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Daimler Said to Target $1.3 Billion in Cost Reductions

Daimler AG Chief Executive Officer Dieter Zetsche
Daimler AG Chief Executive Officer Dieter Zetsche announced a “Fit for Leadership” efficiency program on Sept. 20 without giving details. Photographer: Photographer: Jason Alden/Bloomberg

Daimler AG, the world’s third-largest maker of luxury cars, is planning to cut annual costs by at least 1 billion euros ($1.31 billion) in response to the region’s deteriorating auto market, a person familiar with the matter said.

The spending reductions are aimed at boosting the German automaker’s profitability, said the person, who asked not to be identified discussing internal plans that are not yet public. Florian Martens, a Daimler spokesman, declined to comment.

Chief Executive Officer Dieter Zetsche announced a “Fit for Leadership” efficiency program on Sept. 20 without giving details. Zetsche said he will outline details at a later date.

Zetsche, who also heads the Mercedes-Benz Cars unit, said last month the company’s passenger cars business in 2012 will not reach last year’s operating profit of 5.2 billion euros, lowering an earlier forecast. He declined three weeks ago to reiterate the unit’s goal of reaching a 10 percent margin by 2013.

“We remain convinced that there is a significant risk that Mercedes ebit will decline next year,” Arndt Ellinghorst, a London-based Credit Suisse analyst, said in an e-mail. He estimates a margin on the earnings before interest and taxes of 8.3 percent for Mercedes next year.

The shares advanced as much as 97 cents, or 2.5 percent, to 39.61 euros and were up 2.1 percent as of 1:04 p.m. in Frankfurt trading. The stock has gained 16 percent this year, valuing the company at 42.1 billion euros.

Plunging Market

Daimler is reducing spending as the European car market is posed for its steepest decline in 19 years. Industrywide deliveries in 2012 will drop 8 percent to 10 percent, according to a forecast by lobby group ACEA.

Daimler yesterday reached an agreement with its works council to cut production of the flagship S-Class model at its biggest plant in Sindelfingen to one shift from two before the new generation goes into production next year.

Bayerische Motoren Werke AG, the world’s biggest maker of luxury autos, has shifted “tens of thousands” of vehicles from Europe to the U.S. and Asia in reaction to slowing demand on the debt-ridden continent, Ian Robertson, BMW’s sales chief, said yesterday.

The gap between Mercedes and its competitors is widening. The brand’s nine-month sales increased 5 percent to 964,926 vehicles. That compares with a 13 percent jump to 1.1 million cars at Volkswagen AG’s Audi unit, and a rise of 8.6 percent to 1.11 million vehicles at BMW.

Daimler’s cost reduction are focused on increasing profit by about 3 billion euros, Manager Magazin reported earlier today, citing unidentified company executives. The exact sum is still being calculated, the German magazine said.

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