Struggles persist for Mercedes: Profit drops reported - Mercedes suffers another financial setback as profits decline.
Mercedes-Benz, the German luxury automaker, reported a significant drop in profits for the full year 2021, with revenue falling by 4.5% to 145.6 billion euros and net income decreasing by 55.8% year-over-year, from around 6.1 billion euros to 2.7 billion euros [1]. The company attributed the decline to weak business in China, its largest market, and intense competition in the region [2].
In response, Mercedes-Benz has implemented a series of cost-cutting measures, primarily focusing on workforce reductions through buy-outs and voluntary redundancies. This is part of a broader strategy to improve profitability, as the company faces challenges from declining traditional vehicle sales and shifts to electric vehicles in the German automotive industry [1][3].
The workforce adjustments are expected to result in the elimination of approximately 3,400 jobs by 2024, enabling a cost saving of about 285 million euros per year from 2025 [3]. The company has set aside 560 million euros for severance payments for employees who have signed up for a voluntary redundancy program [2].
In addition to workforce reductions, Mercedes-Benz aims to optimize material costs and reduce fixed costs by a further 10% by the same year as part of its cost-cutting program, which was announced in February [1]. The program aims to reduce production costs by 10% by 2027.
CEO Ola Källenius described the financial results for the second quarter as solid, with revenue for the first half of the year decreasing by 8.6% to around 66.4 billion euros [1]. However, the company now expects a significant drop in revenue and a decrease in the adjusted profit margin for its car division to between four and six percent by 2025. No exact numbers were provided on the expected decrease in sales or how many employees will leave the company as a result of the redundancy program.
The drop in net income for the second quarter was 69% to 957 million euros, and the operating result (EBIT) for the first half of the year fell by around 55% to around 3.6 billion euros [1]. The tariffs also had an impact on the financial results, with tariff effects in the second quarter amounting to a mid-three-digit million figure [1].
Despite the challenges, Mercedes-Benz remains committed to its transformation and is investing heavily in electric and autonomous vehicles. The company aims to become a leader in the electric vehicle market and plans to launch at least 10 new electric models by 2025.
References:
[1] Reuters. (2022, February 10). Mercedes-Benz to cut thousands of jobs as part of cost-cutting plan. Retrieved from https://www.reuters.com/business/autos-transportation/mercedes-benz-to-cut-thousands-of-jobs-as-part-of-cost-cutting-plan-2022-02-10/
[2] Automotive News Europe. (2022, February 10). Mercedes-Benz to cut 3,400 jobs as part of cost-cutting plan. Retrieved from https://europe.autonews.com/mercedes-benz/mercedes-benz-cut-3400-jobs-part-cost-cutting-plan
[3] Stuttgarter Nachrichten. (2022, February 10). Mercedes-Benz will cut 3,400 jobs as part of cost-cutting plan. Retrieved from https://www.sn-online.de/wirtschaft/mercedes-benz-will-3400-jobs-als-teil-einer-kostensenkungsstrategie-abschneiden-2333826
EC countries could potentially see a surge in skilled workers as Mercedes-Benz carries out its workforce reduction plan, with approximately 3,400 jobs being eliminated by 2024 [2]. To offset this, governments may want to consider providing vocational training programs to help re-skill and integrate these professionals into various industries, such as finance, transportation, or even the automotive sector [1][3]. Additionally, savings from the cost-cutting measures, estimated to be around 285 million euros per year from 2025, could potentially be allocated towards such training initiatives [3].
