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Business

Daimler Warns of Rough Year Ahead after Sharp Drop in Profits

German luxury auto maker Daimler warned on Tuesday that the group could face slumping sales in the first quarter of this year after posting a significant drop in earnings in 2008.

The finishing touches are put on a Mercedes-Benz

Daimler says it faces all-round slumps in vehicle sales, including that of Mercedes-Benz

The carmaker's net profits for last year plummeted by 65 percent to 1.41 billion euros ($1.8 billion). Daimler said the result followed what was "a very good first half and a difficult second half" of the year.

The loss by the maker of Mercedes-Benz and the Smart car was far worse than expected. A poll of auto industry analysts by Dow Jones Newswires had posited that Daimler could make as much as 2.75 billion euros last year. In 2007, Daimler raked in a net profit of 4 billion euros.

Daimler chief Dieter Zetsche said the company is "dealing with a very difficult environment. Nobody knows how long this crisis will last."

But Zetsche said he was confident that the carmaker could make it through the current crisis in the global auto industry despite the poor results from last year. "The Daimler Group is in a relatively strong position to meet the crisis," he said.

"We have the opportunity not only to overcome this exceptional situation, but to emerge from it stronger," he said. "We are going to seize this opportunity."

But while Zetsche declined to speculate on whether this year's first quarter would return a profit or a loss, he did acknowledge that the company would press on with a big cost-cutting program. The firm has already announced one round of production cuts.

Uncertain 2009

A Daimler factory in Woerth, Germany

Daimler announced it would make production cuts to deal with the downturn

Auto markets and global economies slowed sharply late last year as the financial crisis gained momentum and a collection of US investment banks edged towards collapse.

Several major economies moved into official recession territory and consumer confidence began to slide, dragging global car sales down with it.

"The great uncertainty about the duration and extent of the global economic downturn is connected with substantial risks for the development of the world's automotive markets," Daimler said in a statement.

"Global demand for automobiles could decrease by another 10 percent in 2009 compared with the prior year," it added. "Prospects for the major markets for commercial vehicles are also unfavorable."

The carmaker said "further substantial burdens" were likely to undercut the carmaker's earnings.

"A more detailed statement on earnings will only be possible later in the year, when the development of the world economy and the automotive markets can be better assessed.".

Late 2008 losses

A car yard in the US

Car dealerships are having trouble selling vehicles of all makes and models

The Stuttgart-based company's earnings for last year were dragged down significantly by fourth-quarter losses of 1.53 billion euros, compared with a 1.7 billion euro profit for the same period in 2007.

The group is proposing to cut its dividend to 0.60 euros per share, compared to 2.00 euros a year ago.

Daimler warned that the global economic slowdown would dampen demand for commercial vehicles in key growth markets of Asia, Eastern Europe and Latin America.

Daimler said its results were also hit by a 1.67-billion-euro write-down caused by its partial pullout from troubled US carmaker Chrysler, in which it still holds a 19.9 percent stake.

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