Poor automotive company results will add to merger pressures

Daimler today reported a net profit of €2.7bn for 2019, 64% down on the previous year. It is the latest in a succession of poor financial results from a number of automakers;

David Leggett, Automotive Editor at GlobalData, a leading data and analytics company, offers his view:

“Daimler’s 2019 results reflects some special factors – such as expenses for ongoing governmental and legal proceedings and measures relating to Mercedes-Benz diesel vehicles as well as expenses for a recall of Takata airbags.

“However, it was also apparent that it is being impacted by high upfront investments for new products and technologies. Margins are being squeezed in spite of high or record sales – Mercedes-Benz cars hit a new record with almost 2.4 million cars sold in 2019, but operating profit was down by 53% on the previous year.

“Demand prospects are far from strong globally, with major regional car markets such as China, North America and Europe either flat or in decline.

“Higher costs and intensified competitive pressures in stalled markets will support further industrial consolidation this year.

“We expect to see more merger and acquisition (M&A) activity in the auto industry as companies position themselves to be more competitive in the face of considerable business challenges ahead – most notably to invest in costly advanced technologies such as electrification and automated drive, while also meeting tighter CO2 emissions targets.

“Investors are understandably nervous about auto stocks and anxious to see signs of progress and strategic actions to address industry-wide challenges.

“The restructuring pressures are building for car companies and suppliers alike.”

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