German automaker Daimler reported a drop of almost 70% in first-quarter operating profit on Thursday because of the coronavirus pandemic and warned that the cash flow it utilizes to pay dividends would drop this year.
The maker of Mercedes-Benz vehicles had a time with customers shunned car and truck showrooms during coronavirus lockdowns and experts said the slide in Daimler’s valuation over the past year put more pressure on it to deepen alliances with competitors.
Daimler stated preliminary adjusted first-quarter revenues before interest and tax (EBIT) dropped 68.9% to 719 million euros ($777 million) while both vehicle sales and revenue would drop this year. Adjusted EBIT for Mercedes-Benz vehicles dropped over 56% to 603 million euros.
NordLB analyst Frank Schwope stated the company’s fourth profit warning since CEO Ola Kaellenius took over in May was no surprise but the pandemic was putting pressure on automakers to find savings through alliances or mergers.
“Fiat Chrysler and PSA are just the start. Perhaps it is time for Daimler to think about a deal given the low valuation,” he stated, referring to the scheduled merger between the Italian-U.S. automaker and France’s Peugeot.
Daimler’s shares have dropped 52% over the past year to 27.94 euros per share, leaving its market value at 29.8 billion euros.
NordLB’s Schwope stated three combinations for Daimler were logical: deepening an alliance with BMW or partners Renault and Nissan, or combining with Volvo which shares the same Chinese automaker, Geely.
Previously this month, German automaker BMW reported a 20.6% decline in first-quarter sales and stated it was expecting a further drop in demand.
Renault, meanwhile, said on Thursday it was discussing with the French government to secure a state-backed loan worth several billion euros to support its liquidity during the coronavirus crisis.
Car sales in Europe declined by over 50% last month with Italy – which has been hit particularly hard by the pandemic – reporting the biggest decline of 85.4%, according to data from the European Auto Industry Association.
Germany, Europe’s largest economy, has started to ease some restrictions imposed because of the spread of coronavirus, allowing automakers to resume production.
Mercedes-Benz stated on Wednesday it was increasing engine production at its plant located in Bad Cannstatt, Stuttgart, as it gradually restarts factories in Europe using lessons learned from its resumption of production in China.
Across the Atlantic, Ford Motor estimated a loss of around $2 billion for the first quarter and had to raise $8 billion from investors to support cash reserves.