Daimler Earnings Bode Well for Euro Economy

Posted by: Jack Ewing on February 14

These days you don’t hear many economists still arguing that Europe has de-coupled from the U.S. economy. The theory had some adherents a few months ago, but it’s obvious now that Europe will indeed be affected by the U.S. slowdown.

Economists are still debating, though, how severely U.S. woes will hit the Continent. One indicator came Feb. 14 from carmaker Daimler. The Stuttgart-based company’s 4th quarter earnings provided some encouragement that demand from China, Russia and other emerging countries will, in fact, dampen if not completely absorb the effects of a slowing U.S. economy.

Daimler CEO Dieter Zetsche is confident enough about global economic performance that he predicted that, despite what’s happening in the U.S., the company will be able to top its 2007 performance in 2008. In the year just ended, Daimler operating profit rose 75% to $12.7 billion on sales of $145 billion.

Consider Daimler’s truck business. The division already suffered a 40% drop in heavy truck sales in North America in 2007. Zetsche himself called the decline “dramatic,” and blamed it partly on the economy, and partly on customers who bought more trucks in 2006 to beat the introduction of tougher emissions standards.

Globally, though, the picture looked better. Commercial vehicle sales slipped a more moderate 9%, to 467,700 units, because of sales growth in Latin America and Asia as well as Europe. In Brazil, Russia, India and China, the fabled “BRIC” countries, sales soared 29%. And despite the drop in sales Daimler was able to boost operating profit for the trucks division by more than 80% to $748 million euros. Overall, Daimler more than doubled operating profit in the quarter to $2 billion on sales of $37 billion.

The Mercedes car business looks even better. Zetsche said he doesn’t rule out a recession in the U.S., but is optimistic that sales of premium cars will remain durable and even increase. “Our premium brands will be less affected in the U.S. than the [mass market brands],” Zetsche said. “Worldwide, we expect to sell more.”

True, Daimler is only one company, but in the macroeconomic coal mine, it’s one big canary.