DaimlerChrysler, Q3 2008 Earnings Call Transcript

Oct.23.08 | About: Daimler AG (DDAIF)

DaimlerChrysler (DAI) Q3 2007 Earnings Call October 23, 2008 8:00 AM ET

Executives

Friedrich Lauer – Head of Investor Relations

Bodo Uebber – Chief Financial Officer

Dr. Dieter Zetsche – Chairman of Management and head of Mercedes Benz Cars

Analysts

[Jung Geiger]

[Max Oranson - Sanford Bernstein]

Arndt Ellinghorst – Credit Suisse

Adam Jonas – Morgan Stanley

Christian Hetzner – Reuters

[Cristof Hobal – Dow Jones]

Philippe Houchois – JP Morgan

Daniel Schwartz – Commerce Bank

[Charles Jen]

Daniel Schaefer – The Financial Times

[James Maxwell]

[Terry Huron]

Christian Breichtspringer - Oppenheimer

[Frank Biller]

[Yurgen Peba]

[Alexis Vunerau]

[Phillip Avier]

[Henrich Zuchman – Reuters]

Operator

Welcome to the global conference call of Daimler. At our customer's request, this conference will be recorded. (Operator instructions) I will now hand over to Mr. Friedrich Lauer, head of Daimler Investor Relations. Thank you very much.

Friedrich Lauer

Good afternoon from Stuttgart. This is Friedrich Lauer from Daimler Investor Relations. On behalf of Daimler, I would like to welcome you on both the telephone and the Internet to our third quarter results presentation.

We are happy to have with us today the Chairman of the Board of Management and head of Mercedes Benz cars, Dr. Dieter Zetsche and Chief Financial Officer, Bodo Uebber. Dr. Zetsche and Mr. Uebber will start the conference with the 3rd quarter results presentation. Afterwards, as usual, you're welcome to ask your questions. I will explain the process for this later.

Before we start, I have the usual administrative details. Slides to accompany this conference call are available on our internet site. I would like to remind you that this teleconference is governed by the Safe Harbor wording that you will find in our published results documents. Please take some time to study this wording. Please note that our presentations contain forward-looking statements that reflect management's current views with respect to future events. These forward-looking statements can be identified by expressions such as assume, anticipate, believe, estimate, expect, intend, may, plan, project, should and similar expressions. Such statements are subject to risks and uncertainties, examples of which are in the Safe Harbor wording in our documents and are also described in our most recent Form 20-F under the heading, Risk Factors. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only as to the date on which they are made.

Now I would like to hand over the conference to Dr. Zetsche please.

Dr. Dieter Zetsche

Thank you. Ladies and gentlemen, welcome to our Q3 results conference call and thanks for joining us. As you all know, financial crisis turned into an economic crisis. That has created substantial uncertainties among market participants. That also put a number of question marks on future economic developments. The resulting drop in the automobile has intensive as the 3rd quarter progressed and it did so in a way we've never experienced before.

We saw substantial decline in major European passenger car markets. In some markets such as Spain, Italy or the UK, the situation became very challenging. Since this summer, double-digit declines have been almost routine.

In addition, the premium segment was and is being hurt by regulatory pressure in France. Since the (inaudible 00:06:08) emissions regulation which penalizes larger vehicles was put in place, premium sales in France have dropped accordingly. In the U.S., passenger car markets deteriorated further and the Japanese market remained weak.

Turning to trucks, Western European markets continued at high sales levels in 2008 but incoming autos were declining substantially. NAFTA markets were still very weak this year in contrast to what was originally anticipated. And while Southeast Asian truck markets were about last year's level, the Japanese market has so far experienced another very weak year.

All in all, what we've been seeing in recent weeks was more than just headwind. It's a dramatic slump in many of our major markets. No industry or business is immune to this and that includes Daimler.

The consequences for our 3rd quarter results on group level can be outlined as follows. Revenues decreased 7% to €23.8 billion. Adjusted for exchange rate effects and changes in the consolidated group, revenue decreased by 5%. The group's EBIT was €0.6 billion. This includes special items negatively impacting EBIT in the amount of almost €0.8 billion.

Our net profit was €0.2 billions and EPS came in at €0.21. Last year's figures were negative as they were heavily impacted by tax effects related to the separation from Chrysler. We had a negative free cashflow in our industrial business of €0.3 billion during the first nine months of the year. The net liquidity of our industrial business came down from €12.9 billion to €6.7 billion, reflecting our share buyback and the dividend payout, as well as a negative free cashflow from our business.

Now let's turn to our division results. I'll quickly go through the headlines and what they mean for our projection for the remainder of the year. Bodo Uebber will then take you through the exact Q3 figures and further details.

