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October 16, 2017 9:30 AM, EDT
Daimler Moves to Separate Mercedes, Trucks to Counter Tech Shift
Balint Porneczi/Bloomberg News

Daimler AG is firming up plans for its biggest corporate overhaul in a decade, granting its cars and trucks operations more independence in a bid to become more nimble and better confront the disruptive shift to self-driving electric vehicles.

Under the plan, the German automotive giant would break up its conglomerate structure by transforming itself into a holding company with three units: Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and the financial services unit, which is already legally independent, the Stuttgart, Germany-based company said Oct. 16 in a statement.

While the move is aimed at giving “greater entrepreneurial responsibility” to the units, it will initially create additional costs such as duplicate administrative structures. Daimler is budgeting more than 100 million euros ($118 million) for “the first steps.” The company said it doesn’t plan to divest any divisions in order to maintain synergies such as the trucks and cars units sharing costs to develop self-driving features.

The overhaul, which was first proposed in July, would be Daimler’s biggest corporate revamp since it ended its ambitions of becoming global car giant with the sale of Chrysler a decade ago. While the move would initially add costs, it could pave the way for spinoffs or deeper tie-ups down the line once it’s implemented after 2019, the same year Dieter Zetsche is due to step down as CEO.

“The plan for spinoffs looks to be in place,” said Christian Ludwig, an analyst at Bankhaus Lampe. “It’s a little unpleasant for shareholders to hear about the costs without much concrete explanation for now.”

Value Pressure

Daimler shares rose as much as 1.5% to 68.94 euros and were up 0.4% at 1:24 p.m. in Frankfurt. The stock has slipped 3.6% this year as valuations of global auto manufacturers get squeezed by a massive changeover to battery-powered models and the advent of services such as ride hailing, which challenge traditional car ownership.

As part of the planned overhaul, Daimler extended a labor pact that rules out forced layoffs until 2030 and will allocate 35 billion euros in investments on electric cars and other new technologies over the next seven years, the group’s workers council said in an emailed statement. The German manufacturer is also contributing 3 billion euros to its pension plans.

The reorganization could help extract value from the surging Mercedes cars business while the trucks operations struggles with volatile markets. The move requires approval by the management and supervisory boards as well as consultation with employee representatives, which have large influence over company strategy. Shareholders could vote on the changes in 2019 at the earliest, according to the company.

Daimler’s structural revamp could mark the swan song for CEO Zetsche, who’s current contract expires at the end of 2019. Since taking the helm in 2006, he’s guided Mercedes back to the top of the luxury-car segment and sold off assets such as Chrysler and its stake in the maker of Airbus planes.

While Daimler has streamlined its portfolio in recent years, it’s not as clean as luxury-car rival BMW AG. Volkswagen AG, meanwhile, has a far more complex structure with a collection of 12 vehicle brands including heavy-truck nameplates MAN and Scania as well as divisions that more ship engines and power plants.

“Whoever aims for sustainable competitiveness and profitability must continuously evolve and adapt to rapidly changing surroundings — technologically, culturally and also structurally,” Zetsche said in the statement.

With assistance by Christoph Rauwald