Daimler boss Ola Källenius
The manager sees the future of the group in the luxury sector.
(Photo: Smetek)
Champagne, diamond rings and cases made of precious leather – luxury products are particularly important at Daimler. When CEO Ola Källenius speaks to top managers about the future of the car company these days, the name keeps coming up LVMH.
Källenius is fascinated by the French luxury goods companywhose products are in demand – even though they are expensive. The Daimler boss also thinks of such products: more expensive S-Class, less A-Class, preferably electric, margin instead of quantity. That is the core of the new Daimler strategy.
What Källenius is planning is a small revolution for Daimler: End with Welt AG, an integrated technology group and a fully networked mobility provider. The future is a departure from the Dieter Zetsche vision, the long-time Daimler boss and foster father of Källenius. “If we focus on luxury as our core, we are on the right track,” says Källenius.
The pressure is great: the group is the problem child of the German automotive industry. Daimler has to make more money. Daimler, however, reports deep red figures for the second quarter. The operating loss increased to 1.68 billion euros. It was thus above the minus of the previous year’s quarter of EUR 1.56 billion, which was characterized by high provisions for the exhaust gas affair. However, the company sees itself on course. Analysts, said the Daimler financiers, had expected an even bigger loss on average.
No other German carmaker is so sick – and not just that because of the corona pandemic. Regardless of whether for electromobility, digitization or restructuring: The Swabians are crawling. It is a vengeance that Daimler left the structural weaknesses untouched even before Corona. The group is a “restructuring case”, complains Janne Werning from Union Investment. Wherever you look, Daimler gives a “weak picture”.
Ex-CEO announced Zetsche Already in February 2019 “comprehensive countermeasures” due to collapsing profits. However, it took a full 16 months for Daimler to invite the first employees to interviews. Responsibility lies with Ola Källenius, who wants to prevent the gradual decline of the German luxury brand. Now everything is put to the test: factories, jobs, models, structures, partners and investments.
The efficiency package decided before Corona is likely to sharply tighten Daimler. Instead of 15,000, more than 20,000 of the almost 300,000 employees should now go, according to corporate circles. Instead of the previously announced 1.4, two billion euros in personnel costs are to be saved annually. In contrast to the past, operational cancellations are no longer excluded.
“A taboo break,” says the works council. The conversion is not easy, the resistance is great. Daimler’s works council is powerful, whose boss Michael Brecht is a clever mind.
Difficult job cuts
For a long time, Sindelfingen was the richest city in Germany – thanks to the millions from Daimler, the car company is building the high-priced models of the E and S-Class there. With the trade taxes, the citizens built buildings and an infrastructure that is worthy of a big city. When there was still money in the cash register, they paved the crosswalks with the finest Carrara marble.
As after the Financial crisis in 2008 If the tax revenues collapsed, Sindelfingen could hardly maintain his buildings. The financial behavior of Sindelfinger is similar to that of Daimler: In good times, money was spent with a swab, with full hands, in bad times the cost base was too high to maintain what had been built up.
Ola Källenius (CEO Daimler)
“The future of Mercedes is more at the top end of the vehicle segments.”
(Photo: Verena Müller / laif)
The group’s ambition is reflected in many details. A 47-year-old who has worked in the administration of the Mercedes manufacturer for 17 years and earns € 9136 gross per month can expect severance payments of up to € 418,502. For the departure of a 35-year-old with nine years of service, who receives EUR 7027 gross per month, Daimler still offers a premium of EUR 111,828.
Despite the large amount of money, hardly anyone wants to leave. To date, less than 800 employees have accepted one of the offers for severance pay, early retirement or partial retirement. “Anyone who disembarks now has to be very tired of life,” explains a Mercedes manager. The situation on the job market has simply been too uncertain since the outbreak of the corona pandemic.
The eight-member Daimler board around Källenius faces some problems. But the CEO will not let go. Companions describe him in unison as friendly, honest and assertive. The 1.95 meter tall Scandinavian does well with his colleagues and treats employees who are far below him on the hierarchical ladder.
If something goes wrong, unlike his mentor Dieter Zetsche, he never gets loud. Källenius reacts calmly and in a controlled manner even to bad news. But the profitable nature of the manager should not deceive anyone: if necessary, Källenius can be freezing cold. “He’s pushing through his goals,” says those around him.
