DBRS Confirms Ratings on Daimler AG at “A,” Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Debt rating of Daimler AG (Daimler or the Company) at “A.” DBRS also confirmed the Medium-Term Notes and Commercial Paper (CP) ratings of Daimler Canada Finance Inc. at “A” and R-1 (low), respectively, as well as the Senior Debt and CP ratings of Daimler Finance North America LLC at “A” and R-1 (low), respectively. All trends are Stable. The rating confirmations incorporate the Company’s solid business risk assessment as a global leader in both the premium automotive and truck segments. Moreover, Daimler’s financial risk assessment remains well commensurate with the ratings, notwithstanding a moderate softening in recent earnings performance that reflects both temporary and structural headwinds.

The Company’s profitability in 2018 has been negatively affected by trade/tariff disputes (notably between China and the United States) and vehicle certification delays in Europe that constrained volumes and pricing. While DBRS expects these factors to dissipate, Daimler’s earnings growth remains undermined by ongoing cost challenges associated with future product and technology development that are expected to persist as the Company progressively increases its electric vehicle offerings, given tightening emissions regulations worldwide and the decreasing popularity of diesel engines.

While margins may contract as a result of these challenges, DBRS expects Daimler to remain solidly profitable with anticipated cost increases significantly offset by ongoing efficiency initiatives. Moreover, despite a slight softening in major markets such as the United States and China, global automotive volumes should nonetheless remain at rather favourable levels with the premium segment expected to continue its outperformance of mass-market/volume brands. Finally, truck conditions also appear to be positive with stable volumes in most developed markets likely to be bolstered by the ongoing recovery in Brazil.

DBRS sees limited potential for additional positive rating actions in the foreseeable future, given that the Company’s current ratings are high compared with the industry average. DBRS also takes into account Daimler’s relatively modest scale compared with the world’s largest auto manufacturers. Conversely, weaker earnings performance and negative free cash flow generation in industrial operations over a sustained period would adversely affect Daimler’s credit metrics and could potentially pressure the ratings. Finally, DBRS acknowledges the Company’s planned corporate reorganization that targets three legally independent entities (i.e., Mercedes-Benz Cars & Vans as well as Daimler Trucks & Buses becoming independent in addition to the already legally independent Financial Services, which will be renamed Daimler Mobility). DBRS notes that Daimler has no current plans to divest any individual divisions; moreover, the new planned organizational structure remains subject to shareholder approval in 2019 and is not expected to be formally implemented until January 1, 2020. While DBRS does not currently anticipate any associated rating actions, the eventual implementation of the reorganization could potentially trigger an event-driven review of the ratings.

Notes:
All figures are in euros unless otherwise noted.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The ratings on Daimler Canada Finance Inc. and Daimler Finance North America LLC are guaranteed by Daimler AG.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.