Mercedes Benz cars could neither expect nor escape the fallout of the financial crisis. Since our last quarterly conference call at the end of July, our assumptions for the second half of the year have been outdated by a traumatic slump leading to both lower sales and revenue. The latter was also impacted by a less favorable model mix mainly due to next year's E-Class model changeover. In addition, we face burdens from the reassessment of residual values. As a result of all this, EBIT and return on sales were down sharply.

Daimler Trucks, on the other hand, performed well. On the strength of higher unit sales and an improved model mix, Daimler Trucks revenue increased. EBIT exceeded last year's level. Mercedes Benz Vans and Daimler Buses benefited from the continued positive development of unit sales and they both achieved higher earnings.

Daimler Financial Services slightly expanded its contract volume and earnings. Also, the cost of risk further increased.

What does this mean for our projections for the remainder of the year? In light of the worsened financial market crisis and the resulting impact on future economic developments, forecasts in this environment are connected with a high degree of uncertainty. As we sit here today, it is not yet possible to reliably assess how quickly the action plans announced by various governments will contribute to the stabilization of financial and goods markets. We expect a slowdown in growth to affect nearly all countries in the industrialized regions.

Therefore, we expect unit sales of Mercedes-Benz Cars in the full year 2008 to be in the magnitude of 2007. We also expect rising unit sales for Daimler Trucks for the full year 2008 reflecting positive development in important markets such as Brazil, Indonesia and the Middle East. We anticipate surpassing the 2007 sales for Mercedes-Benz vans and we also expect Daimler Buses unit sales to mark a new record level.

At Mercedes-Benz Cars the changed market environment in addition to ongoing burdens from high raw material prices, negative exchange rate effects and residual values results in an increase pressure on earnings. Our significantly improved efficiency cannot offset this burden. We therefore expect 2008 EBIT for Mercedes-Benz Cars in the magnitude of €2.5 billion corresponding to a return on sales of 5% which is below our previous projections. Included therein are charges related to the reassessment of residual values in the amount of €449 million.

At Daimler Trucks we expect our positive sales development to partially offset higher material costs. Overall we anticipate full year earnings of approximately €230 million.

At Daimler Financial Services we anticipate moderate increase in our worldwide contract volume in full year 2008. We expect to achieve a return on equity of about 14% in the full year.

On the basis of those projections for our divisions, we expect the Daimler Group in 2008 to post EBIT from ongoing operations of more than €6 billion. That does not include affects related to Chrysler.

Before Bodo Uebber has the details for you, let me reiterate that these are extraordinary and unprecedented times. We have taken hits in our sales, revenues, margins and auto books. And we recognize that the situation is very challenging indeed. You can be assured that in 2008 beyond compensating the negative cost effect, for instance raw material price increases, we already defined and executed additional steps to offset some of the market induced revenue impacts.

At the same time we are preparing within our existing programs, for instance for Mercedes Go For Ten (ph 00:12:32), a much more comprehensive approach to adjust ourselves to the reduced market potentials. One of the very first measures in this context is to bring inventories back to normal levels and thereby free the frozen working capital respective to cash flow.

And we are confident that we have got what it takes to not only meet the short-term challenges of these uncertain times, but to successfully move beyond them and achieve our long-term goals. We will continue to execute our aggressive R & D and product plans. All in all, our substance is very solid and that makes me confident Daimler can and will emerge strong.

Bodo will now take you through the details and after that we will both be happy to answer your questions. Bodo?

Bodo Uebber

Thank you, Dieter. Let us now turn to the Q3 key figures in our divisions starting with the Mercedes-Benz Cars.

We experienced a 6% decline in unit sales compared to the previous year as our major markets in the US, Japan and Europe weakened. In addition we face burdens from the reassessment of residual values in the amount of €449 million. In the third quarter unit sales of Mercedes brand declined by 8% where Smart sales grew by 20%. Smart is very successful in the US where we have sold 20,000 units since the market launch in January.

We also had a very good quarter in China where Mercedes-Benz sales were up by 57%. If we look at the first nine months of this year, total sales of Mercedes-Benz Cars division are still up 6%.

Total revenue of Mercedes-Benz Cars was at €11.6 billion, that is down 18% compared to the third quarter of 2007. A combination of lower sales, the change in model makes and exchange rate effects all contributed to this decline.

EBITDA of all Mercedes-Benz Car divisions declined from €1.3 billion to €112 million. In addition to the negative developments previously mentioned, we also suffered from higher raw material prices. And due to the severe deterioration of the used car markets and the residual values in Q3, especially in the US and the UK, Mercedes-Benz reassessed its residual value risks burdening EBIT by €449 million.

