netrashetty
Netra Shetty
Chrysler Group LLC (pronounced /ˈkraɪslər/) is an American multinational automaker headquartered in the Detroit suburb of Auburn Hills, Michigan. Chrysler was first organized as the Chrysler Corporation in 1925.[6]
On June 10, 2009, Chrysler Group LLC emerged from a Chapter 11 reorganization and announced a plan for a partnership with Italian automaker Fiat.[7][8] Fiat holds a 25% stake in the new company, with an option to increase its stake to 35%, and up to 51%, if it meets financial and developmental goals for the company.[9] Fiat's stake cannot go beyond 49% until the government has been paid back in full.
Daimler AG manufactures upscale cars, trucks, buses, and vans. Its leading automobile brand is Mercedes Benz, while its vans, trucks, and buses carry the Daimler logo. The Company sold its Chrysler branch in 2007, and is trying to cope with the worldwide economic down-turn.
Daimler has much narrower margins than its Asian competitors because of its unionized German workforce. On the other hand, Mercedes enjoys superior brand recognition in India and China. Daimler's revenues in these areas have been growing at 25%+ annual compounded rates since 2006 despite the economic downturn, helped also by the widening acceptance of Western style vehicle-financing. Daimler trucks, in the meanwhile have been enjoying similar growth rates in Latin America, especially Brazil.
Business Overview
Business & Financial Metrics
In 2009, DAI's total revenue slipped 19.8% to €78.9 billion. Expenses were cut 14.7% over the same period but were not enough to prevent 2008's €1.7 billion net income sink to a €2.6 billion net loss in 2009.[1]
In 2010 Quarter 1, however, DAI posted revenues of €21.2 billion, a 13% increase from €18.7 billion in the first quarter the previous year[2] These earnings were driven by increased sales in Asia and the North Atlantic Free Trade Area, with 37% and 11% increases in these two areas respectively[2] Other market revenues also increased by 47% from €2.3 billion in Q1 FY2009 to€ 3.4 billion in Q1 FY2010.[2] Daimler AG also increased investment in property, plant, and equipment as well as investment in research and development by 7% and 2% respectively.[2] Net profit for the quarter was €612 million, an improvement from the €1.3 billion in losses experienced in the first quarter of 2009.[2] These earnings were driven by improved sales in all its business segments, with the exception of the Daimler Bus segment.[2]
Contents
1 Business Overview
1.1 Business & Financial Metrics
1.2 Business Segments
1.3 Quarterly and Annual Earnings
1.3.1 Q3 FY2010 Earnings Summary
1.3.2 Q2 FY2010 Earnings Summary
2 Trends & Forces
2.1 Sale of Chrysler
2.2 Growing Consumer Interest in Fuel Efficiency
2.3 Commodities Costs
2.4 Influential Labor Unions in Germany
2.5 Strong Demand from Emerging Markets
3 Competition
4 References
Business Segments
Daimler's business segments are Mercedes-Benz Cars, Daimler Trucks, Daimler Financial Services, Mercedes-Benz Vans, and Daimler Buses. While Daimler Financial Services is dedicated to financial services activities like financing and leasing services for vehicle sales, the other four segments market and sell automotive vehicles. Mereces-Benz Cars is consistently DAI's revenue-driving segment[3]
Quarterly and Annual Earnings
Q3 FY2010 Earnings Summary
Daimler announced net profit of 1,610 million for the third quarter of 2010, an increase from 56 million the third quarter of 2009.[4] Revenue similarly increase from 19.3 billion in Q3 FY2009 to 25.1 billion for the third quarter of 2010.[4] Driving these gains was a 23% increase in unit sales from 386,461 to 475,110 for the third quarter.[4] Greater investment was made into research and development. R&D expenditures totaled 1215 million for the quarter, a 15% from 1055 million the previous quarter.[4] Capital expenditure also increased by 48% to 925 million.[4] Segments sales increased across the board: Mercedes-Benz car and van sales increased by 17% and 34% respectively and sales of Daimler trucks and vans increased by 44% and 9% respectively.[4]
Q2 FY2010 Earnings Summary
Daimler posted revenues of €25.1 billion in the second quarter of 2010, a 28% increase from revenues of €19.6 in the same quarter of the previous year.[5] These gains were driven primarily by increases in revenue in NAFTA and Asia, with 21% and 85% increases in revenue, totaling €5.9 billion and€ 5.5 billion respectively.[5] Revenues in Western Europe also increased by 4% to €9.6 billion for the quarter. Growth in other markets grew 63% and totaled €4.1 billion. Net profit was €1.3 billion for the quarter as opposed to losses of €1.1 billion the previous year.[5]
