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Profit Warning For 2019 Issued By German Auto Giant Daimler

Profit Warning For 2019 Issued By German Auto Giant Daimler
Following a troubled second quarter that was marked by multiple product recalls, a host of court cases and legal expenditures and a slowing down in demand for new cars, warning of a major drop in its profits for the current year was issued by the German auto giant Daimler – the owner of Mercedes-Benz.
Making a shocking announcement, the German auto maker announced on Friday that it would potentially incur a loss of about €1.6 billion or $1.8 billion in the second quarter of the current year. In this was dramatic announcement because in the same period a year ago, the company had notched up a profit of €2.6 billion or $2.9 billion. The company expects that the total earnings for the current year would be significantly less than what it had achieved as profits in 2018 at €11.1 billion or $12.5 billion.
Explaining the dismal and dramatic loss for the second quarter, the German carmaker claimed that the poor performance was because of higher costs incurred by it for the recall that was related to the exploding of the Takata airbags as well as the risks that it faces from regulators – in the form of potential fines, and from court case – both related to the diesel emissions scandal.
Additionally, slow product rollouts and weak growth in automotive markets would also accentuate the problems for the auto maker and would affect the overall performance of company for the entire year.
The company said that one of the worst performing business in the second quarter was that of the Mercedes-Benz vans business. In the second quarter, that business division is expected to incur a loss of €2 billion or $2.3 billion, Daimler said on Friday while issuing the profit warning.
Following the announcement, shares in Daimler were trading 1.7% lower in Frankfurt.
According to analysts, the challenges faced by the global carmakers are underscored in the profit warning by Daimler. The companies are being forced to make huge investment in development of new age technologies such as electric cars and self driving vehicles even as the global demand for vehicles is weakening.
While there is currently a slowdown in the Chinese market, the largest auto market of the world, the economics of Europe too is not very healthy. China's Geely said this week that its net profit probably plunged by 40% in the first half of the year.
The global level challenges to the auto industry are also being felt by other auto companies of Germany. For example, BMW is now looking out for a new CEO after its profits dropped in the first quarter. And in the first six months of the year, there was a 2.8 per cent drop in the global vehicle deliveries for the Volkswagen Group.
These challenges has seen a number of partnerships being forged in the global auto industry with the aim of sharing of the cost burden for development of technologies and platforms for manufacture of autonomous driving systems and electric vehicles respectively.

Christopher J. Mitchell

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