In the third quarter we launched or introduced several new products. Last week we presented our new GLK at all German dealerships. The GLK extends our model range with a very attractive small end, fuel efficient SUV. In the third quarter we also rolled out our latest generation M-Class.

Our highlight at the Paris Motor Show included the public premier of the new C250 CDI Blue Efficiency prime emission and the S400 blue hybrid models. The new S400 blue hybrid will be the first series production hybrid model with a lithium-ion battery. It will set a new benchmark in the luxury segment in efficiency and environmental compatibility.

Last month in Berlin together with RWE we unveiled the world’s largest joint e-mobility project for environmentally friendly electric cars. Daimler will provide more than 100 electric cars from Mercedes-Benz and Smart as well as vehicle service. RWE is handling the development, installation and operation of the charging infrastructure with some 500 charging points. With this project we will pass on more important milestone as we strive for leadership in green technologies.

Now, let’s turn to Daimler trucks which performed solidly. Despite challenging markets, environments in the U.S. and Japan, the truck division increase its worldwide units sales by 4% to 123,000 vehicles. Trucks Europe, Latin America achieved an increase of 12% to a total of 47,000 units boosted by extremely positive market developments in Western Europe and the Middle East. Trucks NAFTA sold 26,000 vehicles during the third quarter. This was 7% higher than the previous year which had been impacted by a very weak sales in the U.S. market.

Trucks Asia posted a new international sales record but our continued strong business outlet of Japan could not fully compensate for weak demand in the Japanese home market. Therefore, third quarter unit sales slightly decreased. Trucks Asia now sells more than 75% of the trucks outside of Japan. On the strength of higher units sales and the improved model makes, Daimler Trucks revenue increased by 4% to €7.3 billion.

Looking ahead, the division’s incoming orders increased by 2% to 336,000 units during the nine months period. However, at Trucks Europe, Latin America incoming orders decreased by 23% and this was due to a strong decline in demand in Europe reflecting head winds from the overall tough economic environment. Although incoming orders of trucks NAFTA increased by 50%, we are still at very low levels. We thus expect the recovery to be less dynamic than originally anticipated.

Trucks Asia increase incoming orders by 11% reflecting strong order intakes outside Japan. With EBITDA of €510 million, Daimler Trucks results exceeded the prior year level. The positive contributions from our increased sales volume improved product mix and improved product positioning offset expenditures in connection with new and enhanced product development. That underscores the progress that we’ve made with our management of cycles initiatives, a pillar of our global excellence program. And we are actively decisively to improve the efficiency and profitability of our business with the repositioning of Daimler trucks in NAFTA.

We are focusing on the two brand strategy with a discontinuation of the Sterling trucks brand. We will consolidate our production network by closing the plants in St. Thomas, Ontario and Portland, Oregon. As a result, we expect annual earnings improvement of $900 billion by 2011 and related charges amount to a $600 million in total, $350 million will be posted in the fourth quarter of 2008.

In August, we rolled out the latest generation of our flagship Actros which features 37 major improvements. Actros received the prestigious truck of the year award at the International Motor Show for Commercial Vehicles in Hanover and then in September, we also had the world premiers of three hybrid trucks; the Axor BlueTec hybrid, the (inaudible 00:19:46) BluTec hybrid, and the Conic CNG hybrid. In the US Frieghtliner launched the M2 hybrid. With (inaudible 00:19:53), Daimler trucks put Europe’s biggest test fleet of hybrid trucks into service in August. Daimler continues to set the pace with alternative drive options in commercial vehicles.

Now, let’s turn to our van operations. In the third quarter of 2008, the Mercedes-Benz vans units sold more than 73,000 vehicles. Again, exceeding the prior year level. This was, above all, the result of strong demand for sprinter vans which net sales of 50,000 units. (Inaudible 00:20:31) van models are also recorded higher sales. Revenue of €2.4 billion were at prior year level.

The success of our bus units also continues through the third quarter. Daimler buses increased unit sales by another 15% to a total of 10,800 buses and chassis. All major market regions contributed to this success. As a result of our bus business, increased its revenue to €1.2 billion, 21% more than the prior year.

The EBIT development of the van, buses, other segment is shown on slide 19. The overall loss of the segment was €100 million compared to a profit of €319 million in the third quarter in the prior year. Mercedes-Benz vans and Daimler buses achieved an EBIT of 212 million and €92 million respectively. In both cases, higher than the third quarter of 2007.

(Inaudible 00:21:34) contributed minus €8 million to the segment’s EBITs, slightly better than in the third quarter 2007 with further burdens on EBIT resulted from all state in Chrysler It took a negative charge for Chrysler equity results in the amount of €351 million. This amount includes special reporting items mainly from residual values in the amount of €248 million and due to our equity losses, the remaining book value of our stake in Chrysler holding of €171 million was completely reduced to zero in the third quarter.

