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Daimler Margin Seen Best Since 2007 as Germans Widen Lead: Cars

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Daimler Chases BMW as German Automakers Widen Profit Lead
A Daimler AG Mercedes-Benz emblem sits on the hood of a completed S-class automobile as it travels along the production line inside the company's factory in Sindelfingen. Photographer: Guenter Schiffmann/Bloomberg

Feb. 8 (Bloomberg) -- Daimler AG is set to report its best profit margin since unraveling the merger with Chrysler five years ago. For Chief Executive Officer Dieter Zetsche, that still means third place among the German luxury-car makers.

Daimler, which owns Mercedes-Benz, tomorrow may post a 2011 operating margin of 8.3 percent, the highest since at least 2007, the year it dumped Chrysler, according to the average estimate of 23 analysts surveyed by Bloomberg. That trails Volkswagen AG’s Audi and Bayerische Motoren Werke AG, which are both poised to surpass 10 percent.

The constant competition among the world’s three biggest makers of luxury vehicles, all based in Germany, has set them apart in industry profitability. General Motors Co., the world’s largest automaker, will likely post a 2011 margin of 5 percent, according to analysts’ estimates. Fiat SpA’s 2011 margin was 4 percent of sales. The difference is set to remain in 2012.

“The gap in Europe will widen to the advantage of the Germans” this year, said Stefan Bauknecht, a Frankfurt-based fund manager with Deutsche Bank AG’s DWS. “Fiat and the French carmakers have the wrong products and the wrong market exposure and will be under pressure” from Asian manufacturers like Hyundai Motor Co. and Toyota Motor Corp.

All three German carmakers sold a record number of vehicles last year, benefiting from expansion in China and a rebound in U.S. spending. Even with the debt crisis projected to lead to a fifth straight decline in European car sales, BMW, VW and Daimler are all expecting to grow faster than the global market this year, helped by updated models like the BMW 3-Series sedan, Audi A3 compact and Mercedes SL roadster.

Pricing Power

Daimler, which will be the first German carmaker to report 2011 earnings when it releases figures tomorrow, may post profit margins that are double those of Fiat, the owner of the Maserati and Ferrari brands. VW’s margins, diluted by its Seat and Bentley brands, should still be triple PSA Peugeot Citroen’s.

“The German automakers have higher structural margins because they’re in the premium segment and so have more pricing power than mass-market carmakers,” said Reto Hess, a Zurich-based analyst with Credit Suisse’s private banking unit. “That will remain the case this year.”

The Stuttgart-based company, which is also the world’s biggest maker of heavy-duty trucks, will probably say that earnings before interest and taxes in 2011 rose 24 percent to 8.8 billion euros on revenue of 105 billion euros, according to the average estimate of 23 analysts surveyed by Bloomberg. Deliveries rose 7.7 percent last year to a record 1.36 million Mercedes and Smart vehicles boosted by the updated C-Class.

Germany vs France

Volkswagen, which is slated to report earnings on March 12, is projected to generate a margin of 7.4 percent as Ebit surges 75 percent to 11.5 billion euros, according to analyst estimates. The carmaker’s Audi luxury brand had a nine-month margin of 12.2 percent.

Peugeot, Europe’s second-largest carmaker after Wolfsburg-based VW, is forecast to report a margin of 2.2 percent for last year, while French rival Renault SA may have earned the equivalent of 2.6 percent of sales, according to Bloomberg analyst surveys.

BMW is slated to generate the highest margins of the three German carmakers, as the revamped X3 sport-utility vehicle fueled a 14 percent rise in sales to 1.67 million vehicles. The Munich-based company, which is due to present 2011 figures on March 13, may have increased its margin to 11.9 percent from 8.6 percent, analysts estimate.

Zetsche, whose Mercedes-Benz has slipped to third in luxury-car sales behind Audi, has vowed to retake the top position in deliveries and generate higher earnings than both rivals by rolling out 10 new cars by 2015.

CLS Shooting Brake

BMW will be able to hold on to its lead for at least another year, as Mercedes is held back by costs to start a new factory in Hungary and introduce a line of five compact models, including a coupe and SUV.

“For Daimler, 2012 will be a transition year because of their new small cars,” said DWS’s Bauknecht. Daimler’s “headwinds will turn to tailwinds in 2013, while BMW’s growth momentum slows” as the 5- and 7-Series sedans age, he said.

To regain its edge over BMW and Audi, Zetsche plans to double versions of the flagship S-Class to six and add models like the CLS Shooting Brake, a wagon-like variant of the $71,300 luxury coupe.

“It’s impossible to tell our customers, employees, and investors that we accept being No. 3,” Zetsche said in September interview.

Margin Peak?

Still, profitability for the German carmakers will probably take a knock this year as sales shift to lower-margin small cars. BMW introduced a 1-Series compact late last year, while Mercedes presents the overhauled A-Class hatchback and VW’s Audi revamps the A3 compact.

“Even for the Germans, margins have peaked and are coming down,” said Credit Suisse’s Hess.

Daimler’s margins this year could narrow to 7.6 percent, while BMW’s and VW’s are forecast to slip to 10.2 percent and 6.7 percent, respectively, according to analysts estimates compiled by Bloomberg. Those compare to margins projections of 2.1 percent from Renault and 2 percent for Peugeot.

“All three German carmakers are operating from a position of strength” based on decades of delivering leading technology, said Juergen Meyer, a fund manager with SEB Asset Management in Frankfurt. “I don’t see anything changing this picture.”

To contact the reporter on this story: Chris Reiter in Berlin at

To contact the editor responsible for this story: Chad Thomas at

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