20th
A thousand jobs
could drop out at Daimler. (Source: corporate circles)
Källenius has recently addressed the “disproportionate presence” of Daimler in Germany. The group employs more than 170,000 people in Germany. This corresponds to 58 percent of the total workforce. The company’s home market represents only about 15 percent of its annual sales of EUR 173 billion. The discrepancy reveals an unusually high vertical range of manufacture.
Different to BMW Daimler, for example, still manufactures its gearboxes and many castings itself. The result: With comparable sales, the Mercedes car division employs almost 25,000 more than the archrival from Munich. “It can’t stay that way,” says the management team with regard to electromobility. Because Stromer do not need a classic transmission.
A surplus of personnel is already foreseeable in the main plant in Stuttgart-Untertürkheim, as is Berlin-Marienfelde. Daimler’s oldest factory is located in the capital. But in the coming year the production of V6 diesel engines could end there, it is said in corporate circles. However, cutting jobs in traditional German plants is particularly difficult for Daimler.
Källenius is dealing with a strong adversary. At first glance, Michael Brecht makes a rather harmless impression: strong Baden accent, nice smile. However, the trained locksmith is a tough negotiating partner. In 2011, Brecht completed a part-time degree in business administration from the elite university of St. Gallen. “As a works council, we have been demanding for years to reduce the complexity of our processes,” says Brecht. “It is correct that the board is now addressing the issue.”
Brecht insists on an agreement between the Executive Board and the Works Council in October 2017. At that time, Daimler announced a large-scale corporate restructuring. The industrial conglomerate was to give way to three agile and legally independent units (cars, trucks, mobility services) under the roof of the Daimler holding company. The management hoped that this would bring them closer to customers, better focus in certain markets and ultimately better overall growth prospects.
Michael Brecht (Daimler Works Council Chairman)
“As a works council, we have been demanding for years to reduce the complexity of our processes. It is right that the board is now addressing the issue. “
(Photo: Daimler AG)
The employee representatives feared that the group would be broken up and, in return for their approval, secured a generous job security. Accordingly, layoffs at Daimler are excluded until the end of 2029. However, in the event that the once assumed economic, market, program, earnings and expenditure forecasts “change significantly”, the board of directors and the works council can “advise on the request of one side with the aim of amicably adjusting these commitments” in the agreement.
Precisely this wind-and-weather clause could be used by Daimler around front man Källenius as a result of the corona crisis. The employee representatives want to prevent a weakening of the job guarantee.
Works council chief Brecht pleads for a large-scale reduction in working hours. The instrument was last used at Daimler in the financial crisis. Personnel manager Wilfried Porth considers a flat-rate reduction in working hours of 8.75 percent, as in 2007 and 2008, to be of little use. Unlike at that time, the company was not exclusively in an economic crisis, but at the same time in a restructuring phase of the auto industry.
Topics such as electromobility, industry consolidation and corona would overlap. In the end, fewer workers would be needed in industry and at Daimler. It is therefore of no use if the union demands the 30-hour week. “This delays our problem,” says Porth.
The Executive Board and the Works Council are far from reaching an agreement. The pitch of the opponents is getting sharper. The fight is about break rules, late shift allowances, vacation and Christmas bonuses or the outsourcing of 2000 IT employees to external companies. The holding company with 6,000 employees, which was only implemented at the end of 2019, will be trimmed down. For example, the financial organization of the parent company will be merged with that of the Mercedes car division.
419
Thousand euro
This is roughly the severance payment for a 47-year-old who has worked in the administration of the Mercedes manufacturer for 17 years and earns € 9,136 gross per month. (Source: company)
The works council speaks of broken promises. However, criticism of the 700 million euro corporate restructuring is also voiced in the management team. “We warned the board at the time: don’t do that! It doesn’t make sense at this point. We will lack the money elsewhere. That is exactly what has happened now, ”complains a consternated manager.
Investors are still annoyed about the “Posten Festival”, which went along with the new structure. A supervisory board consisting of 20 members was formed for both the Mercedes car division and the trucks commercial vehicle division. But in addition to CEO Källenius, there is a whole group of executives who continue to be convinced of the concept of the company’s three-way organization. Because the individual divisions could now enter into partnerships and raise capital more easily.
