Daimler Looks at Separate Unit for Wholly Owned Mercedes Dealers

Apr 25, 2014 5:15 am ET

April 25 (Bloomberg) -- Daimler AG is in talks to sell some Mercedes-Benz sales outlets in Germany and may form a separate company for the remaining wholly owned dealerships for possible disposal in an effort to improve profitability.

The car-selling business can’t meet the Mercedes auto division’s operating-margin target of 10 percent of revenue, Ilse Kestin, an IG Metall union representative, said yesterday. The labor group plans a rally April 28 at Daimler’s Stuttgart, Germany, headquarters to protest the reorganization after talks on preserving retail jobs and outlets broke down.

“Selling cars is a problematic business,” Kestin said by phone. “A maximum margin of 2 percent is possible. That’s annoying the management board of Daimler.”

Mercedes is the third-biggest maker of luxury cars. Daimler Chief Executive Officer Dieter Zetsche has a target for the brand to surpass Bayerische Motoren Werke AG and Volkswagen AG’s Audi unit in vehicle sales and profitability by the end of the decade. The program includes bringing out 30 new models by 2020, including a dozen with no predecessor.

Daimler is in talks about streamlining the retail network in Germany, Zetsche said at an event in February. Investors have cited Mercedes’s larger workforce as a reason for profitability lagging behind BMW’s and Audi’s margins.

‘Strong Positive’

“This vertical sales integration is the key reason for Mercedes’ margin underperformance,” Arndt Ellinghorst, an analyst with ISI Group in London, said in a report to investors today. “Addressing this issue” through a reorganization or disposals “should be seen as a strong positive.”

Daimler owns 33 Mercedes car dealerships in Germany, with 158 locations, Konstanze Fiola, a spokeswoman at the manufacturer, said in an e-mail. That compares with 90 independent representatives running 438 sales outlets.

The carmaker “is constantly reviewing its sales structures to create efficiencies and to adapt to changing market conditions,” Fiola said. “No decisions have been made.”

The wholly owned operations have a combined workforce of about 15,000 people, Silke Ernst, a spokeswoman for Daimler’s works council, said by phone.

The union wants Daimler to extend an agreement, originally reached in 2008 and prolonged three years ago, that largely keeps all the outlets open through 2016 and retains all employees through 2018.

Daimler is in discussions with potential investors on the possible sale of some of Mercedes sales sites in four cities in the states of North Rhine-Westphalia and Lower Saxony, deals that would be allowed under the current labor accord, Fiola said.

Employee representatives, who hold half the seats on Daimler’s supervisory board in line with German corporate- governance rules, are concerned that a disposal of the sales network will eliminate benefits such as pension provisions and bonus payments, Kestin said. IG Metall expects more than 4,000 people to take part in the protest demonstration, she said.