DBRS Confirms Daimler AG at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the long- and short-term ratings of Daimler AG (Daimler or the Company) at A (low) and R-1 (low), respectively, with a Stable trend. The confirmation recognizes the Company’s strong business profile as a highly established premium automotive manufacturer and as the world’s leading truck producer. Moreover, Daimler’s financial profile remains strong in relation to the ratings, with the Company’s earnings and cash flow generation having increased considerably over the past 18-month period.

The improved industrial earnings performance substantially reflects significant gains at each of Daimler’s key businesses: Mercedes-Benz Cars (MBC) and Daimler Trucks (DT; the earnings contribution of the latter is correspondingly less pronounced in line with its considerably smaller scale compared with MBC). Regarding MBC, its stronger performance is a function of a concerted product offensive, as the segment’s model range has meaningfully expanded in recent years in line with new offerings in the compact cars and sport-utility vehicle segments. This has fostered higher sales volumes amid (in aggregate) rather favourable industry conditions, bolstered by ongoing cost-reduction activities. Additionally, MBC continues to make significant gains in China, where its unit sales increased by 23% and 32% in 2014 and through the first 9 months of 2015 (9M 2015), respectively (over the similar prior-year periods), notwithstanding significant headwinds emerging in the region this year. Accordingly, MBC’s operating margin has progressively improved to very solid levels, exceeding 10% through Q3 2015. With respect to DT, earnings have also benefited from higher aggregate unit sales (that are mostly a function of ongoing sales gains in North America), supplemented by achieved efficiencies and foreign-exchange tailwinds as the segment’s operating margin accordingly increased to solid levels, exceeding 7% through 9M 2015.

DBRS notes that the ratings could be subject to positive implications absent potential industry headwinds associated with the diesel vehicles emissions controversy emanating from Volkswagen AG (VW). DBRS acknowledges the Company’s recent statements wholly refuting any application of defeat devices to illegally limit the effectiveness of emissions control systems. This notwithstanding, DBRS observes that, while it remains somewhat early, VW’s emissions controversy, mostly pertaining to diesel vehicles, could adversely affect the sale of such vehicles across the industry, notably in Europe where the penetration of diesels is the highest worldwide. From this perspective, Daimler may potentially be meaningfully affected as diesel vehicles represent more than two thirds of MBC’s European sales.

DBRS will monitor MBC’s sales developments over the near term. In the event that sales do not appear to be meaningfully adversely affected by the (diesel) vehicle emissions controversy and Daimler’s earnings performance remains solid (i.e., combined industrial operating margins persisting at levels equivalent to or exceeding 8%), the ratings would likely be subject to positive action.

Notes:
All figures are in euros unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The senior debt and commercial paper of Daimler Canada Finance Inc. and Daimler North America Corporation is guaranteed by Daimler AG.

The applicable methodologies are Rating Companies in the Automotive Manufacturing Industry and Global Methodology for Rating Finance Companies, which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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