Daimler Cuts Outlook on Fresh Diesel Allegations -- Update
June 24 2019 - 9:08AM
Dow Jones News
By William Boston
BERLIN -- Shares of Daimler AG fell almost 5% on Monday after
the maker of Mercedes-Benz luxury cars issued a profit warning late
Sunday related to a government recall of vehicles suspected of
manipulating diesel emissions.
Daimler said it would take a one-time charge against earnings in
the second quarter totaling hundreds of millions of euros related
to ongoing diesel investigations and other unspecified issues.
The move marks the company's third profit warning in a year and
is the first obstacle that the company's newly minted chief
executive, Ola Källenius, will have to resolve to combat a creeping
erosion of investor confidence.
"Daimler needs to execute better," said Arndt Ellinghorst, an
auto analyst with brokerage Evercore ISI. "At some stage when
one-time items become the norm, credibility suffers."
The hit to quarterly earnings forced Daimler to lower its
full-year earnings outlook on cars and vans because of an expected
increase in expenses relating to what it defined as ongoing
governmental proceedings and measures regarding Mercedes-Benz
diesel vehicles.
The German Transport Ministry said Saturday that it ordered a
recall of thousands of Daimler vehicles it suspected of using
software to manipulate diesel emissions.
Daimler denied rigging its diesel engines and said Monday it
plans to file an objection with the Federal Motor Transport
Authority, or KBA.
Daimler said the recall affects about 42,000 Mercedes-Benz
vehicles sold in Europe. The vehicles are three models of the GLK
220 CDI 4MATIC, a compact luxury SUV, with Euro 5 emissions that
were produced from June 2012 through June 2015.
The KBA believes that a coolant thermostat that is activated
during normal driving to protect engine parts in an illegal defeat
device, according to a person familiar with the matter. The
function exists in older diesel vehicles that don't use catalytic
converters with selective catalytic reduction, which reduces
nitrogen oxides to nitrogen and water, rendering the emissions
harmless.
Daimler first notified the KBA about this function in May last
year, this person said. KBA ordered Daimler in a letter received on
Friday to recall vehicles to fix the software.
Daimler says the function is legal and denies it is a defeat
device, or software that suppresses emissions controls, which must
be registered with regulatory agencies.
"In Daimler's opinion, the functionality in question is
admissible. Therefore, the company will file an objection against
the order," a company spokesman said in an emailed response.
After receiving the KBA's notification on Friday, Daimler issued
the profit warning on Sunday, saying it would take a "high
three-digit million" euro hit in the second quarter, and that it
now expects 2019 earnings before interest and taxes to be in line
with the previous year. Daimler had been predicting "slight growth"
in earnings.
The diesel-emissions crisis continues to reverberate nearly four
years after Volkswagen AG was exposed by U.S. authorities for
installing illegal software on diesel engines to make them appear
less polluting on emissions tests.
Germany's Bild am Sonntag first reported the recall on
Saturday.
Daimler was forced to recall around 690,000 vehicles last year
on similar allegations, and as a result suffered delays in
certifying vehicles under the European Union's new emissions
testing regime, causing a bottleneck in production. Overall the
company has recalled and fixed around three million vehicles
related to emissions irregularities.
Analysts at Barclay Capital warned that there could be further
ramifications for Daimler and urged the company's CEO, Mr.
Källenius, to get to the bottom of the matter.
"Clearly both the near term operational challenges and possible
question around Daimler's corporate culture are issues that must be
addressed with urgency by Daimler's new CEO," they wrote in a note
to clients on Monday.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
June 24, 2019 08:53 ET (12:53 GMT)
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