The structure creates more flexibility overall, for example in the event that Daimler should urgently need money at some point. Then the truck division could be brought quickly to the stock exchange. Even so, an attack from outside could possibly be better repelled, according to the advocates. And this danger is definitely an issue in the group.
Plant closings in preparation
A small but all the more important amendment to the articles of association was voted on at the Daimler general meeting. Accordingly, Daimler supervisory boards should in future only be able to be removed from investors with at least three quarters of the votes. So far, a simple majority was enough.
Fear of attacks by activists is behind agenda item 12 b). “Daimler did not accidentally put this amendment to the articles of association on the agenda,” says Marc Tüngler, General Manager of the German Protection Association for Securities Ownership (DSW). “The company obviously suspects that something is brewing and wants to be prepared.” A cold takeover would go through the supervisory board, explains Tüngler. The scenario has now “made precautionary difficult for Daimler”.
Officially, Daimler doesn’t want to know about it. But internally it is said that you strengthen your “firewall” and prepare yourself a bit for an emergency. The company is currently valued on the stock exchange at only 40 billion euros. The group from Stuttgart is therefore only one sixth as much as the electric car manufacturer Tesla.
Unlike BMW (Quandt family) and Volkswagen (Porsche and Piëch clan) the Swabians lack a protective anchor shareholder. Come together GeelyFounder Li Shufu (9.7 percent) and the Beijing-based state-owned company BAIC (five percent) already account for a considerable proportion. With the usual shareholder presence at a Daimler general meeting of around 55 percent of the share capital, this could come dangerously close to a blocking minority.
But so far there is no evidence that the two Chinese investors are really pursuing common goals. A Geely spokesman also emphasizes that Li Shufu is neither interested in increasing his stake in Daimler, nor is he striving for a supervisory board mandate. This sentence applies until it no longer applies.
Källenius knows one thing: solid finances, the prospect of sustained high returns and a high market valuation offer the best protection against any attacks from outside. Of course, the CEO also knows the wishes of the shareholders, which is why Källenius is working flat out on a higher share price – and does not shy away from conflicts.
Example Hambach. Many people in France are shocked. At the beginning of April, Daimler announced that it would sell its factory in Lorraine near the German border. A real political issue. Bruno Le Maire, France’s Minister of Economy and Finance, responded immediately. The Hambach site is a symbol of German-French industrial relations. “With his announcement, Daimler consciously or unwantedly entered a conflict that had only just begun.”
Demonstration in front of the Hambach plant
The sale of the smart factory is outraged in France.
(Photo: AFP)
For Källenius, on the other hand, the matter is largely ticked off. The British group Ineos Automotive is said to be the buyer. Instead of Daimler’s small Smart car, off-road vehicles of the Ineos brand could roll off the assembly line in Hambach. “We largely agree on trade,” it said in the context of the negotiations.
Källenius is already thinking ahead. Daimler is considering separating from a second foreign plant, according to corporate groups. There is still no final decision. Internally, however, there is a hard struggle over further capacity cuts. “We don’t take such a decision lightly,” says one manager.
It could hit the car assembly in the Brazilian Iracemápolis, reportedly from corporate circles. Daimler invested around 145 million euros in the South American country in 2016 and created 600 jobs. But before Corona, the plant was “marginally economically”, says a Daimler veteran.
Iracemápolis is a symbol of Daimler’s earlier growth dreams. The political situation in Brazil is unstable; car sales fluctuate strongly and the currency crashes regularly. Because the plant in Iracemápolis is also designed for only 20,000 GLA and C-Class units per year, the damage would be limited in the event of a withdrawal, according to corporate circles. However, it is by no means certain that this will actually happen.
There is also discussion of other works, such as joint production with Nissan in Mexico or the car factory in South Africa. Internally, it is also considered unrealistic that the expansion of production in Kecskemét, which was put on hold last year, will be implemented in the near future.
The company apparently suspects something is brewing and wants to be prepared. Marc Tüngler (General Manager of the German Association for the Protection of Securities, on takeover worries at Daimler)
In any case, Källenius and his team stopped expensive collaborations like those with BMW in autonomous driving. The loss-making car-sharing business in North America was discontinued. The group is looking for a new majority owner for the Lab 1886 innovator.
