Wednesday, May 16, 2007

Daimler Chief Puts Focus (Wall Street Journal)


DaimlerChrysler AG Chief Executive Dieter Zetsche said Wednesday he believed consolidation in the auto industry would continue, but there was a low likelihood that Daimler would be involved in future capital investments, at least on the Mercedes-Benz side.

However, because of higher shipping costs and more localization in products, future alliances for the company's Truck Group are a possibility, Mr. Zetsche said. Acquisitions in the U.S. or in India, where the Truck Group hopes to expand, are options that Daimler would be open to, he said. Earlier this year, the Truck Group purchased a 24% stake in China's Beiqi Foton Motor Co., which makes vans.

Mr. Zetsche added that with the sale of an 80.1% stake in the Chrysler Group to private-equity firm Cerberus Capital Management LP, he would be able to focus all of his energy on Daimler's luxury brand and pay more attention to the Truck Group. Daimler's supervisory board approved the Cerberus deal in a meeting Wednesday and the name DaimlerChrysler will be changed to Daimler AG after shareholder approval.

"The pure focus on the premium market is an easier task to fulfill rather than splitting my time," Mr. Zetsche said in an interview.

As for Daimler being a possible takeover target after the sale of Chrysler, Mr. Zetsche said the company was now less attractive because "we leveraged ourselves." He also said the management would work hard to ensure the company is not a takeover target.

Unlike other German car makers such as BMW, Volkswagen AG and Porsche AG, DaimlerChrysler has no major family shareholder acting as a buffer against hostile investors. Its biggest shareholder is the Emirate of Kuwait, which has a 7.1% stake. By contrast, at BMW, the Quandt family owns roughly 46% of BMW stock.

"I don't know if a majority shareholder is exclusively helpful and it doesn't mean absolute protection," Mr. Zetsche said.

On Tuesday, DaimlerChrysler said the Chrysler Group posted a €1.49 billion ($2.02 billion) loss before interest and taxes in the first quarter, compared with a €641 million profit a year earlier, as the company suffered from tough conditions in the U.S. Overall, DaimlerChrysler reported first-quarter net profit of €1.97 billion, up from €781 million a year earlier. The Mercedes division contributed €792 million to the group's earnings before interest and taxes, or Ebit, compared with a €735 million loss a year earlier.

Now that Daimler is no longer exposed to the risk and volatility of the Chrysler Group, Mr. Zetsche said he wants to concentrate on improving efficiency and operations excellence at Daimler's divisions, including cutting costs. And with a stronger balance sheet, he also hopes to develop growth potential in Daimler's businesses and pursue new opportunities.

Moody's Investors Service on Wednesday affirmed the Baa1 long-term ratings and Prime-2 short-term ratings for DaimlerChrysler and changed its outlook to positive from negative. Falk Frey, a Moody's senior vice president and lead analyst for DaimlerChrysler, said he believed "Mercedes and the Truck Group display many characteristics of a single-A rated company. A transitioning towards that rating category largely depends on the degree of ongoing exposure which DCX retains in an independent Chrysler," Mr. Frey said in a research report.

Mr. Zetsche said he has more ambitious targets for Mercedes beyond the 7% of return on sales the company has as a target for this year. He added that Mercedes ambitions are not to have the highest volume in sales but to be the most profitable luxury brand, which he thought could be reached in the near future. Mercedes faces strong competition from BMW, which surpassed it as the world's top luxury brand, and Toyota Motor Corp.'s Lexus division is also making inroads as a global player.

Focusing on Mercedes's future and growth was more promising than adding other luxury brands to Daimler's portfolio, Mr. Zetsche said. In March, Ford Motor Co. sold its Aston Martin brand for $925 million to a group of investors and there has been speculation that Jaguar could be next, although Ford officials have said the brand was not on the market at this time.

With governments in the U.S. and Europe looking at tougher environmental standards, Mr. Zetsche said Mercedes would spend more on research and development that focused on fuel efficiency. Because of rising gas prices in the U.S. market that are resulting in higher demand for smaller cars, Mr. Zetsche said there was a potential market for a Mercedes A-Class or B-Class in the U.S., but the euro exchange rates have not been favorable toward introducing these models in the U.S.

However, Mercedes has lower cost targets for the next generation B-Class, which may provide more opportunity for bringing that model to the U.S. market.

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