Daimler Sees Lower Truck Profit, Higher Air-Bag Recall Cost

  • Truck sales falling in North America and Mideast, company says
  • Takata-related expense to be ‘mid-hundreds of million euros’

Daimler AG said its truck unit’s profit will be “significantly lower” this year and increased its estimate for costs related to recalls of defective Takata Corp. air bags.

Daimler Trucks’ earnings before interest and taxes will drop from last year’s record 2.7 billion euros ($3.03 billion) as demand shrinks more rapidly than expected in North America and the Middle East, the Stuttgart, Germany-based company said Thursday in a statement. Even with that projection and the higher car air-bag recall spending, Daimler is sticking to a forecast for group Ebit from ongoing business to rise slightly in 2016.

Competitor Volvo AB outlined plans in February to scale back production in the Americas in the first quarter amid waning economic growth in the U.S., where it owns the Mack Trucks brand, and a recession in Brazil. Daimler said Thursday that the global market for medium- and heavy-duty trucks will contract by about 15 percent in 2016, including declines of 20 percent in Brazil and 15 percent in Indonesia.

“Daimler’s warning will no doubt also revive unwelcome memories of past mistakes and credibility concerns,” Stuart Pearson, an analyst with Exane BNP Paribas, said in a report to clients, citing the company as saying the truck unit’s profit drop is likely to exceed 10 percent. “Unfortunately it is hard to deny that Daimler now has something of a track record of failing to read the cycle.”

Daimler fell as much as 0.8 percent to 56.96 euros and was trading down 0.2 percent at 9:14 a.m. in Frankfurt. The stock has dropped 26 percent this year, valuing the company, which also makes Mercedes-Benz luxury cars, at 61.3 billion euros.

The truck division also plans a special charge against earnings of 100 million euros for buyout packages for workers in Brazil in a job-cut drive, Daimler said.

Separately, the company said it will set aside an amount “in the mid-hundreds of million euros” because of anticipated expenses related to Takata air-bag recalls in the U.S. and Canada. In February, Daimler had estimated those costs at about 340 million euros.

Takata air bags have deployed too forcefully, rupturing and spraying parts at vehicle occupants. At least 13 deaths in the U.S. and Malaysia have been linked to the malfunctioning devices, which have forced auto manufacturers to recall more than 60 million air bags globally.

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