Mercedes-Benz to ramp up cost cutting after profit halved
Mercedes-Benz on Friday said it plans to ramp up cost-cutting efforts after its net profit halved in the third quarter amid weak demand in China.
The German automaker cut its full-year profit margin twice during the third quarter, down to 4.7% from 12.4% a year before, as European car companies see their sales falter amid a weak Chinese economy.
“We are taking a prudent view about market evolution going forward and we will step up all efforts on further efficiency increases and cost improvements across the business,” Chief Financial Officer Harald Wilhelm said in a statement.
Mercedes-Benz shares dipped 1.2% on Friday. BMW and Volkswagen shares each fell less than a percentage point on the poor earnings report, as well.
Mercedes-Benz shares are down 9.9% so far this year. The pan-European autos index is down 10% in the same period, making it the worst-performing sector in Europe this year.
The German carmaker’s net profit fell to $1.9 billion, or 1.7 billion euros, in the third quarter, down from $4 billion in the same quarter last year. Revenue plunged 6.7% to $37.3 billion.
Analysts polled by FactSet had expected net profit to reach $2.1 billion on revenue of $39.2 billion.
“The Q3 results do not meet our ambitions,” Wilhelm said. “Nonetheless Mercedes-Benz continues to generate solid cash flows even in challenging times.”
The company will be looking to reduce its cost base, including materials used for its cars, material used in factories and labor costs, Wilhelm said during a call with reporters.
“Is there any specific point to be made now in terms of headcount adjustment, no,” he said.
The CFO said Mercedes-Benz has significantly reduced costs over the last five years.
“I think that was successful, but, we need to go a step beyond, so it’s going to be tighter, it’s going to be tougher for sure,” he added.
European automakers have been lowering their full-year forecasts as competition ramps up amongst local manufacturers in China.
Carmakers have been hit by withering demand in the region, as Chinese consumers – faced with a weak property market and economic slowdown – have pulled back on luxury purchases.
Manufacturers also fear the possibility of a trade war with China, with higher tariffs on imported vehicles that could raise costs and shake the supply chain.
As talks have continued between Brussels and Beijing over import tariff hikes, Mercedes-Benz has called the potential tariffs a “mistake” and urged the European Commission to delay their implementation so they can work on a deal.
With Post wires