Earnings across all of Daimler's segments increased this quarter: Mercedes-Benz cars and vans brought in €1.4 billion and €127 million as compared to losses of €340 million and €10 million respectively the previous year; Daimler Trucks brought in €300 million as compared to losses of €508 in the second quarter of €2009; and Daimler Buses earnings grew 61% to €79 million for the quarter.[5]
Trends & Forces
Sale of Chrysler
In May of 2007, private-equity group Cerberus Capital Management LP bought 80.1% of Chrysler. Daimler sold Chrysler because of prolonged unprofitability, expensive pension and healthcare obligations, and very limited cost-savings realized from component sharing and design cooperation between Daimler and Chrysler. As part of the deal with Daimler, Cerberus took over pension and health care costs allowing Damiler to get out of $19 billion in retirement liabilities. Despite this, the fate of Chrysler will continue to effect Daimler in several ways. Foremost, DAI continues to own a fifth of Chrysler. Second, as part of the sale to Cerberus, Daimler remains liable for $1 billion in pension benefits if Chrysler becomes insolvent within five years of the transaction. Third, as stipulated in this contract, Daimler was obligated to provide $1.5 billion of loans to Chrysler in the first half of 2008.[6] Finally, selling Chrysler has forced Daimler to overhaul many aspects of its business in the United States, including Financial Services and various part sharing agreements Mercedes-Benz had with the former Chrysler division.
Growing Consumer Interest in Fuel Efficiency
Daimler states that it's goal is: "to make diesel engines as clean as gasoline engines and gasoline engines as efficient as diesels."[7] Although Mercedes' lauded BLUETEC diesel technology certainly reduces diesel emissions considerably, it is unclear that Mercedes' has developed any unique technology or designs to improve the efficiency of gasoline engines. While technology at the Truck Division is certainly state-of-the-art, Daimler's competitors continue to produce trucks with similar fuel efficiency.[8] Daimler's automobiles provide a more difficult comparison because as a luxury marque, buyers often will opt for performance over fuel efficiency. This is especially true in the US market where Mercedes-Benz's smallest engine has 3.0 liters and six-cylinders, larger than the smallest engines sold in the US by other european luxury automakers such as BMW or Audi. In Europe Daimler markets many smaller gasoline and diesel engines, however the fuel efficiency of these models is similar to cars from other automakers, and Daimler has the lowest overall fleet efficiency of any major european automaker.[9] In an attempt to improve this, Mercedes began selling hybrid versions of its s-class and m-class in 2009.[6] Yet on the whole fuel efficiency is not a major selling point for Daimler automobiles.
Consumers are moving towards more environmentally friendly and fuel efficient automobiles. This is for a multitude of reasons including political tension in the Middle East, rising oil prices due to growing demand in the developing world (especially China), and increasing concern over global warming. Daimler's BlueEFFICIENCY program, begun in 2008, seeks to improve fuel economy by 12% for the company's entire fleet of vehicles. This initiative will consider everything from engine efficiency, to aerodynamics, to tire roll resistance.[10]
The United States government applied additional pressure to gas-guzzling car manufacturers in December of 2007 with a new energy bill that mandates 35 mpg for all cars, SUVs, and small trucks sold in the U.S. Daimler has initiated several joint ventures with other major automobile manufacturers to develop a number of alternative propulsion systems. For example, the Fuel Cell Corporation was co-founded with Ford to develop fuel cell technologies. Similarly, Bayerische Motoren Werke AG (BMW), GM, and Chrysler have teamed up with Daimler in another joint venture to engineer hybrid propulsion systems. As stated above, Daimler plans to continue increasing R&D spending through 2010 largely for the purpose of meeting the challenges of higher fuel prices and consumer demand for green technologies.
Commodities Costs
Daimler makes cars out of rubber, plastic and copper. From Summer 2007- Summer 2009, aluminum prices fell over 80%, along with other industrial metals due to weak demand for durables (cars, planes, trains, railroad tracks etc). [11] When and if durable demand picks back up, so will metal prices. On one hand, increased durable demand would likely signal an increase in demand for Daimler's cars. On the other hand, increased commodities costs would increase production expenses.
