Daimler Sees 2014 Profit Growth as Strategy ‘Paying Off’

Daimler AG Chief Executive Officer Dieter Zetsche said his expansion of Mercedes-Benz model offerings will enable the world’s third-largest maker of luxury cars to beat competitors’ sales growth and increase operating profit “significantly” in 2014.

“Our determination is paying off,” Zetsche said today at the annual shareholders meeting in Berlin. The manufacturer is “seeking to gain new customers by entering new segments for Mercedes-Benz.”

Zetsche has vowed that the Mercedes brand will overtake Bayerische Motoren Werke AG and Audi AG in premium-auto deliveries by the end of the decade with 30 new models, including a dozen with no predecessor. Mercedes will show a sport-utility vehicle coupe prototype at an auto show in Beijing this month, Zetsche said today. The CEO said in February that the company plans to build a sports car.

BMW, which sold more vehicles than Stuttgart, Germany-based Mercedes in 2005 to gain the global premium-car industry crown, is working to protect its lead, targeting 2 million group deliveries this year. Volkswagen AG’s Audi division, which has held second place in the segment since beating Mercedes in in 2011, has also laid out plans to become No. 1 by 2020.

Younger Buyers

“Daimler has woken up and shed its old-man’s image,” Ingo Speich, a Frankfurt-based portfolio manager at Union Investment who represents more than 4 million investors, said in a speech at the meeting. “The design and features of the new models are well received also by younger customers.”

Daimler rose as much as 1.3 percent and was trading up 0.8 percent at 70.44 euros as of 1:06 p.m. in Frankfurt. The stock has gained 12 percent this year, valuing the manufacturer at 75.4 billion euros ($104 billion).

Mercedes’s sales jumped 13 percent in March to 158,523 vehicles, a record for any month for the brand. Demand was boosted by a 78 percent surge for the top-of-the-line S-Class sedan, which was revamped in July, and a 26 percent jump for compact models as the GLA sport-utility vehicle became the fourth model in the segment’s lineup.

The March gain at Mercedes compares to increases of 15 percent to 170,450 vehicles at Ingolstadt, Germany-based Audi and 17 percent to 186,126 at Munich-based BMW, both the highest delivery figures for any month for the brands. The three competitors are each targeting all-time high sales in 2014, which would mean the fourth consecutive annual record for both Mercedes and BMW and the fifth for Audi.

Investment Budget

Daimler plans to invest about 21.8 billion euros in vehicle development and production capacity over the next two years, including at its heavy-truck business.

Mercedes has bolstered demand by revising the compact models, including a complete redesign of the A-Class hatchback, a new generation of the van-like B-Class model and the introduction of the CLA four-door coupe. Vehicles planned for rollouts this year include a new version of the best-selling mid-sized C-Class model, a coupe variant of the S-Class coming out in September, and two models for the Smart city-car brand.

“Demand for our compact cars remains so high that our production can barely keep up,” Zetsche said.

The carmaker has added shifts this year at German and Hungarian plants. Expansion plans outlined since mid-2013 include projects in China to help Mercedes double production capacity in the country and a 170 million-euro program to resume making passenger vehicles in Brazil.

Alabama Plant

Mercedes is also considering setting up a second plant in North America to complement a factory in Tuscaloosa, Alabama, that builds Mercedes SUVs and is adding the C-Class this year.

Sales growth in China, the world’s biggest car market, will be key to Zetsche’s targets for Mercedes, which was hampered by separate sales organizations in the country for imported and locally produced vehicles. Mercedes merged the sales operations last year. Zetsche said today that the carmaker will add 100 dealerships for a network of 400 outlets in China by the end of this year.

The SUV coupe making its debut at the Auto China show in Beijing later this month is targeted at customers seeking a sporty vehicle with off-road capability, and “we’re confident it will be a success,” Zetsche said.

Keeping Forecasts

Daimler reiterated that earnings before interest and taxes will rise “significantly” at the Mercedes-Benz Cars and Daimler Trucks units, with the bus division reporting “slightly” higher profit and the van and financial-services businesses matching 2013 earnings.

The car division has a medium-term target for Ebit of as much as 10 percent of revenue, while the truck unit is aiming for a 8 percent return on sales. That compares with respective margins of 6.2 percent and 5.2 percent last year. The two businesses combined am to lower spending by 3.6 billion euros by the end of this year, and the car unit beat an interim spending-reduction goal in 2013.

“Our efficiency measures are having an impact across all divisions, and we will structurally safeguard and expand these measures,” Zetsche told investors today. The company is “confident” of reducing the gap in earnings to Audi and BMW.

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