Daimler braces for questions about job cuts after truck spinoff

While Daimler’s blockbuster plan to split up its car and truck divisions thrilled investors this week, the Mercedes-Benz maker also prepared for the reaction of workers concerned about job security.

Soon after Daimler announced it would spin off its commercial-vehicle unit and list the company separately, managers at the world’s largest heavy-truck plant in Woerth, Germany, and other sites received an emailed set of answers to questions they were likely to get from employees, according to people familiar with the matter. The key points centered around job security, spending cuts and other potential drawbacks, said the people, who asked not to be identified discussing internal matters.

The presentation sent to managers -- which Daimler declined to comment on -- is a reflection of the risk that splitting up the company’s operations will be a writing-on-the-wall moment for Daimler Truck’s shortcomings. While the business is unrivaled in terms of scale, selling almost 500,000 commercial vehicles a year pre-pandemic, its profit margins are paltry compared to its closest rival Volvo and more specialized peers such as Paccar.

Labor leaders sought to allay workers’ concerns by voicing support for the spinoff.

“This way there can be additional investments to make the company and jobs ready for the future,” Roman Zitzelsberger, an IG Metall union official who represents workers on Daimler’s supervisory board, told the Stuttgarter Zeitung newspaper. Still, he acknowledged there are many open questions that must be clarified in coming months.

Daimler Truck relies heavily on profits from its Freightliner division in North America. Multiple restructuring efforts at its European operations have failed to meaningfully lift earnings so far.

Daimler’s management board painted a bleak picture of the state of play at the German truck operations only a few months ago. They reportedly told labor leaders as many as half of the 30,000 domestic jobs at the business could be at risk by 2035 in a worst-case scenario.

“The extreme cutbacks are off the table,” Michael Brecht, Daimler’s top labor leader and deputy supervisory board chairman, told Handelsblatt in an interview. The truck operations will get 1.5 billion euros ($1.8 billion) for new projects as part of the breakup plan.

Some of that money likely will have to be channeled to help the company’s bus operations, which have been decimated by the coronavirus.

“The Covid-19 pandemic has had a seismic impact on the global bus market,” LMC Automotive analysts said in a report. “Not only was the industry one of the first to be hit, but it also suffered more than most and will likely be one of the last to recover.”

While Daimler Truck is in a challenged position, it has the potential to lead in terms of profitability, said Roman Mathyssek, a consultant at Arthur D. Little.

“For that to happen, they need to focus on both product and operational issues as well as spearhead the development of future technologies that create genuine value for truck fleets,” Mathyssek said.

It is unclear if Daimler’s two main Chinese investors will show their support for the strategy by holding on to the truck-unit shares they receive through the spinoff. They could dump the stock to focus on Mercedes cars.

Li Shufu’s Zhejiang Geely Holding Group already is the second-largest shareholder in Volvo, and Daimler’s truck joint venture with BAIC Motor’s Beiqi Foton has been much less successful than the local venture that makes Mercedes cars. Geely and BAIC declined to comment.

Still, the overall feedback on the plan to separate Mercedes cars from the world’s largest truck manufacturer has been showered with praise.

“It’s a major historical event for the company,” Bernstein analyst Arndt Ellinghorst said in a video message to clients Friday. “We see substantial upside from here.”