The model range for combustion engines is compressed. First the flopped flatbed X-Class flew out of the program, now the Mercedes strategists are addressing the question of which brands promise growth in the medium term and which do not.
Models are screened
The profitability of the model range is at the center of all considerations. “Margin comes first,” is Källenius’ mantra. The model is that luxury industry, in which prices are kept high with all their might, without scaring buyers.
The time when Daimler was always striving for new sales records is over. The Swabians want to position themselves more strongly at the top of the individual segments instead of competing against mass manufacturers for thin margins below. Källenius stands for more Maybach, G-Class and AMG and less for small cars. His mentor Zetsche had targeted the lower price segment during his time as CEO. He had the A-Class retreaded with the aim of winning younger customers for the brand.
But to achieve the same profit as with a fully equipped S-Class, Daimler has to sell a truckload to A-Class vehicles.
The consequence of the new focus: Even for prominent models, a successor could not come onto the market in a few years after the end of their current generation. One of these shaky candidates is the B-Class. The mini-van was reissued in 2019 and will no doubt continue to be produced and sold until the end of its life cycle up to the middle of the decade.
A fourth edition of the compact classic will then no longer exist, it is said in corporate circles. Daimler does not officially confirm these considerations. Nevertheless, the Group announced in November 2019 that it would reduce the number of its platforms and architectures.
As a result, the variety of compact cars is likely to shrink from eight models to five to a maximum of six. In addition to the future of the B-Class, the CLA Shooting Brake and the simple A-Class Sedan are also open. So far, the A-Class, CLA Coupé, GLA, GLB and the A-Class sedan in its long version for China have been firmly planned on the future modular front-wheel drive platform MMA.
Models that can only be sold well in individual regions will also have a hard time. Example dream cars. Today, the Stuttgart-based company offers its own convertible and coupé variants for both the C and E-Class and the S-Class. In the future, there will probably only be a convertible and a coupé, which will be positioned between the C- and E-Class, and the SL sports car, derived from the three luxury sedans.
Concentrate on the essentials, that is the new motto. The Mercedes strategists identified SUVs and newly integrated limousines as growth segments. In the future, they should play an even stronger role in the portfolio – and drive electrically. Daimler has big plans for the topic.
For Källenius, electromobility is more than a new type of drive, it is a personal matter – a U-turn from his sponsor Zetsche.
Why electric cars take so long
Dieter Zetsche had chosen the Swedes as his successor early on and had prepared his ascent for a long time. Källenius became board member for sales, then for development and ultimately for the big picture.
For Källenius, Zetsche is more than a sponsor, he is an advisor and friend. Källenius never criticized him. On the contrary. Even when Zetsche protested massively against plans for his own battery production during his active time, the then boss held back in particular. He was loyal to Zetsche. Källenius must have been aware, however, that Daimler fell behind the competition when developing new e-models.
Shopkeeper EQC
A half-heartedly designed electric car.
(Photo: Daimler AG – Global Communication)
Källenius was finally in Sindelfingen in the crucial years and led the development. It was up to him to set Daimler on a new course. He had to get the engineers, who had worked fervently on internal combustion engines, in tune with the era of electromobility. Unlike Zetsche, Källenius is open to technology and is enthusiastic about cars. The future of the automobile does not smell of gasoline for him.
How open the Daimler boss is to electromobility became clear a few years ago. On Thursday in September 2014, Källenius presented the first S-Class hybrid model in Copenhagen. Källenius enjoys the drive through the heavy city traffic of the Danish capital. A step on the accelerator pedal – and the heavy car drives away silently. At that time he was still the sales director of the car division Mercedes Benz, the presentation of such an important vehicle is actually too big for its post.
He then addressed two of the most important topics in conversation with journalists: the electrification and the problem with fuel consumption. The carbon dioxide emissions are too high, he says. “Bringing this value down is a must.”
In Sindelfingen he has the opportunity to do so as chief of development. But the work is tough. His predecessor Thomas Weber left him a team that is considered ungovernable. Despite all appeals from top management, the development of electric cars is in the beginning. Källenius is gradually transforming its department. Noiseless as it is.
Hope EQS
The electric S-Class should have a range of up to 700 kilometers.
