Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Wolfgang Bernhard, Daimler's truck unit boss, certainly knows how to make an impression.

More than a decade ago, he took to the stage of the Detroit auto show straddling a scarily-fast Dodge Tomahawk and resembling a cross between the Terminator and George Clooney. More recently, he's been known to check his iPad while riding around in a prototype of Daimler's driverless truck test vehicle.

His performance Thursday night was rather less impressive -- but it would be premature for investors to hit the panic button just yet. 

Sinking Feeling
Daimler's shares have tumbled amid worries about China and vehicle emissions

Instead of only a slight decline in truck sales this year and flat earnings, Daimler's truck unit now expects operating profit and unit sales to be "significantly" lower -- which means a decline of at least 10 percent.

The main problem is North America where Daimler -- owner of the Freightliner brand -- is the market leader with a 39 percent share of the market for the heaviest trucks, according to Bloomberg Intelligence. 

Truck orders in North America have been terrible of late, a function of rather uninspiring U.S. economic growth, something my Bloomberg View colleague Mark Gilbert explored earlier this week.

Daimler now expects the overall medium and heavy-duty truck market to contract 15 percent this year. Previously, it forecast a 10 percent decline.

Truck Stop
North American truck orders have continued to disappoint
Source: FTR Associates

Arguably, Bernhard should have realized sooner that the market wasn't going his way. His new forecast brings Daimler closer into line with what rivals were saying several weeks ago. 

Trucks orders are typically seen as an economic indicator, so it is time for investors to head for the hills?

The period from 2014 to early 2015 was an exceptionally good one for truck sales, as Gadfly noted here, so it would be unwise to over-interpret large year-on-year declines in orders. 

Freight data have been volatile of late and, unfortunately, aren't therefore a very useful guide to expected demand. 

Still Trucking?
Trucking demand surged in February following winter storms but that rosier picture didn't last
Source: American Trucking Associations

Even so, with manufacturing still in the doldrums and the U.S. economy expected to expand by only 1.8 percent this year, according to Bloomberg estimates, there's little sign truck sales will rev up anytime soon.

Fortunately for Daimler, its Mercedes-Benz car unit represents the bulk of operating profit and it continues to thrive.

Small is Beautiful
Daimler trucks represents only about a fifth of operating profit. The car unit still dominates
Source: Bloomberg

The division's first-quarter sales rose 13 percent on the year-earlier period, helping it overtake arch-rival BMW as the world's top-selling luxury carmaker. Daimler hasn't therefore seen any need to adjust its guidance for group Ebit from continuing operations to increase slightly from last year's record 13.8 billion euros ($15 billion).

Daimler's shares have fallen more than one quarter so far this year, suggesting not all investors share the company's rosy outlook. (Daimler has been notably more bullish on Chinese car sales than its peers for example). A change to earnings guidance, even on a divisional level, won't help win over the doubters.

The stock trades on a modest seven times estimated earnings -- a smaller multiple than even scandal-hit Volkswagen.

Daimler has some to questions to answer over vehicle emissions. Shareholders may also have to get used to rather less in the way of excitement from Daimler's truck unit for the time being. But even so, that valuation seems rather a harsh judgement. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net