Merc Misery Hits Daimler

Merc Misery Hits Daimler

Lionel Laurent

A drop in demand for its luxury cars sees the German carmaker post dismal quarterly profits.

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LONDON - Just over year ago, Daimler's big problem was Chrysler, an American car division that couldn't shift its gas-guzzling cars to consumers who were getting ever more price-concious at the pump. Now, it's Mercedes-Benz's turn. As the European economy hurtles towards recession, luxury cars are getting left behind, meaning that a drop in sales of Daimler's Mercs caused the German carmaker to post a worse-than-expected set of quarterly results on Thursday.

Daimler (nyse: DAI - news - people ) had managed to eke out a small profit of 213 million euros ($273.0 million) for the third quarter, improving on last year's 1.6 billion-euro ($2.1 billion) loss, but the numbers were well below expectations and forced Daimler to slash its annual profit forecast. Now the company expects a minimum of 6.0 billion euros ($7.7 billion) in pre-tax earnings, from a previous target of at least 7.0 billion euros ($9.0 billion).

"The numbers are really a disaster," said one Frankfurt-based analyst who did not wish to be named. He said declining sales and high costs at Mercedes-Benz, Daimler's luxury car division, were to blame for the disappointing performance.

Shares of Daimler dived 10.3%, or 3.46 euros ($4.43), to 30 euros ($38.45), during afternoon trading in Frankfurt. Rivals Volkswagen (other-otc: VLKAY - news - people ) and Bayerische Motoren Werke (other-otc: BAMXF - news - people ) slumped 7.0%, while Renault (other-otc: RNSDY - news - people ) fell 9.2%, and Peugeot-Citroen (other-otc: PEUGY - news - people ) fell 7.8% in Paris.

The numbers spoke for themselves at Mercedes-Benz. Car sales at the division fell 17.9%, to 11.6 billion euros ($14.9 billion), while Mercedes' pre-tax earnings tumbled 91.6%, to 112 million euros ($143.6 billion). The pressure came from all areas: declining sales in a painful consumer downturn, the division's high-cost operating environment and even a special 449 million-euro ($575.5 million) charge relating to a drop in value of leased Mercedes cars.

There are few easy options available for Daimler. The company is looking to sell its remaining 19.9% stake in American automaker Chrysler, but a spokesman told Forbes.com on Thursday that no deal had been finalized yet with majority-owner Cerberus.

Even bellwether investors are pulling out of American automakers in the current environment, rather than looking to increase their holdings. Reports have surfaced that Cerberus is looking to offload Chrysler onto a rival like General Motors (nyse: GM - news - people ), or even between several different buyers. Billionaire Kirk Kerkorian announced on Tuesday that he would sell his entire 6.5% stake in Ford (nyse: F - news - people )--at a hefty loss. (See "Kerkorian Bails On Ford Joy Ride.")