Sliding sales prompt restructuring at Daimler Trucks

Daimler AG headquarters

Daimler Trucks sales fell 4% globally in the first 11 months of 2019 as sales in Europe and North America contracted faster than expected, leading to “extensive structural measures” to reduce production and improve profitability.

“For two years, up until the third quarter of last year, we had an unusually high market,” Ola Källenius, chairman of the board of Daimler AG (OTC: DDAIF), said in a media roundtable Jan. 7 at CES 2020. “We knew at some point in time there needs to be normalization. In a strange kind of way, it’s almost good.”

Producing flat out works for only so long before supply chain disruptions and other problems appear.

Daimler Trucks North America, for example, was caught short of capacity to meet surging demand in late 2018 and early 2019, losing significant market share in heavy- and medium-duty trucks. Through the third quarter of 2019, its heavy-duty share was down 3% and medium-duty share was off 7%.

Daimler Trucks reported an industry-leading 446,800 sales by its Mercedes-Benz, FUSO, Freightliner, Western Star, Thomas Built Buses and BharatBenz brands through November 2019. Final numbers will be included when Daimler reports full-year earnings for its car and truck businesses on Feb. 11.

In Europe, sales from January through November 2019 decreased by 5% compared with the same period last year to 72,400 units.

Job cuts

Daimler said in late November 2019 it would cut 10,000 jobs globally by 2022 to save money it needs for investments in electric vehicles for its Mercedes-Benz passenger car and light truck business.

Daimler Trucks North America cut 900 jobs at two plants in North Carolina and approximately 200 in Mexico in October 2019 as slackening orders forced production cuts. At that time, sales in the U.S., Mexico and Canada were running 8% ahead of the first 10 months of 2018. But they cratered 16% in November.

Daimler Trucks workers face layoffs because of lower production resulting from sliding orders for new trucks. (Image: Daimler)

Cowen Washington Research Group predicts a 36% industry decline in production in 2020, a bigger dip than ACT Research, a leading commercial vehicles forecasting firm. Cowen lists 10 reasons, including orders being retimed for later production.

That is already happening because a glut of used trucks is depressing prices, causing fleets to wait to dispose of older trucks until pricing improves.

“I would say the big players act very rationally, very sensibly,” Källenius said. “But at the same time, the economy and those types of things are influenced by the general mood. The volatility and uncertainty is usually not something that is good.”

A decade-low in new truck orders in 2019 left a North American industry backlog of just 123,000 at the end of December compared with 297,000 a year earlier, according to ACT Research. Both numbers were extremes for a cyclical industry.

Most truck manufacturers point to a recovery in orders in the second half of 2020. But no one is sure.

“In the truck business, we have the fleet companies, so you kind of know your customers,” Källenius said. “If they want to sit on the sidelines for six or nine months or even 12 months, they can do that. But then there comes a point where you have to place orders again.”

Unsatisfying returns

Martin Daum, chairman of the Board of Management of Daimler Truck AG, said the truck manufacturer is dissatisfied with its 2019 return on sales.

“We have therefore initiated extensive structural measures to increase our margin to at least 7% by 2022,” he said. “In 2020, we will significantly improve our cost position while continuing to invest in the future.”

That future includes “substantial investment” in a CO2-neutral fleet with electric drive systems and in the automation and connectivity of trucks and buses.

Some of that will come by reducing variable costs at Mercedes-Benz Trucks in Europe and Latin America by $277 million and personnel costs by $330 million. Daimler will reduce the number of vehicle platforms in Brazil from eight to three while modernizing the remaining portfolio to return to profitability.