Daimler Slashes Outlook on Fresh Diesel Allegations

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 lowered 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 Daimler to recall 60,000 vehicles, a mix of GLK sport-utility vehicles and Sprinter vans, as part of ongoing government investigations of auto makers suspected of manipulating toxic emissions from diesel engines to make them appear less polluting than they are.

The German car maker sees a "high three-digit million" euro hit in the second quarter, which will be taken into account in its earnings before interest and taxes. Daimler now expects 2019 earnings before interest and taxes to be in line with the previous year from a prior forecast of "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.

A Daimler spokesman said the company denied using illegal defeat devices in its vehicles and that it would file a formal objection with the government.

Analysts at Barclay Capital warned that there could be further ramifications for Daimler and urged the company's new chief executive officer, Ola 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.

Auto makers have come under scrutiny since Volkswagen was exposed in 2015 for installing illegal software on its diesel engines to game emissions tests even as its vehicles produced toxic emissions in excess of environmental regulations.

Volkswagen was forced to recall nearly 11 million vehicles world-wide and has amassed $30 billion in fines, penalties, legal fees and compensation for consumers.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

June 24, 2019 05:34 ET (09:34 GMT)

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