Daimler Swot Analysis
Daimler Swot Analysis
Daimler AG (Daimler or “the company”) is engaged in the development and manufacturing of various automotive products, mainly passenger cars, trucks, vans, and buses. The company also provides financial and other services relating to its automotive businesses. Daimler primarily operates in North America and Western Europe. It is headquartered in Stuttgart, Germany and employed 271,370 people as on December 31, 2011. The company recorded revenues of E106,540 million ($148,346.3 million) in the financial year ended December 2011 (FY2011), an increase of 9% over FY2010. The operating profit of the company was E8,755 million ($12,190.5 million) in FY2011, an increase of 20.4% over FY2010. The net profit was E5,667 million ($7,890.7 million) in FY2011, an increase of 26% over FY2010.
Head Office Daimler AG Mercedesstrasse 137 70327 Stuttgart DEU 49 711 17 0 49 711 17 94022 http://www.daimler.com
Phone Fax Web Address
Revenue / turnover 106,540.0 (EUR Mn) Financial Year End Employees Stuttgart Ticker Frankfurt Stock Exchange Ticker December 271,370 DAI DAI
Daimler AG © MarketLine
Daimler is engaged in the development and manufacturing of various automotive products, mainly passenger cars, trucks, vans, and buses. The company also provides financial and other services relating to its automotive businesses. Daimler has a strong brand recognition, which gives it significant competitive advantage and enables it to register higher sales growth in domestic, as well as in international markets. However, intense competition presents a significant risk to the company’s ability to enhance its revenue per vehicle and maintain its market share.
Strong brand recognition and market share Extensive production and sales network Strong focus on research and development Strong performance of Daimler trucks in Japan Opportunities Increasing demand for cars in Asia Pacific Poised to benefit from the growing demand for hybrid electric vehicles Strategic cooperation with Renault-Nissan Accelerating global truck market
Product recalls indicates decline in product quality Legal proceedings likely to hamper reputation Heavy debt could limit growth Threats Competitive pressure in the automotive markets Stringent environmental regulations Foreign currency fluctuations
Strong brand recognition and market share Daimler is one of the leading automotive companies in the world. The company holds a portfolio of strong brands in the automotive industry. Its brands include Mercedes-Benz, Smart, Maybach, Freightliner, Mitsubishi Fuso, Western Star, Setra, Orion, and Thomas Built Buses. These brands are among the strongest, most desirable premium brands in the world. For instance, in 2011, Mercedes-Benz was ranked as the Germany’s strongest automotive brand according to a recent study by industry experts.
Through the study, the industry experts assessed the performance of all the major automotive brands sold in Germany in six categories: brand image, market strength, customer satisfaction, product strength and vehicle quality, environment, and safety. The company’s strong brand image gives it significant competitive advantage and helps it to register higher sales growth in domestic, as well as in international markets.
Daimler AG © MarketLine
In addition, Daimler holds significant market share. For example, the company’s Mercedes-Benz cars segment holds a 5% share of the Western European market, 1.9% share of the US market, 1.4% of the Chinese market, and 0.9% in Japanese market. Similarly, Daimler Trucks hold 37.5% market share in Germany, 22.3% share of the Western European market, 25.2% share of the Brazilian Market, and 20.8% share of the Japanese market. Mercedes-Benz Vans holds 18% of the Western European market and 28.1% of the German market. Additionally, Daimler Buses has a market share of 27% in Western Europe, 50% market share in Germany, and 43.1% market share in Brazil. Strong brand recognition allows Daimler to charge premium prices than its competitors and thus register relatively higher margins. In addition, robust market share across different geographies gives Daimler a competitive advantage over its peers and helps it to maintain a niche in the market place.
Extensive production and sales network Daimler has a diversified geographic presence with production facilities in 18 countries worldwide. Daimler operates a total of 66 production locations worldwide. The company owns 29 locations in Europe, 17 locations in the North American Free Trade Agreement (NAFTA) region, six locations in Latin America (excluding Mexico) region, three locations in Africa, and eight locations in Asia. The company is actively involved in manufacturing cars, buses, vans and trucks through these locations. During FY2011, Daimler produced 2,137,243 vehicles worldwide. Strategic positioning of the company’s production facilities shields the company from unforeseen business risks arising from any one location and helps in continuous flow of production. In addition, the company also has an extensive sales network with approximately 8,000 sales outlets worldwide.
