Outlook
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Outlook: Interim Report Q3 2009 as of October 27, 2009
The statements made in the Outlook section of this Interim Reportare based on the current assumptions of the Daimler management. In turn, those assumptions are based on the expectations for general economic developments described below and the targets set by our divisions. Expectations for future business developments reflect the opportunities and risks arising from prevailing market conditions and competitive situations as the year progresses.
With regard to existing opportunities and risks, we refer to the statements made in our Annual Report 2008, the following assessment of the prospects for the global economy and specific industries, and the notes on forward-looking statements at the end of this Management Report. We are aware that forecasts still have to be regarded as highly uncertain in the present environment. Another factor is that no reliable statements can currently be made on the extent to which the economic stimulus packages decided upon by the governments of various countries will contribute to the sustained recovery of financial markets and markets for products.
Economic developments in the third quarter of 2009 have confirmed hopes that the world economy has bottomed out after its recent drastic contraction and is now recovering again. But this gradual upturn will not change the fact that 2009 has been the worst year in economic terms since the end of the Second World War. Another fact is that the recovery has not yet started in all countries or in all industries. Furthermore, a degree of uncertainty is still connected with the current economic improvements, especially in the industrialized countries: The upturn is at present relying on special and one-time effects such as fiscal stimulus, inventory cycles, low interest rates and low inflation. These positive factors should also allow solid economic growth rates for the rest of the year, but key economic parameters like consumption and investment are still too low in many regions and industries. While private consumption is being dampened by rising unemployment and the unfavorable development of real incomes, very low utilization of industrial capacity is reducing the need for investment. Solely exports are increasing slowly in some countries, benefiting from the revival of demand in Asia. But overall, global economic output in 2009 is likely to shrink by a good 2% as a result of the dramatic slump in the first half of the year. Apart from some emerging economies such as China and India, there are not yet any signs of a self-sustaining upswing. In the coming months, much will depend on the extent to which the finance and credit markets provide appropriate support to the incipient recovery.
The deep economic crisis will have serious effects on the global demand for motor vehicles in 2009, although the picture has been distorted by governments’ car-buying incentives, particularly in some of the large automotive markets. State support programs have created artificial demand for cars, above all in Western Europe, so total unit sales in this market will probably be only slightly lower than in 2008. Also in Japan, the market slump that was originally anticipated will be significantly reduced by state support programs. The US market, however, is expected to contract by more than 20% in 2009, despite a temporary market revival caused by a federal scrappage scheme. Demand for cars has been boosted by government purchase incentives also in many large emerging markets. Above all in China and India, significant tax reductions have triggered booming car sales, causing demand to rise well above prior-year levels in both countries. And thanks to state incentives, the Brazilian market will probably also surpass the record volume of the prior year. In Russia, however, from today’s perspective only about half as many cars are likely to be sold as in 2008. In global terms, demand should decrease this year by only approximately 10%, thanks to the widespread state support programs. But negative effects on demand can be expected when the state support programs are phased out in the following years, particularly in the volume segments of more mature markets.
Although global markets for commercial vehicles should now have bottomed out in line with overall economic stabilization, the demand shortfall will be very large this year, with only a few exceptions. In the three major regions (North America, Western Europe and Japan), total demand for medium and heavy trucks will decline by approximately 40%. Whereas sales in the NAFTA region will fall by rather lower rates of 30 to 40%, declines are likely to be above average in Western Europe (40-50%) and Japan (45-55%). Total demand for trucks will fall also in the emerging markets, although developments in the major regions and individual countries are very diverse. In Russia and Eastern Europe, truck markets are likely to slump by between 60 and 70%. Latin American markets will decline by about 20 to 30%, although the Brazilian market is showing the first signs of recovery. But in China, demand for trucks should exceed the prior-year level, thanks to massive state infrastructure programs. From a global perspective, the gradual recovery of truck markets that now seems to be starting will probably be only moderate due to the difficult conditions for investment. Expectations for van markets in the United States, Western Europe and Japan also remain subdued. We anticipate only a slight recovery in the fourth quarter compared to developments during the year to date.
We expect a stable development in the city bus segment this year, but market conditions for coaches are likely to remain difficult.
Based on developments during the year to date and the divisions’ planning, Daimler expects its total unit sales to decrease significantly in the year 2009 (2008: 2.1 million vehicles).
Mercedes-Benz Cars assumes that business will continue to improve in the last quarter of the year. Sales impetus will be provided not only by the recently launched new E-Class models and the station wagon to be launched in November, but also by the new generation of the S-Class, which was launched at the end of June 2009. However, Mercedes-Benz Cars will not be able to fully compensate for the weakness during the year to date of some major sales markets and in particular of the market segments important to us. Overall, the division’s unit sales will therefore be lower in 2009 than in the prior year. We see lower volumes above all in the markets of the United States, Western Europe and Japan. Unit sales will be partially stabilized by growth in the emerging markets, however, particularly in China. With support from the new E-Class station wagon and the full availability of the E-Class sedan, we expect unit sales in the fourth quarter of the year to be higher than in the third quarter.
