Mercedes-Benz reports 64% drop in third-quarter earnings amid China luxury market decline
Mercedes-Benz reports 64% drop in third-quarter earnings amid China luxury market decline
Third quarter earnings for Mercedes-Benz's core car division were a staggering 64 per cent lower than a year ago, with the result significantly below analysts' expectations. Such a decline is coming as Chinese consumers curb spending on luxury items in response to a slumping economy.
'The Q3 results just don't meet our ambitions,' CFO Harald Wilhelm said, adding the company will step up its cost cutting. Expenses linked to model revamps and a tough market hit July to September earnings, with the planned new version of G-Class SUV, due to launch next quarter, its prime target.
Mercedes-Benz looks ever further ahead and predicts annual auto sales to stay below what was enjoyed in 2012, with fourth quarter sales to match third quarter numbers. But there was a positive to the results though the industrial business produced robust cash flow generation, increasing 2% year on year to 2.39 billion euros (USD 2.59 billion) in the quarter.
The reluctance of Chinese consumers to buy in large numbers, said CEO Ola Kaellenius, is due to continued economic instability as well as a local real estate crisis. While other European automakers, citing the weakened Chinese car market as a key factor in their falling profits and margins, have adjusted down their full year profit margin target twice over the third quarter, Mercedes-Benz has done the same.
It is happening as discussions with Brussels and Beijing continue over impending tariffs on Chinese electric vehicle imports to Europe. For the heavily Chinese dependent European automakers, this situation poses big problems. China's largest private car company Geely is one of the top two shareholders at Mercedes-Benz, as is Beijing Automotive Group Co Ltd, and the company has criticised the proposed tariffs as a 'mistake,' calling for the European Commission to delay implementation to allow further talks.
As the luxury car market grapples with these challenges, stakeholders will be keenly observing how Mercedes-Benz adapts to the evolving economic landscape in China and beyond.
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