Daimler woes continue as airbag recall adds to writedowns

Monday, 15th July 2019 11:34 - by Shant

The German car industry is not having the best time of it recently, with the diesel scandal emanating from the discovery at VW spreading through to the rest of the automakers in the region, racking up costs over governmental and legal proceedings as a direct consequence.  Daimler - despite its highly regarded brand image - has not escaped the fiasco and is said to be taking another Euro 1.6 billion hit due as it undergoes ongoing investigations back home and in the US. 

Stocks have been hit hard as a result, with prices falling from a little over Euro 49 to sub-Eur 45.  The last major peak we saw was in mid April when share prices topped out at Euro 60, but with the series of negative developments which include weakness in the broader economy hitting car sales all round, it has been hard to see any light at the end of the tunnel - something which has been prominent across the Eurozone region.  

Of the latest provisions made, Euro 1 billion is down to the recall of Takata airbags, which are now being subjected to further tests due to further potential issues.  Faulty inflaters were a problem which have been an identified problem from a few years back, prompting recalls from other carmakers including Ford, who took a $775 million hit last year as a result.

Based on the economic risks ahead, it seems pressure on auto stocks is unlikely to relent any time soon.  As I have been speaking about in the more macroeconomic commentary of late, the issue for major corporates is that of demand, and when you consider the added headwinds from tariffs from the US, the current business cycle does not favour discretionary stocks - and one can argue whether the Mercedes brand falls into that category.   

Then consider the changing landscape which is the emergence of electric cars and the investment required to prepare for this, and the cost based further hinders profits, where warnings have been continuous over the past year - the latest one this week being the fourth this year alone.

While the tendency is to err on the side of established names - and it pains me to say this as a personal fan of the Mercedes brand - Daimler has some tough seas to navigate in the coming years, so buyers would do well to wait for improved levels for longer term investment here. 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.