Picture: 123RF/TOBIAS ARHELGER
Picture: 123RF/TOBIAS ARHELGER

Frankfurt — Daimler’s hard-nosed strategy to fight off diesel-cheating allegations is proving to be costly.

More than four years after German rival Volkswagen admitted to rigging emissions tests, the maker of Mercedes-Benz cars denies it too used illegal defeat devices. Regulators and consumers are not convinced, and the expense of defending the allegations is mounting.

Daimler said on Tuesday it will set aside €1.1bn to €1.5bn in legal and government costs, dragging 2019 results below expectations.

The company has had to recall thousands of diesel cars in Germany, after insisting for years its engines comply with emission rules. The costs have squeezed returns at the main Mercedes-Benz car unit and drove the smaller vans division to a loss.

Daimler’s latest profit warning offers a fresh reminder that the woes embroiling the world’s best-selling luxury-car maker and biggest truck manufacturer are largely rooted in home-grown problems rather than broader industry headwinds. While trade tensions, tariffs and a general automotive slowdown have hurt results, the legal costs are rising and production hiccups have affected sport-utility vehicles.

The company may reduce its dividend by more than half to €1.60 a share this year, said Tom Narayan, an analyst at RBC Europe. “We do not believe Daimler faces a liquidity risk even with increased one-time provisions,” he said in a note.

Daimler shares were down 1.3% on Wednesday morning in Frankfurt.

Group earnings before interest and taxes fell by about half to €5.6bn for the year, the German manufacturer said in a statement. Profit at Mercedes-Benz roughly halved to €3.7bn, as the operating return on sales eroded by almost half to 4%. The Stuttgart-based manufacturer retained its luxury-car lead over BMW, but margins slumped below the level of French mass-market manufacturer PSA Group.

At the van unit, operating return swung to a €2.4bn loss from €300m in profit the prior year.

Daimler’s new CEO, Ola Kallenius, has embarked on a restructuring drive since taking over last May. The company plans to shed more than 10,000 jobs worldwide to save about €1.4bn in personnel costs alone.

It has not specified the overall cost savings targeted, and said a labour deal that rules out forced layoffs among its domestic German workforce remains in place.

Bloomberg