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

DBRS Limited (DBRS) has today confirmed the long-term ratings of Daimler AG (Daimler or the Company) at A (low) and the Medium-Term Notes and Commercial Paper ratings of Daimler Canada Finance Inc. at A (low) and R-1 (low), respectively. DBRS has also assigned new Senior Debt and Commercial Paper ratings of A-(low) and R-1 (low), respectively, to Daimler Finance North America LLC. (At the request of the Company, the ratings of Daimler North America Corporation have been discontinued.) The trends on all ratings remain Stable.

DBRS recognizes the ongoing momentum of the Company’s core Mercedes-Benz Cars (MBC) business. This has been slightly offset by the declining (albeit still sound) results of Daimler Trucks (Daimler’s second-largest industrial segment), which are primarily a function of the underlying volatility of the heavy-duty truck industry, with market conditions in the North American Free Trade Agreement region weakening considerably. Nonetheless, DBRS observes that, in aggregate, its business risk assessment of the Company has benefited from the improving performance of MBC, which has meaningfully strengthened its position in the premium automotive segment. DBRS notes further, however, that Daimler’s credit metrics have softened somewhat (notwithstanding ongoing, solid profitability) in 2015 through the first three quarters of 2016. This is essentially attributable to the higher gross debt levels of the industrial operations (i.e., excluding industrial cash balances as well as intercompany receivables from the Daimler Financial Services segment). On such a basis, while credit metrics remain wholly commensurate with the existing ratings, subsequent positive rating actions are somewhat inhibited by the Company’s current financial risk profile.

DBRS acknowledges that the diesel emissions issue (the Diesel Issue) continues to beset the industry worldwide, most notably in Europe. However, notwithstanding MBC’s sizable exposure to diesel engines in Europe and amid a distinct, albeit moderate, drop in industry diesel-engined vehicle sales (although mostly attributable to Volkswagen AG; rated BBB (high) with a Negative trend by DBRS) in the region, MBC’s European volumes have remained robust, with sales through the first three quarters of 2016 increasing by 13% over the similar prior-year period. DBRS is aware that Daimler is currently facing several consumer class-action lawsuits in the United States and that the U.S. Department of Justice has enquired regarding the Company’s emissions certification process in that country. DBRS has not anticipated (nor incorporated into this rating action) any materially negative consequences for Daimler as a result of such investigations, although unexpected substantially adverse outcomes could potentially trigger a review of the ratings.

The Stable trend on the ratings incorporates DBRS’s estimation that Daimler’s future earnings will likely trend at similar levels, notwithstanding varying conditions across certain markets and cost challenges attributable to emissions compliance and product development. Positive rating actions going forward would likely be contingent on a strengthening of the Company’s financial risk profile (amid the ongoing absence of any materially negative consequences stemming from the Diesel Issue).

Notes:
All figures are in euros unless otherwise noted.

The ratings of Daimler Canada Finance Inc. and Daimler Finance North America LLC are based on the guarantee of Daimler AG.

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.

The applicable methodologies are Rating Companies in the Automotive Manufacturing Industry (October 2016) and Global Methodology for Rating Finance Companies (October 2016), which can be found on our website under Methodologies.

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