Daimler's market-share in the emerging market is growing, but in a worst case scenario, Asian competitors would take over the growth markets. They would boost demand for commodities, thus increasing Daimler's operating costs, eroding the company's already slim margins.
Influential Labor Unions in Germany
Because a significant portion of DAI's labor force is unionized, attempts to reduce labor costs are typically met with stiff resistance. Moreover, as about 165,000 out of 272,000 employees are employed in Germany, the company also struggles with that country's rigid labor laws that make layoffs exceedingly difficult.[12] Also, Daimler's Supervisory Board consists of 20 members, 10 selected by shareholders and 10 elected by Daimler's employees.[7] This means that employees have the same degree of influence over important decisions as shareholders. These factors make Daimler less flexible in adjusting to changing market conditions than automakers who can easily layoff workers or make other changes to the business without consultation or agreements with employees.
Strong Demand from Emerging Markets
Although the vast majority of DAI's sales continue to be in Western Europe and North America, the company's sales continue to grow rapidly in the developing world, and especially in the BRIC nations which now account for 20% of Daimler's sales. Consumers in these developing economies recognize the cache of the Mercedes marque. Daimler is seeking to take full advantage of its brand names by organizing a number of joint ventures with local companies in these regions. For example, in 2007 Daimler reached an agreement with the Indian Hero Corporation for that company to produce and market Daimler designed trucks in India.[13]
Competition
Because DAI produces so many different kinds of vehicles for so many different markets, the company competes with a wide spectrum of generally smaller and more specialized firms. For example, Daimler's luxury automobiles vie with those from Bayerische Motoren Werke AG (BMW), Lexus (Toyota Motor (TM)), Audi (Volkswagen (VLKAY)), Jaguar (Tata Motors (TTM)), and Cadillac (General Motors (GM)). However, in Europe where DAI sells its smaller and more affordable A and B class cars, DAI also competes with more mainline marques such as Renault, Volkswagen, Opel (GM), Citroen, and Ford Motor Company. While DAI is the largest truck producer in the world, competition for innovation and quality remains intense with other large truck producers such as PACCAR (PCAR), AB Volvo (VOLV), Navistar International, and MAN trucks.
The Mercedes-Benz is very competitive in terms of both reliability and performance, though it is consistently outdone by Lexus, as found by JD Power Associates in a 2009 study; its S-Class won the runner up.
On June 10, 2009, Chrysler Group LLC emerged from a Chapter 11 reorganization and announced a plan for a partnership with Italian automaker Fiat.[7][8] Fiat holds a 25% stake in the new company, with an option to increase its stake to 35%, and up to 51%, if it meets financial and developmental goals for the company.[9] Fiat's stake cannot go beyond 49% until the government has been paid back in full.
Daimler AG manufactures upscale cars, trucks, buses, and vans. Its leading automobile brand is Mercedes Benz, while its vans, trucks, and buses carry the Daimler logo. The Company sold its Chrysler branch in 2007, and is trying to cope with the worldwide economic down-turn.
Daimler has much narrower margins than its Asian competitors because of its unionized German workforce. On the other hand, Mercedes enjoys superior brand recognition in India and China. Daimler's revenues in these areas have been growing at 25%+ annual compounded rates since 2006 despite the economic downturn, helped also by the widening acceptance of Western style vehicle-financing. Daimler trucks, in the meanwhile have been enjoying similar growth rates in Latin America, especially Brazil.
