Car financing unit helps Daimler beat odds

Frankfurt: German automotive group Daimler yesterday reported a surprise increase in first-quarter operating profit, in part thanks to stronger than expected earnings at the financial services business that offers loans and leases to car buyers.

Earnings before interest and tax (Ebit) rose 5 per cent to €2.13 billion (Dh10 billion), better than the €1.93 billion estimated in a Reuters poll of 15 banks and brokerages.

Daimler said it still expected its ongoing operations to report an Ebit in the same magnitude as last year, when it earned €9 billion euros before interest and tax — guidance so far deemed credible by the market.

Challenging market

"We have started the year with a strong first quarter, despite higher investment in future growth and a challenging market environment," said Chief Executive Dieter Zetsche in a statement, pointing to the higher quarterly car sales, revenue, Ebit and net profit.

The picture is mixed for carmakers, with strong growth in the United States offset by a sluggish Europe, where austerity measures are dragging many economies into recession and depressing consumer confidence.

Growth in some Asian markets is slowing from previous high levels, but overall demand for premium cars like the Mercedes-Benz GLK sports utility vehicle are holding up better than the price-sensitive mass market models.

The margin at the Mercedes car brand, the metric most comparable with profitability at rivals BMW and Audi , slid about 90 basis points to 8.4 per cent.

In comparison, Volkswagen said on Wednesday that Audi's margin widened 80 basis points to 11.4 per cent over the period.

Daimler blamed a seasonal increase in stocks of unsold vehicles for having burned €2 billion in free cash at its industrial operations over the first three months of this year, reducing its cash pile to €10.1 billion at the end of March.

"Higher levels of stocks are related to the start of the peak selling season in spring at Mercedes-Benz Cars and the market launch of new products such as the B-Class, the SL and the SUVs," it said.

Daimler is adding at least 10 new models to its product range by 2015, including three compacts and three S-Class derivatives, such as a resurrected successor to the exclusive Pullman stretch limousine.

This should boost car sales that year to over 1.6 millon vehicles, but the growth requires significant investment. Capital expenditure in new assets soared 70 per cent last year compared to the amount invested in 2009.

News that anchor investor Abu Dhabi is looking to pull out gradually from its 9 per cent stake, much of which has been loaned out to finance the €2 billion purchase, after just three years, calls into question Zetsche's strategy, however.