Daimler Braces for Questions on Job Cuts After Truck Spinoff
(Bloomberg) -- While Daimler AG’s blockbuster breakup 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 emailed set of answers to questions they were likely to get from employees, according to people familiar with the matter. The key points centered around 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 unrivaled 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 AB and more specialized peers such as Paccar Inc.
Labor leaders sought to allay workers’ concerns by voicing support for the spinoff.
“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 will retain a stake big enough to hold a “protecting hand” over its unit, which will operate independently, Chief Executive Officer Ola Kaellenius said in an interview with Frankfurter Allgemeine Sonntagszeitung, declining to specify the size of that holding. He added the separation will not mean extra cost or job cuts beyond those previously announced. The trucks unit will likely become a candidate for Germany’s DAX benchmark stock index, he told the newspaper.
Works council head Michael Brecht, who is also Daimler’s deputy chairman, said in the same interview that staff would like the parent company to keep a blocking minority in the trucks unit, which typically means 25% plus one share. He added that the transformation in the industry could make as many as 40% of jobs at the company superfluous in the next 10 years, although he said separately to Handelsblatt that currently “extreme cutbacks are off the table.”
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.
As part of the breakup plan, truck operations will now get 1.5 billion euros ($1.8 billion) for new projects. Some of that money likely will have to be channeled 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 will likely be one of the last to recover.”
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 GmbH.
“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’s 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 spinoff. They could dump the stock to focus on Mercedes cars.
Li Shufu’s Zhejiang Geely Holding Group already is the second-largest shareholder in Volvo, and Daimler’s truck joint venture with BAIC Motor Corp.’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.”
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