Daimler's List of Excuses Gets Longer and Longer

(Bloomberg Opinion) -- Is Daimler AG out to prove that carmakers are the ultimate value trap? Its second profit warning in fourth months felt like a capitulation.

A kitchen sink would struggle to contain the list of excuses the German car and truck maker produced to explain the latest profit shortfall on Friday. Unspecified diesel issues, disappointing bus sales, and the potential costs of a recall associated with a legal dispute about air conditioning coolant all featured. Last time round, the company blamed trade tensions and difficulties with getting its vehicle emissions certified.

The shares tumbled as much as 7 percent on Friday, bringing them to the lowest level in five years. Back then, the Mercedes-Benz brand was still shaking off its reputation for producing fusty vehicles and its business in China was barely a third of the size it is today.

On paper, Daimler now looks cheap. The shares trade at about six times estimated earnings, and it’s barely conceivable that the world’s preeminent luxury car and truck producer is worth just 55 billion euros ($63 billion).

But if the company can't get a grip, investors will start to doubt whether the dividend, which cost the company 3.5 billion euros last year, is affordable at a time of heavy investment. Daimler generated just 60 million euros of free cash flow in the first nine months of this year (though the company’s guidance implies a big rebound in the fourth quarter). Even so, the stock yields about 7 percent, a level that suggests the payout is in jeopardy.

Doubtless, these issues are frustrating for management too. Dieter Zetsche is stepping down as CEO next year, but the technological and design improvements he's implemented at Mercedes over the past five years are barely reflected in the stock's performance in that period. There’s embarrassment too for another retiring executive: Bodo Uebber, the chief financial officer. It’s hardly the first time his ability to forecast earnings has been tested. 

In fairness to both men, the car industry is a difficult place to navigate right now. Few industries are so global (and thus vulnerable to trade disputes), nor so exposed to technological upheaval. But that’s just the point: perhaps carmakers really are uninvestable.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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