.

The car will bow at the Frankfurt auto show. And a production version of an A-Class concept car unveiled at this year’s Shanghai auto show could come as early as 2012.

The A-car’s platform, dubbed MSA, not only promises satisfying handling characteristics and optimum fuel economy, it also is delivering cost-savings for Mercedes, Zetsche reveals.

“We have to admit, quite frankly, that we were benefiting somewhat from the (recession) as far as supplier contracts and tooling costs are concerned, so that we came in below our target as far as the cost for these new vehicles is concerned,” he says.

As a result, Zetsche adds, “We are very bullish about compact cars in the future.”

Daimler reports an overall second-quarter net profit of E1.7 billion ($2.4 billion), up from like-2010’s E1.3 billion ($1.9 billion). Through June, Daimler’s income totaled E2.9 billion ($4.2 billion), up from E1.9 billion ($2.7 billion), on revenues that were tracking 10% ahead of prior-year at E51 billion ($73 billion).

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