Business Overview
Business & Financial Metrics
In 2009, DAI's total revenue slipped 19.8% to €78.9 billion. Expenses were cut 14.7% over the same period but were not enough to prevent 2008's €1.7 billion net income sink to a €2.6 billion net loss in 2009.[1]
In 2010 Quarter 1, however, DAI posted revenues of €21.2 billion, a 13% increase from €18.7 billion in the first quarter the previous year[2] These earnings were driven by increased sales in Asia and the North Atlantic Free Trade Area, with 37% and 11% increases in these two areas respectively[2] Other market revenues also increased by 47% from €2.3 billion in Q1 FY2009 to€ 3.4 billion in Q1 FY2010.[2] Daimler AG also increased investment in property, plant, and equipment as well as investment in research and development by 7% and 2% respectively.[2] Net profit for the quarter was €612 million, an improvement from the €1.3 billion in losses experienced in the first quarter of 2009.[2] These earnings were driven by improved sales in all its business segments, with the exception of the Daimler Bus segment.[2]
Contents
1 Business Overview
1.1 Business & Financial Metrics
1.2 Business Segments
1.3 Quarterly and Annual Earnings
1.3.1 Q3 FY2010 Earnings Summary
1.3.2 Q2 FY2010 Earnings Summary
2 Trends & Forces
2.1 Sale of Chrysler
2.2 Growing Consumer Interest in Fuel Efficiency
2.3 Commodities Costs
2.4 Influential Labor Unions in Germany
2.5 Strong Demand from Emerging Markets
3 Competition
4 References
Business Segments
Daimler's business segments are Mercedes-Benz Cars, Daimler Trucks, Daimler Financial Services, Mercedes-Benz Vans, and Daimler Buses. While Daimler Financial Services is dedicated to financial services activities like financing and leasing services for vehicle sales, the other four segments market and sell automotive vehicles. Mereces-Benz Cars is consistently DAI's revenue-driving segment[3]
Quarterly and Annual Earnings
Q3 FY2010 Earnings Summary
Daimler announced net profit of 1,610 million for the third quarter of 2010, an increase from 56 million the third quarter of 2009.[4] Revenue similarly increase from 19.3 billion in Q3 FY2009 to 25.1 billion for the third quarter of 2010.[4] Driving these gains was a 23% increase in unit sales from 386,461 to 475,110 for the third quarter.[4] Greater investment was made into research and development. R&D expenditures totaled 1215 million for the quarter, a 15% from 1055 million the previous quarter.[4] Capital expenditure also increased by 48% to 925 million.[4] Segments sales increased across the board: Mercedes-Benz car and van sales increased by 17% and 34% respectively and sales of Daimler trucks and vans increased by 44% and 9% respectively.[4]
Q2 FY2010 Earnings Summary
Daimler posted revenues of €25.1 billion in the second quarter of 2010, a 28% increase from revenues of €19.6 in the same quarter of the previous year.[5] These gains were driven primarily by increases in revenue in NAFTA and Asia, with 21% and 85% increases in revenue, totaling €5.9 billion and€ 5.5 billion respectively.[5] Revenues in Western Europe also increased by 4% to €9.6 billion for the quarter. Growth in other markets grew 63% and totaled €4.1 billion. Net profit was €1.3 billion for the quarter as opposed to losses of €1.1 billion the previous year.[5]
Earnings across all of Daimler's segments increased this quarter: Mercedes-Benz cars and vans brought in €1.4 billion and €127 million as compared to losses of €340 million and €10 million respectively the previous year; Daimler Trucks brought in €300 million as compared to losses of €508 in the second quarter of €2009; and Daimler Buses earnings grew 61% to €79 million for the quarter.[5]
Trends & Forces
Sale of Chrysler
In May of 2007, private-equity group Cerberus Capital Management LP bought 80.1% of Chrysler. Daimler sold Chrysler because of prolonged unprofitability, expensive pension and healthcare obligations, and very limited cost-savings realized from component sharing and design cooperation between Daimler and Chrysler. As part of the deal with Daimler, Cerberus took over pension and health care costs allowing Damiler to get out of $19 billion in retirement liabilities. Despite this, the fate of Chrysler will continue to effect Daimler in several ways. Foremost, DAI continues to own a fifth of Chrysler. Second, as part of the sale to Cerberus, Daimler remains liable for $1 billion in pension benefits if Chrysler becomes insolvent within five years of the transaction. Third, as stipulated in this contract, Daimler was obligated to provide $1.5 billion of loans to Chrysler in the first half of 2008.[6] Finally, selling Chrysler has forced Daimler to overhaul many aspects of its business in the United States, including Financial Services and various part sharing agreements Mercedes-Benz had with the former Chrysler division.
Growing Consumer Interest in Fuel Efficiency
Daimler states that it's goal is: "to make diesel engines as clean as gasoline engines and gasoline engines as efficient as diesels."[7] Although Mercedes' lauded BLUETEC diesel technology certainly reduces diesel emissions considerably, it is unclear that Mercedes' has developed any unique technology or designs to improve the efficiency of gasoline engines. While technology at the Truck Division is certainly state-of-the-art, Daimler's competitors continue to produce trucks with similar fuel efficiency.[8] Daimler's automobiles provide a more difficult comparison because as a luxury marque, buyers often will opt for performance over fuel efficiency. This is especially true in the US market where Mercedes-Benz's smallest engine has 3.0 liters and six-cylinders, larger than the smallest engines sold in the US by other european luxury automakers such as BMW or Audi. In Europe Daimler markets many smaller gasoline and diesel engines, however the fuel efficiency of these models is similar to cars from other automakers, and Daimler has the lowest overall fleet efficiency of any major european automaker.[9] In an attempt to improve this, Mercedes began selling hybrid versions of its s-class and m-class in 2009.[6] Yet on the whole fuel efficiency is not a major selling point for Daimler automobiles.