(Photo: AP)
The conversion and the exhaust gas scandal, which subsequently hit Daimler hard, keep Källenius and the technicians from doing their job. He cannot shake off the burden of the past. The development of important e-models is delayed – until today.
Mentor Zetsche was part of the problem. For him, the electricity revolution always seemed a long way off. You don’t oversleep, the manager said regularly. In moody hours, Zetsche even joked that apart from the Swabians, no corporation had really made any money with electric cars. Background of his bon mot: Daimler once raised with 50 million euros Tesla and sold its stake in the California e-car pioneer again in 2014 for almost $ 800 million.
That sounded good at the time. Today, the consequence of this attitude is evident: in the corona crisis, sales of electric cars skyrocket; the Tesla papers are worth many times more than they used to be, and Mercedes still doesn’t have a single competitive Stromer on offer. The result: “Tesla will be the absolute winner of the post-corona era,” predicts NordLBAnalyst Frank Schwope.
The US company around the dazzling entrepreneur Elon Musk only had to cope with a drop in sales of five percent from April to June. Daimler, on the other hand, sold almost a fifth fewer cars in the same period.
Even worse: The EQC, Mercedes’ first electricity SUV under the new EQ sub-brand, is also selling only slowly. Internally, the vehicle is considered a “crutch” on the way to the electric age, unlike the Tesla models, for example, it is not based on a specially designed electric platform, but on the combustion architecture of the GLC. In real operation, the EQC creates loudly ADAC only a range of 335 kilometers. Not enough to take on competing models like Audi’s e-tron or even the Tesla racing car.
The crippling business with electric cars has unpleasant consequences for Daimler. The automaker threatens to miss the EU’s environmental standards. The Mercedes fleet emitted an average of 137 grams of climate-damaging carbon dioxide last year. By 2021, the group will have to reduce its CO2 value to around 105 grams using alternative drives, otherwise there will be fines. As of today, there should be a fine of several hundred million euros. After the diesel scandal, Daimler is at risk of further damage to its reputation.
Business downturn, job cuts, plant closings, environmental penalties – the situation of Källenius and Daimler looks anything but pleasant. But there is still hope, bright spots on the horizon show.
Range of 700 kilometers
From the A-Class to the S-Class, the group will be offering 20 brands by the end of the year, some of which will be between 70 and more than 100 kilometers electrically. Sales of plug-in hybrids are already growing noticeably in Germany. That helps the climate balance. More importantly, Mercedes will launch the major attack on Tesla from 2021. The spearhead is formed by four models on the electrical architecture specially designed for Stromer.
The two luxury sedans EQS and EQE make the start on the new platform, which is internally called “EVA II”, followed by two electric SUVs. Daimler promises ranges of more than 700 kilometers for its Top Stromer. “With these models, we are getting to an absolutely competitive level,” says a Mercedes manager.
Design, interior, technical data: The leap from the shop keeper EQC to the hopeful EQS should be huge. Starting with the new flagship, CEO Källenius finally wants to prove that Daimler can also do electromobility – better and more luxuriously than all its competitors, including Tesla. The top Swabian Stromer arrive late, but all the more powerful, according to the calculation. But the bet has to work.
More on the subject:
Internally there is already talk of “fate models” for Källenius. In the competition against Tesla, it was “crucial for the war” that EQS, EQE and Co. hit the noble customers. Some of the top management are still skeptical, others are optimistic. “I believe in the company,” says one. Even if the current financial situation suggests otherwise, the future portfolio mix at Mercedes will play Källenius in the cards, and not just for pure electricity, according to the manager.
In fact, the Swedes will again have a guaranteed return with the new S-Class from the end of the year. The next generation of the bestselling C-Class will also be available from 2021. All important SUVs such as the GLE are also fully available again after persistent production problems last year. The share of heavy models with high margins in the total sales of the brand with the star is likely to increase. Källenius plans to use the profits to power all series. Maybach and AMG are also to become electric.
The Daimler boss is unlikely to achieve one thing: LVMH to surpass. With brands like Louis Vuitton or Tiffany’s, the luxury group generates double-digit returns in the billions. Källenius suspects that this dimension will hardly be achievable with the sale of cars. But at least the goal is now clear that will apply for the next few years. It’s not going to be an easy time for the chief renovator at Daimler AG.