Daimler expects to make operating profit this year despite coronavirus crisis

Daimler AG expects to generate an operating profit this year, after second-quarter results signaled the maker of Mercedes-Benz cars weathered the unprecedented industry slump better than feared.

Daimler anticipates earnings before interest and taxes and free cash flow to be positive in 2020 but lower than last year, the Stuttgart, Germany-based manufacturer said Thursday in a statement. It previously forecast deliveries, revenue and profit for the group to decline in 2020.

“We are now seeing the first signs of a sales recovery," Daimler Chief Executive Officer Ola Kallenius said. The company said the outlook is based on an assumption that the economy continues to rebound and there’s no second wave of the coronavirus.

The world’s best-selling luxury-car maker and biggest producer of heavy-duty trucks was struggling to get a far-reaching restructuring program off the ground when the Covid-19 pandemic hit, forcing the company to deepen cutbacks. It has now boosted its labor-cost savings target to 2 billion euros ($2.3 billion) from 1.4 billion euros, which could put roughly 20,000 jobs at risk, according to people familiar with the matter.

Kallenius, 51, has vowed to boost efficiency across the organization after taking over the wheel from his predecessor Dieter Zetsche last year. But the CEO hasn’t provided an official update on the savings goal by 2022 that he outlined in November.

The initial plan had foreseen more than 10,000 job cuts, a number that’s expected to be revised up. Daimler will have to eliminate more than 15,000 positions to avoid forced layoffs, personnel chief Wilfried Porth said this month, and Manager Magazin on Wednesday said the reductions could affect as many as 30,000 jobs.

Talks with labor representatives are still ongoing, and the final number will be determined by different factors including acceptance rates of voluntary buyouts and efforts to outsource some IT services.

Cutting costs is key to sustaining momentum after Daimler surprisingly generated positive free cash flow in the second quarter, aided by a swift production stop when the virus outbreak spilled over from China to Europe and North America. Prospects for the second half of the year remain uncertain because key markets including the US and UK have been struggling to contain the pandemic.