Mercedes 2008 Annual Report Download - page 78

74
Overall Assessment of the Economic Situation
The Board of Management believes that the Group and the entire
automotive industry face great challenges at the time of preparing
this Management Report. However, Daimler is a financially
healthy, strong and above all innovative company. We are there-
fore firmly convinced that Daimler will successfully manage the
current crisis of the automotive industry and will emerge from it
stronger than before.
As a result of the worldwide financial and economic crisis, our
most important markets for both automobiles and commercial
vehicles slumped dramatically during 2008. The only stabilizing
effect came from growth in demand in the emerging markets,
but demand decreased even there towards the end of the year.
Another factor was that due to the ongoing debate about CO2
emissions and the effects of the very high fuel prices in the middle
of 2008, the structure of demand in the industrialized countries
shifted away from our key market segments of premium automo-
biles and sport-utility vehicles and towards smaller and less
powerful vehicles. For these reasons, the levels of orders received
by Daimler for automobiles and in most markets also for com-
mercial vehicles had decreased significantly by the end of the year
– and are still at a low level. Although we have adapted our
production volumes to the current market situation, it is still very
difficult to predict when and to what extent demand will improve
again.
In the year 2008, the Group’s unit sales of 2.1 million vehicles in
an increasingly difficult environment were slightly below the high
level of the prior year. The market slump in the second half of
the year prevented us from achieving the targets for revenue and
earnings we had announced at the beginning of 2008: Revenue
decreased by 4% to €95.9 billion and EBIT fell to €2.7 billion (2007:
€8.7 billion). EBIT from ongoing operations excluding special
items, particularly due to Chrysler, reached €6.2 billion, which
was more than the level we had announced in our reporting on the
third quarter. Net profit amounted to €1.4 billion (2007: €4.0
billion). As a result of the lower earnings, our value added, which
is the difference between EBIT and cost of capital, was negativ
at minus €1.1 billion (2007: plus €1.4 billion). The main reasons for
the fall in earnings were not only the effects of the worldwide
financial and economic crisis, but also the very high average level
of raw-material prices over the year and the weak US dollar.
An additional factor with a negative impact on the Group’s earn-
ings was the altered demand structure. Although we continued
to make considerable progress with our programs for enhanced
efficiency in all divisions and in the functional departments,
this was not sufficient to offset the substantial burdens of lower
demand and higher costs.
The drop in earnings was particularly sharp at Mercedes-Benz
Cars, where EBIT fell to €2.1 billion (2007: €4.8 billion). At Daimler
Trucks, EBIT was lower than in 2007, primarily due to the wors-
ened economic situation and expenses relating to the reposition-
ing of the division’s business in North America, while Daimler
Financial Services equaled its prior-year earnings. The Mercedes-
Benz Vans and Daimler Buses units once again posted signifi-
cant increases in EBIT.
In order to achieve a sustained improvement in the earnings
situation in all our businesses, we continued and intensified our
actions aimed at reducing costs and enhancing efficiency. We
are also moving forward effectively with our research and develop-
ment efforts – in line with our roadmap for sustainable mobility.
As a result, we will further improve the environmental compatibility
and fuel efficiency of our vehicles through the application of new
technologies, while attracting customers with our typical product
features of safety, comfort, and above all fascination.
We can build on a sound financial position to help us achieve
our goals. Our equity ratio remains at a high level, and the Group’s
gross liquidity of €8.0 billion at the end of 2008 covers the
requirements of our business operations even under the current
difficult conditions.
Nonetheless, we intend to reduce the dividend from €2.00 per
share to €0.60. The main reasons for the the dividend adjustment
are the level of earnings in the year 2008 and the difficulty in
estimating the further development of the world economy and the
automotive markets.