Daimler operates 4,008 sales outlets in Europe, 1,427 sales outlets in the NAFTA region, 593 sales outlets in Latin America (excluding Mexico) region, 333 sale outlets in Africa, 1,596 sale outlets in Asia, and 271 sales outlets in Australia/Oceania region. During FY2011, the company sold 2,111,106 vehicles worldwide. Such an extensive production and sales network helps Daimler to address the surging demand of vehicles across the globe in a more efficient manner, which in turn allows it enhance its revenues. Strong focus on research and development Daimler strongly focuses on research and development (R&D) to expand its product portfolio and to improve the functionality, quality, safety, and environmental compatibility of its products.
The company’s R&D efforts are directed at developing new products and processes and improving the capabilities of existing products. Daimler invested E5,634 million (approximately $7,844.8 million) on R&D in FY2011, representing 5.3% of the total net sales. The company employs around 23,200 employees to develop sustainable and innovative products. Daimler has a portfolio of over 21,000 intellectual property rights and a broad spectrum of trademarks and protected designs including 2,175 patents. In 2011, the company launched a new series of four-cylinder gasoline engines. The combustion processes of these engines are based on the third generation of the Mercedes-Benz direct fuel-injection technology, which was introduced in 2010 in the BlueDIRECT V6 and V8 engines. In addition, Mercedes-Benz presented its first electric vehicle with a range extender, the B-Class
E-CELL PLUS concept car in 2011. The combination of electric drive and gasoline engine in the new car ensures suitability for both daily use and long-distance driving. Its energy storage unit is a lithium-ion battery that allows up to 100 kilometers of locally zero emission driving. Moreover, Daimler is also planning for technological developments in the luxury segment with its F125! research car. In this vehicle, Daimler is planning for a zero-emission driving with hydrogen, thereby emphasizing the potential of H2 as an energy source for the future. The company’s strong R&D focus has enabled it to develop advanced vehicles and technologies, which gives it an advantage over its peers in a competitive marketplace.
Strong performance of Daimler trucks in Japan Daimler trucks segment has seen a significant growth in its sales in the past year in Japan irrespective of the natural disaster in Japan causing production to be suspended at Fuso’s plants. As a result of efficiency boosting measures, the company was able to return to high levels of production in June 2011, despite supply bottlenecks and a difficult market environment. Continuing reconstruction efforts in Japan have brought an increased need for transportation services in their wake, and thus also a greater demand for commercial vehicles.
Production disruptions caused by procurement difficulties with the company’s suppliers were closely examined by teams of experts at Fuso, who also actively helped to solve the related problems. As a result of this approach, Fuso managed to sell 147,700 vehicles in 2011, registering an increase of 5% over 2010. The Japanese market accounted for 27,000 of these unit sales, representing an increase of 9%. Additionally, due to a great customer response to the Fuso Canter, Daimler was able to significantly increase its share of Japan’s light-duty truck segment to 23.5%. Such performance helps the company to boost its revenue base and also strengthens its geographical presence in Japan.
Product recalls indicates decline in product quality Daimler announced recalls that cover some of its most popular models due to manufacturing and design problems. For instance, in April 2012, Daimler Trucks North America, a subsidiary of Daimler, recalled around 10,000 Freightliner and Western Star trucks due to safety belt and steering problems. The company recalled up to 8,747 recently built Freightliner Cascadia trucks and Western Star 4900s, and 1,000 Freightliner Cascadia and Business Class M2 models.
Similarly, in March 2012, Daimler Trucks North America (DTNA) recalled approximately 110,000 Freightliner, Sterling, and Western Star trucks manufactured since 2006. The recall was a result of damaged engine fuel lines. According to Daimler, the recall impacted vehicles using Detroit Diesel EPA 07 and EPA 10, DD13, and DD 15/16 engines manufactured between January 2006 and February 2012. Thus, significant product recalls indicates decline in product quality which could negatively impact the consumer confidence in Daimler’s products and could strain its sales. Legal proceedings likely to hamper reputation The company and its subsidiaries were subjected to various legal proceedings, claims and governmental investigations. For instance, in 2004, Daimler was subjected to investigations by the US Securities and Exchange Commission (SEC) and the US Department of Justice into possible violations by the company of the anti-bribery, record-keeping, and internal-controls provisions of the US Foreign Corrupt Practices Act (FCPA).
In relation to this case, in 2010, Daimler was found guilty for violating the FCPA laws, which resulted in the company paying fines and penalties of $93.6 million and agreed to disgorge profits of $91.4 million. In addition, Daimler’s Russia-based subsidiary, Mercedes-Benz Russia and Germany-based subsidiary, Daimler Export and Trade Finance were found guilty for violating the anti-bribery provisions of the FCPA. As a result, Mercedes-Benz Russia paid a fine of $27.4 million, while Daimler Export and Trade Finance paid a fine of $29.1 million. Similarly, in January 2011, the European Commission (EC) carried out antitrust investigations of European commercial vehicle manufacturers, including Daimler. If antitrust infringements are discovered, the EC can impose considerable fines depending on the gravity of the infringement.
