DBRS Confirms Daimler AG at A (low), Trend Remains Stable

DBRS has today confirmed the long- and short-term ratings of Daimler AG (Daimler or the Company) at A (low) and R-1 (low), respectively, with a Stable trend. The confirmation recognizes the Company’s strong business profile as a highly established premium automotive manufacturer as well as the world’s leading truck producer. DBRS also notes that Daimler’s financial profile remains wholly commensurate with the ratings, with the Company’s earnings and cash flow generation over the near to medium term expected to remain solid (and likely increase) amid, in aggregate, generally favourable global industry conditions in both the automotive and heavy-duty truck industries.

Additionally, the improvement in the recent financial performance of Mercedes-Benz Cars (MBC) and (albeit to a lesser degree) Daimler Trucks (DT) reflects a concerted product offensive at each of the Company’s two key businesses. At DT, product introductions that targeted local market preferences have resulted in share gains in all core regions except NAFTA (where Daimler nonetheless remains the market leader). At MBC, the product offensive includes a new S-Class, although Daimler is also increasing its offerings in both the SUV and compact car segments. DBRS notes that the increasing proportionate share of compact vehicle sales and resulting weaker product mix represent a potential challenge concerning MBC’s future margins, which, absent compensating measures, could be subject to some compression over the long term, with increasing emissions regulations (that effectively increase product development costs) representing another headwind.

Accordingly, the Company is also implementing numerous cost reduction activities at both MBC and DT. These include the use of modular platforms, with common vehicle architectures and powertrain components being increasingly applied across both automotive and truck product lines in the objective of not only leveraging scale efficiencies but also typically accelerating product time to market. Other initiatives focus on the reduction of material costs as well as vehicle assembly hours. While Daimler, as previously noted, anticipates increasing its revenue base going forward, cost reduction measures are expected to contribute substantially to the Company’s efforts in expanding its margins.

Regarding geographic positioning, Daimler is progressively increasing its presence in emerging markets, notably China, where MBC is planning a substantial expansion of not only its product line but also its dealer network. This is significant, as emerging markets are expected to represent the majority of future global growth in both the automotive and heavy-duty truck sectors, with the premium auto segment also projected to grow at a faster rate in these markets vis-à-vis mainstream brands, thereby representing a significant opportunity for the Company.

The Stable trend incorporates DBRS’s expectation that the ratings are likely to stay constant in the near term, reflecting Daimler’s solid competitive position amid somewhat favourable conditions in the automotive and truck industries.

Notes:
The ratings of Daimler Canada Finance Inc. and Daimler North America Corporation are based on the guarantee of Daimler AG.

The applicable methodologies are Rating Companies in the Automotive Manufacturing Industry, DBRS Criteria: Guarantees and Other Forms of Explicit Support and Global Methodology for Rating Finance Companies, which can be found on our website under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.