Daimler, maker of Mercedes cars, warns its profits will slump this year

Legal issues, weak demand lead to weak 2nd quarter

By Charles Riley, CNN Business
CNN

The owner of Mercedes-Benz has warned of a major slump in profits this year after recalls, legal issues and weak demand for new cars contributed to a rough second quarter.

Daimler said Friday that it expects a second quarter loss of €1.6 billion ($1.8 billion), a dramatic decline from €2.6 billion ($2.9 billion) profit in the same period a year earlier.

It said full year earnings will be significantly below the €11.1 billion ($12.5 billion) profit achieved in 2018.

The German carmaker blamed its weak second quarter on higher costs related to the Takata exploding airbag recall, as well as regulatory and legal risks from the diesel emissions scandal.

In addition to those factors, Daimler said its full year performance will be affected by slow product rollouts and weak growth in automotive markets.

The Mercedes-Benz vans business is in particularly poor shape. Daimler said Friday that the division would make a loss of €2 billion ($2.3 billion) in the second quarter.

Shares in Daimler were trading 1.7% lower in Frankfurt following the announcement.

The profit warning underscores the challenge facing global carmakers. They need to invest huge sums in new technology at a time of weak global demand for their products.

Europe's economy is in bad shape, and growth is slowing in China, the world's largest car market. China's Geely said this week that its net profit probably plunged by 40% in the first half of the year.

Daimler's German rivals are also feeling the pain. BMW's profit shrunk in the first quarter, and it's looking for a new CEO. Volkswagen Group's global vehicle deliveries dipped 2.8% in first six months of the year.

To share the burden, automakers are forming partnerships to develop technologies including autonomous driving systems and electric vehicle platforms.

Daimler and BMW have teamed up to develop ride sharing and driverless technology, while Honda has invested in General Motors' self-driving car unit.

Ford and Volkswagen are expected to announce the next step in their joint effort to develop the vehicles of the future on Friday.

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