Based on the expected development of unit sales and ongoing efficiency improvements, Mercedes-Benz Cars anticipates a moderate improvement in earnings from the ongoing business in the fourth quarter of the year compared to the third quarter.
As a result of substantially lower demand for transport services and underutilized transport capacities, Daimler Trucks anticipates a significant decrease in unit sales in full-year 2009. From today’s perspective, we expect unit sales in the last quarter of the year to be similar to the volume sold in the third quarter. We assume that our market shares will at least remain stable in the major markets, although our regional mix will change. Whereas unit sales will rise in Asia, the European markets’ share of total unit sales will decrease.
The weak condition of major markets will also be reflected by the development of the division’s earnings, and the fourth quarter will be additionally impacted by the unfavorable regional mix of our sales structure. The measures we have taken to reduce costs will only partially offset that negative effect. The expenses of the measures we have initiated to restructure and reposition the business operations of Daimler Trucks North America and Mitsubishi Fuso Truck and Bus Corporation will reduce EBIT in the fourth quarter of 2009 once again. Overall, EBIT in the fourth quarter is likely to be lower than in the third quarter.
Despite the continuation of the very difficult economic situation, the Mercedes-Benz Vans division expects unit sales in the fourth quarter of the year to be slightly higher than in the third quarter. In terms of EBIT, we anticipate breakeven in the fourth quarter.
At Daimler Buses, we expect core markets to stabilize in the fourth quarter. Due to higher deliveries in connection with major orders, we assume that unit sales will increase compared to the third quarter. We continue to anticipate solid EBIT in the fourth quarter.
Daimler Financial Services anticipates rising credit defaults and higher refinancing expenses in full-year 2009. We are confident that we will be able to compensate for the increased costs at least partially through our efficiency programs. We expect EBIT for the last quarter of the year to be positive once again.
We anticipate a significant decrease in the Daimler Group’s total revenue in full-year 2009.
As a result of reduced production volumes and the targeted productivity advances, we assume that the number of employees at the end of 2009 will be significantly lower than a year earlier.
At the Group level, we have taken measures to reduce costs and avoid additional expenditure. These actions include reducing fixed and material costs, reducing labor costs and streamlining the Group’s organizational structures. The measures taken are a supplement to the existing efficiency-enhancing programs. In addition, we are examining projects and postponing those that are not directly relevant to our competitiveness. We assume that we will surpass the original target of saving a total of €4 billion in full-year 2009.
As a result of these measures, we anticipate positive EBIT from the ongoing business for the Daimler Group also in the fourth quarter of 2009. However, general economic developments and their effects on dealerships and suppliers could lead to a negative impact on fourth-quarter earnings.
Despite the still-difficult situation of the world’s financial markets, the Daimler Group has a sound financial position, which should remain stable also during the fourth quarter. Due to our current very high levels of liquidity, we intend to make use of the capital markets to only a slight extent during the rest of this year.
Forward-looking statements in this Interim Report:
This document contains forward-looking statements that reflect our current views about future events. The words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” and similar expressions are used to identify forward-looking statements. These statements are subject to many risks and uncertainties, including a lack of or a considerable delay in improvement or a further deterioration of global economic conditions; a continuation or worsening of the tense situation in the credit and financial markets, which could result in ongoing high borrowing costs or limit our funding flexibility; changes in currency exchange rates and interest rates; the introduction of competing, fuel-efficient products and the possible lack of acceptance of our products or services, which may limit our ability to adequately utilize our production capacities or raise prices; price increases in fuel, raw materials and precious metals; disruption of production due to shortages of materials, labor strikes, or supplier insolvencies; a further decline in resale prices of used vehicles; the effective implementation of cost-reduction and efficiency-optimization programs at all of our segments, including the repositioning of our truck activities in the NAFTA region and in Asia; the business outlook of companies in which we hold an equity interest, most notably EADS; changes in laws, regulations and government policies, particularly those relating to vehicle emissions, fuel economy and safety; the resolution of pending governmental investigations and the outcome of pending or threatened future legal proceedings; and other risks and uncertainties, some of which we describe under the heading “Risk Report” in Daimler’s most recent Annual Report and under the headings “Risk Factors” and “Legal Proceedings” in Daimler’s most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission. If any of these risks and uncertainties materialize, or if the assumptions underlying any of our forward-looking statements prove incorrect, then our actual results may be materially different from those we express or imply by such statements. We do not intend or assume any obligation to update these forward-looking statements. Any forwardlooking statement speaks only as of the date on which it is made.
More detailed information can be found in the extensive Annual and Interim Reports as well as in additional data files and reporting formats more