Such legal proceedings adversely impact the reputation of the company besides resulting in huge financial penalties and repetition of such instances in future could negatively impact the company’s financial position. Heavy debt could limit growth In FY2011, Daimler had total outstanding debt of E62,167 million ($86,561.3 million) as compared to E53,682 million ($74,746.8 million) in FY2010. This heavy debt could force the company to allocate a considerable portion of cash flows from operations to debt service payments; limit the company’s ability to obtain additional financing; and lose advantage against its competitors who may have less debt. Further, if the company fails to generate sufficient cash flow from operations to service its debt, it would force the company to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance its indebtedness, further impacting its performance.
Increasing demand for cars in Asia Pacific The Asia-Pacific new cars market has experienced fluctuating growth in recent years. After a deceleration in 2011, the market is predicted to experience strong growth until the end of the forecast period. According to MarketLine (a unit of Informa plc), the Asia Pacific new cars market is expected to generate revenues of approximately $543 billion in 2012. In addition, MarketLine forecasts the performance of the new cars market to accelerate and record revenues of $783.8 billion in 2015, an increase of 44.3% compared to 2012. In addition, MarketLine also estimates that the consumption volumes of the Asia Pacific new car market is expected to grow from 25.7 million units in 2012 to 35.5 million units in 2015, an increase of 38.1% from 2012. Daimler has a significant presence in Asia Pacific including production facilities in countries such as China, Japan, Indonesia and Vietnam.
The growing demand for new cars in the Asia Pacific region thus represents an opportunity for the company to capitalize on this market and expand its revenues and profits. Poised to benefit from the growing demand for hybrid electric vehicles The worldwide demand for electric vehicles (EVs) and plug-in hybrid vehicle (PHEV) is steadily growing estimated to grow consistently over the next few years. According to industry sources, the sales of EVs are expected to grow to 2.5 million vehicles per year by 2020 and PHEVs are expected to reach sales of nearly 5 million by 2020. By 2030, sales of EVs are projected to reach 9 million and PHEVs are projected to reach almost 25 million.
The ultimate target is to achieve 50 million sales of both types of vehicles annually by 2050. Rising energy costs and increased emissions regulations are likely to increase the demand for HEVs, as hybrid engines are more fuel efficient and less polluting than conventional gasoline and diesel engines. Cost disparities between HEVs and conventional light vehicles are expected to decline as production volumes increase. The primary markets for HEVs will be within the US, Western Europe, and Japan, although the rapidly growing Chinese market is also expected to experience relatively strong demand for these fuel efficient and environmentally friendly vehicles.
Daimler has a strong focus on developing hybrid vehicles. The company has successfully launched Mercedes-Benz B-Class F-CELL, Mercedes-Benz A Class E-CELL, Mercedes-Benz Vito E-CELL, Mercedes-Benz S 400 BlueHybrid, Sprinter Plug-In-Hybrid, Mercedes-Benz E320 BLUETEC, and smart fortwo electric drive. In addition, Daimler signed an agreement with BYD Company to establish a joint venture in China for the manufacture of electric vehicles. In addition, the company is also in the initial stages of developing F125!, an emission-free individual mobility car. Hence, the rapidly growing demand for HEVs will provide the company an opportunity to capitalize on its existing position in this segment and increase its revenues. Strategic cooperation with Renault-Nissan Daimler is focused on taking various initiatives to expand its presence.
In this context, in April 2010, the company signed a broad strategic cooperation with Renault-Nissan Alliance that would enable both groups to benefit from a range of concrete projects. As part of the deal, Renault-Nissan Alliance acquired 3.1% stake in Daimler and Daimler acquired 3.1% stake in each in Renault and Nissan. The partnership is aimed at cooperating on the smart fortwo, a smart brand four-seater, and the next generation of the Renault Twingo.
It also includes powertrain sharing and co-development on future projects with applications across passenger cars and light commercial vehicles, including sharing and co-development of diesel and gasoline engines from the Renault-Nissan Alliance, to be used in the new smart and Renault Twingo and to be adapted and modified with Mercedes-Benz characteristics for its new generation of premium compact cars; sharing of gasoline and diesel engines between Daimler and Infiniti; and sharing of a Renault-Nissan Alliance diesel engine and transmission for the Mercedes-Benz Vito. The partnership also focuses on collaborating in the field of light commercial vehicles. The partnership is expected to provide cost benefits to the company on fuel-efficient and green technologies as stricter environmental regulations are gradually introduced over the next decade. In addition, the partnership will provide Daimler an opportunity to strengthen its smart branded small cars business.
