A new truck in the customer delivery centre outside the Daimler truck factory in Woerth, Germany, Februarty 4 2021. Picture: ALEX KRAUS/BLOOMBERG
A new truck in the customer delivery centre outside the Daimler truck factory in Woerth, Germany, Februarty 4 2021. Picture: ALEX KRAUS/BLOOMBERG

Frankfurt — While Daimler’s blockbuster break-up plan thrilled investors this week, the Mercedes-Benz maker also prepared for the euphoria failing to filter down to factory floors.

Soon after Daimler announced it will spin off its commercial-vehicle unit and list the company separately, managers at the world’s largest heavy-truck plant in Woerth, Germany, and other sites received an e-mailed set of answers to questions they were likely to get from employees, according to people familiar with the matter.

The key points centred on job security, spending cuts and other potential drawbacks, said the people, who asked not to be identified discussing internal matters.

The presentation sent to managers — which Daimler declined to comment on — is a reflection of the risk that splitting up the company’s operations will be a writing-on-the-wall moment for Daimler Truck’s shortcomings. While the business is unrivalled in terms of scale, selling almost 500,000 commercial vehicles a year pre-pandemic, its profit margins are paltry compared to its closest rival Volvo and more specialised peers such as Paccar./

Open questions

Labour leaders sought to allay workers’ concerns by voicing support for the spin-off.

“This way there can be additional investments to make the company and jobs ready for the future,” Roman Zitzelsberger, an IG Metall union official who represents workers on Daimler’s supervisory board, told Stuttgarter Zeitung. Still, he acknowledged there are many open questions that must be clarified in coming months.

Daimler Truck relies heavily on profits from its Freightliner division in North America. Multiple restructuring efforts at its European operations have failed to meaningfully lift earnings so far.

Daimler’s management board painted a bleak picture of the state of play at the German truck operations only a few months ago. They reportedly told labour leaders as many as half of the 30,000 domestic jobs at the business could be at risk by 2035 in a worst-case scenario.

“The extreme cutbacks are off the table,” Michael Brecht, Daimler’s top labour leader and deputy supervisory board chair, told Handelsblatt. The truck operations will get €1.5bn for new projects as part of the break-up plan.

Some of that money is likely to have to be channelled to help the company’s bus operations, which have been decimated by the coronavirus.

“The Covid-19 pandemic has had a seismic impact on the global bus market,” LMC Automotive analysts said in a report. “Not only was the industry one of the first to be hit, but it also suffered more than most and is likely to be one of the last to recover.”

Clear potential

While Daimler Truck is in a challenged position, it has the potential to lead in terms of profitability, said Roman Mathyssek, a consultant at Arthur D Little.

“For that to happen, they need to focus on both product and operational issues as well as spearhead the development of future technologies that create genuine value for truck fleets,” Mathyssek said.

It is unclear if Daimler’s two main Chinese investors will show their support for the strategy by holding on to the truck-unit shares they receive through the spin-off. They could dump the stock to focus on Mercedes cars.

Li Shufu’s Zhejiang Geely already is the second-largest shareholder in Volvo, and Daimler’s truck joint venture with BAIC Motor’s Beiqi Foton has been much less successful than the local venture that makes Mercedes cars. Geely and BAIC declined to comment.

Still, the overall feedback on the plan to separate Mercedes cars from the world’s largest truck manufacturer has been showered with praise.

“It’s a major historical event for the company,” Sanford C Bernstein analyst Arndt Ellinghorst said in a video message to clients Friday. “We see substantial upside from here.”

Bloomberg

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