Daimler to boost Mercedes profit with new small cars

Daimler AG, the world's second- largest maker of luxury cars, aims to boost profit at Mercedes-Benz by outpacing competitors with new small cars and cleaner engines, Chief Executive Officer Dieter Zetsche said.

The carmaker may also cut spending by as much as 5 billion euros ($7.5 billion) in 2009 and aims to hold on to those savings next year, Zetsche said in an interview at Daimler's headquarters in Stuttgart, Germany yesterday.

"We are coming to a positive phase of this company in showing its relative strength to the competition; that's true for basically all divisions," Zetsche said. "I have a strong confidence that we are heading into a strong period."

Daimler's effort to boost profit and beat rival Bayerische Motoren Werke AG hinges on an expansion of its small-car lineup, which will increase to four models as part of a 1.4 billion-euro investment. The spending increase and economic crisis forced Daimler in February to abandon a goal of posting operating profit as a percentage of sales of at least 10 percent in 2010.

"There's no doubt we're working towards this target," Zetsche, who runs the Mercedes-Benz cars unit in addition to his role as CEO, said. "We're not in a position today to give that precise timing, but that's certainly something we need to do in the foreseeable future."

Daimler rose 59 cents, or 1.7 percent, to a two-week high of 34.42 euros in Frankfurt trading. The stock has gained 28 percent this year, valuing the carmaker at 36.5 billion euros.

Cutting Costs

Daimler, also the world's largest truck manufacturer, has delayed pay raises, cut car-factory work hours in Europe and started closing truck plants in Asia and North America in response to the worst industry sales since World War II. The measures helped the automaker record its first quarterly net income for a year last quarter.

As part of the effort to conserve cash and gain leeway to invest in new technology, Daimler has also intensified efforts to lower costs and may cut spending by up to 5 billion euros, exceeding its original target of 4 billion euros, he said yesterday.

"The majority of these savings are lasting," Zetsche said, adding the goal is to replace one-time cuts achieved this year with permanent savings in 2010.

Daimler is also keen to improve fuel efficiency after falling behind Munich-based rival BMW. The automaker could face fines of about 3 billion euros from the European Union if Mercedes fails to lower its carbon-dioxide emissions to an average 130 grams of carbon dioxide per kilometer by 2015. Mercedes is currently at 160 grams per kilometer.