Moreover, this cooperation increases the competitiveness of all partners through a substantial increase in volumes, leading to economies of scale and cost sharing in development. This will also help in broadening and strengthening the company’s product offering, efficient utilization of all available resources and developing the innovative technologies for the coming decade. Accelerating global truck market The global trucks market entered a period of sharp decline from 2008 to 2009 before recovering with strong, double digit growth in 2010. The market is expected to maintain positive levels of growth from 2011 through to the end of the forecast period in 2015.
According to MarketLine, the global truck market is expected to record a total value of approximately $592 billion in 2012 and is expected to grow to a value of $774.6 billion in 2015. Similarly, according to MarketLine, the market consumption volumes are expected to record approximately 20 million units in 2012 and the volumes are expected to accelerate to a record approximately 26.1 million units in 2015. Daimler has a significant presence in the global truck industry. It manufactures fuel-efficient small, medium and heavy-duty trucks.
In addition, company’s demand for medium and heavy-duty trucks grew moderately in 2011. The growth was primarily driven by the markets of North America, Western Europe and Japan. In the NAFTA region, demand for trucks recovered strongly and increased by a good 40%, primarily due to the need to replace older vehicles. Hence, the accelerating global truck market would serve as an opportunity for Daimler to further enhance its market share.
Competitive pressure in the automotive markets The global automotive markets are highly competitive. Daimler faces strong competition from automotive manufacturers in its various markets. The competition among various auto players is likely to intensify in light of continuing globalization and consolidation in the worldwide automotive markets.
The factors impacting competition include product quality and features, safety, price, environmental performance, as well as efficiency of product development and manufacturing system, establishment of sales and service systems and sales finance.The company faces strong competitors, some of which are larger and may have greater resources in a given business area. Some of its key competitors are AB Volvo, BMW, Fiat, Ford Motor, General Motors, Honda Motor, Isuzu Motors, PSA Peugeot Citroen, Tata Motors, Toyota Motor, and Volkswagen. Many manufacturers, including Daimler, have relatively high fixed labor costs as well as significant limitations on their ability to close facilities and reduce fixed costs. To offset these high fixed costs, some of the company’s competitors have responded by attempting to sell more vehicles by adding vehicle enhancements, providing subsidized financing or leasing programs.
They are also offering option package discounts, other marketing incentives, and are reducing vehicle prices in certain markets. These actions have had, and are expected to continue to have, a significant negative effect on Daimler’s vehicle pricing, market share, and operating results particularly on the low end of the market. It also presents a significant risk to the company’s ability to enhance its revenue per vehicle and maintain its market share. Stringent environmental regulations The European Union (EU) Commission and the EU Parliament have adopted a directive that establishes increasingly stringent emission standards for passenger and light commercial vehicles for model years 2005 and thereafter (Euro 4). Under the directive, manufacturers will be responsible for the emission performance of these vehicles for five years or 100,000 kilometers, whichever occurs first. A more stringent emission standard (Euro 5) was adopted by EU legislative bodies and became effective from 2009.
The EU Commission intends to define even more stringent emission standards (Euro 6), which, if adopted, will become mandatory around 2014 or 2015. Similarly, the Kyoto Protocol for the reduction of greenhouse gases came into effect in 2005. As a result, Japan is now faced with the daunting task of cutting back greenhouse gases by 6% from the 1990 level by 2012. The emission standards adopted across various regions can result in additional costs for product development, testing, and manufacturing operations of Daimler. Foreign currency fluctuations Daimler is an enterprise with worldwide operations. Its businesses are conducted in a variety of currencies, from which currency risks arise.
The company generates approximately 63.1% of its revenues from markets outside Europe. Since a significant portion of the company revenues are generated outside the Euro currency region and the procurement of production material and funding are also organized on a worldwide basis, the currency risk is an extremely important factor for Daimler earnings. Any changes in demand and refinancing conditions, fluctuations in exchange rates have a significant impact on the company’s earnings.
This related in particular to the US Dollar, the Japanese Yen, the British Pound and the Chinese Renminbi. The value of the company’s equity investment in foreign countries may fluctuate based upon changes in foreign currency exchange rates. These fluctuations, which are recorded in a cumulative translation adjustment account, may result in losses in the event a foreign subsidiary is sold or closed at a time when the foreign currency is weaker than when the company initially invested in the country. Any unfavorable change in other currencies would thus have an adverse impact on the profitability of the company.
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