Consumers are moving towards more environmentally friendly and fuel efficient automobiles. This is for a multitude of reasons including political tension in the Middle East, rising oil prices due to growing demand in the developing world (especially China), and increasing concern over global warming. Daimler's BlueEFFICIENCY program, begun in 2008, seeks to improve fuel economy by 12% for the company's entire fleet of vehicles. This initiative will consider everything from engine efficiency, to aerodynamics, to tire roll resistance.[10]
The United States government applied additional pressure to gas-guzzling car manufacturers in December of 2007 with a new energy bill that mandates 35 mpg for all cars, SUVs, and small trucks sold in the U.S. Daimler has initiated several joint ventures with other major automobile manufacturers to develop a number of alternative propulsion systems. For example, the Fuel Cell Corporation was co-founded with Ford to develop fuel cell technologies. Similarly, Bayerische Motoren Werke AG (BMW), GM, and Chrysler have teamed up with Daimler in another joint venture to engineer hybrid propulsion systems. As stated above, Daimler plans to continue increasing R&D spending through 2010 largely for the purpose of meeting the challenges of higher fuel prices and consumer demand for green technologies.
Commodities Costs
Daimler makes cars out of rubber, plastic and copper. From Summer 2007- Summer 2009, aluminum prices fell over 80%, along with other industrial metals due to weak demand for durables (cars, planes, trains, railroad tracks etc). [11] When and if durable demand picks back up, so will metal prices. On one hand, increased durable demand would likely signal an increase in demand for Daimler's cars. On the other hand, increased commodities costs would increase production expenses.
Daimler's market-share in the emerging market is growing, but in a worst case scenario, Asian competitors would take over the growth markets. They would boost demand for commodities, thus increasing Daimler's operating costs, eroding the company's already slim margins.
Influential Labor Unions in Germany
Because a significant portion of DAI's labor force is unionized, attempts to reduce labor costs are typically met with stiff resistance. Moreover, as about 165,000 out of 272,000 employees are employed in Germany, the company also struggles with that country's rigid labor laws that make layoffs exceedingly difficult.[12] Also, Daimler's Supervisory Board consists of 20 members, 10 selected by shareholders and 10 elected by Daimler's employees.[7] This means that employees have the same degree of influence over important decisions as shareholders. These factors make Daimler less flexible in adjusting to changing market conditions than automakers who can easily layoff workers or make other changes to the business without consultation or agreements with employees.
Strong Demand from Emerging Markets
Although the vast majority of DAI's sales continue to be in Western Europe and North America, the company's sales continue to grow rapidly in the developing world, and especially in the BRIC nations which now account for 20% of Daimler's sales. Consumers in these developing economies recognize the cache of the Mercedes marque. Daimler is seeking to take full advantage of its brand names by organizing a number of joint ventures with local companies in these regions. For example, in 2007 Daimler reached an agreement with the Indian Hero Corporation for that company to produce and market Daimler designed trucks in India.[13]
Competition
Because DAI produces so many different kinds of vehicles for so many different markets, the company competes with a wide spectrum of generally smaller and more specialized firms. For example, Daimler's luxury automobiles vie with those from Bayerische Motoren Werke AG (BMW), Lexus (Toyota Motor (TM)), Audi (Volkswagen (VLKAY)), Jaguar (Tata Motors (TTM)), and Cadillac (General Motors (GM)). However, in Europe where DAI sells its smaller and more affordable A and B class cars, DAI also competes with more mainline marques such as Renault, Volkswagen, Opel (GM), Citroen, and Ford Motor Company. While DAI is the largest truck producer in the world, competition for innovation and quality remains intense with other large truck producers such as PACCAR (PCAR), AB Volvo (VOLV), Navistar International, and MAN trucks.
The Mercedes-Benz is very competitive in terms of both reliability and performance, though it is consistently outdone by Lexus, as found by JD Power Associates in a 2009 study; its S-Class won the runner up.
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