Auto industry: How Daimler got out of the crisis so quickly

Whether Volkswagen or Daimler – the German carmakers are leaving the Corona crisis behind them and are making healthy profits again, often higher than expected by experts. How is that actually happening?

Sometimes the view of the world changes dramatically in just a year. In July 2020, the Stuttgart-based car and truck manufacturer Daimler seemed to be in serious trouble in view of a quarterly loss in the billions and exploding costs.

Just twelve months later, the situation is completely different: for the second quarter between April and the end of June alone, the group reported a surprisingly high profit before interest and taxes of 5.2 billion euros on Thursday. The company thus kept roughly the level from the first quarter of the year – and once again exceeded market expectations. And this despite the fact that ongoing delivery bottlenecks for important electronic components have been causing problems in the vehicle industry for months.

In the same period of the previous year, the Stuttgart-based company reported an operating loss of 1.7 million euros due to the collapse of the car markets in the pandemic, and the bottom line was even a minus of 1.9 billion euros. At times there was a mood of alarm, the austerity measures that had already been initiated at Daimler were massively tightened again, and the fear of a lasting doldrums was palpable. Not only employees of the Stuttgart group feared more troubled times, politicians also began to listen carefully, as car manufacturers and suppliers are major economic drivers.

In retrospect, the nervousness was exaggerated and possibly also unfounded, because especially premium manufacturers such as Daimler with its regular passenger car brand Mercedes-Benz enjoyed rapidly growing demand again after the corona-related slump.

The group sold around 1.16 million Mercedes cars in the first half of the year – and narrowly missed its sales record from 2018. In their most important market, China, the Swabians were able to report a sales record, where the number of Mercedes cars sold rose to more than 440,000. The group plans to announce next Wednesday what effects all of this had on sales and net profit in the second quarter .

Not only Daimler has benefited from the market upswing for a long time; with BMW and Audi, for example, two direct competitors in the luxury car segment recently reported record sales for the first half of the year. The industry-wide shortage of important components ensures longer order deadlines and currently prevents even higher sales figures, on the other hand, these problems have so far hardly burdened the earnings of the corporations. Volkswagen had recently reported high profits in day-to-day business. In view of the scarce resources, the car manufacturers make do with, among other things, that they prefer to equip more profitable models with the scarce parts. In this way, Daimler also benefits from the fact that customers are increasingly choosing larger cars and the group can enforce high prices on the market.

On top of that, the effects of a number of austerity programs that Daimler had imposed on itself in previous years are now particularly noticeable in terms of operating profit. The top management had initiated the reduction of tens of thousands of jobs, the reasons for the conversion from combustion engines to electric motors and the coronavirus consequences. Unions and works councils had accepted cuts, also because the group was in the red in mid-2020 and had to send a number of employees to short-time work.

Short-time working is still an issue at Daimler in 2021, albeit to a completely different extent and for a different reason: Because of the chip crisis, the company has been stopping production in individual plants for months and sending thousands of employees to such plants, especially government ones paid time off.

Industry expert Ferdinand Dudenhöffer says that the reduction of tens of thousands of jobs in particular has made the company leaner and has led to significant cost savings, which are also reflected in the operating result. Especially since one-off costs for all kinds of severance payments were already largely in the 2020 balance sheet.

Incidentally, Daimler still earns by far the largest part of its money with classic combustion vehicles. The number of fully electric cars sold made up just over 3 percent of all cars delivered in the first half of the year. How the upcoming struggle for supremacy in the e-age will end is open. So far, Daimler has planned that the entire Mercedes new car fleet should be CO2-neutral by 2039 at the latest, but other competitors have already formulated more courageous goals. Will the people of Stuttgart follow suit? For July 22nd, CEO Ola Källenius has announced a strategy update for the electric offensive.

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