The equity losses exceeding the €171 million had to be recognized by a reduction of the subordinated loan. The announcement on September 24 that we are in negotiations with several (inaudible 00:22:25) to redeem our remaining 19.9% stake in Chrysler to them. The date of the deal is still open.

Turning to financial services. The contract volume of our business increased by 11% to €63.9 billion adjusted for exchange rate effects and changes in the consolidated group, the increase was 9%. New business in the third quarter amounted to €7.7 billion this was 90% more than in the prior year. Customer funds invested with the (inaudible 00:23:00) bank in Germany rose sharply by 38% to €5.4 billion.

Earnings of our financial services unit increased from €87 million to 173 million. The increase resulted partially from the expanded portfolio. In addition to the third quarter 2007 had been heavily burdened by charges related to the D-merger from Chrysler. So set-up costs for our new financial services organization in the NAFTA region has largely been absorbed but we are not yet back to our previous level of productivity. The costs of risks was higher than in Q3 2007 but in light of the extremely challenging economic environment, it was still at a reasonable level.

Returning to the group level. Let’s take a quick look at the net profit and earnings per share. In Q3 2007, both mid rates were heavily impacted by tax effects related to the transfer of the Chrysler majority stakes to (inaudible 00:24:04). 3rd quarter 2008 net profit amounted to €213 million. This is after €504 million of taxes compared to tax expenses of €3.1 billion in the prior year quarter. While the prior year tax expenses was mainly due to an impairment of deferred tax assets as a result of the transfer of our majority in Chrysler (inaudible 00:24:25), you might remember the €2.2 billion impairment charge. The relatively high tax rate in the third quarter of 2008 mainly reflects losses in connection with our stake in Chrysler for which a tax benefit could not be recorded. Earnings per share are €21 cents.

Our key bill sheet and financial are shown on Chart 24. As you can see, our financial structure is still in good shape. At the end of the quarter we had a gross liquidity of €10.2 billion largely (inaudible 00:24:58). That means we increased liquidity by €3 billion during the third quarter. The net liquidity of our industrial business of €6.7 billion is very comfortable. The decline against the year in 2007 number is €12.9 billion is primarily related to the share buyback and the dividends payment.

Effective is higher than what we intend to hold in the long run. However, in the current environment, we believe it’s prudent to maintain a higher liquidity buffer. Our equity ratios both for the group as well as for industrial business are quite high.

For the first nine months, the free cashflow of industrial business was negative with €0.3 billion compared €5.7 billion for the prior year. It’s a sharp decline reflects one time effects, €4.5 billion from the 2007 transfer of equity interest in EADS as a sale of a real estate properties by Mitsubishi Fuso shows inflows of €1.3 billion from the sale of Potsdamer Platz real estate complex to include Q1 of this year. And the acquisition of our share in (inaudible 00:26:05) and established credit line called by Chrysler which lowered our free cash flow by 0.7 and €1 billion respectively.

Furthermore, in the year 2008, the free cash flow was impacted by the increase in working capital due to higher inventories. The higher inventories you can see in the inventory report by over €3 billion.

As far as our funding is concerned, we have bought maturities in the first quarter in the amount of €1.7 billion. We will be at the regular issue in the bond market in the future. We are aware that the pricing will be higher than in the past. Overall, we have a balanced maturity portfolio for the first quarter and the year 2009.

Regarding funding of the group, we have a high degree of financial flexibility. Our medium term note program and commercial paper program provide us with sufficient head room for further funding measures. In addition, we have two unused credit facilities in the amount of more than €6.5 billion which serve as back up lines for commercial paper programs. We do not intend to use these credit lines. This is a pure liquidity reserve.

The €3 billion facility was just agreed upon with a consortium of international banks two weeks ago and improves our access to the credit markets. It was very important for us, our financial services portfolio and the corresponding financial debt have the same liquidity profile. However, due to the current uncertainty in the markets, we will be, we will temporarily suspend the further execution of all share buyback program and due to the suspension we might not reach our initial target to buyback 10% of the outstanding shares.

Overall, we face a number of challenges of course and most immediate is the international financial prices and the degree to which it spills over to the micro economy, but we also have substantial opportunities. We continue to be well positioned in our markets. We have a promising product pipeline and we see potential for growth in both traditional and emerging markets. In addition, we continue to make good headway with quality improvements and efficiency enhancements in all of our divisions.

What this means, while predictions for the remainder of the year has already been explained by Dieter, I don't need to repeat it. So let me just reemphasize one point. While the environment we are now operating is determined by factors beyond our control, we are focusing our energy all the more on the things we can control. We continue to press ahead with the measures to improve our efficiency, reduce costs, enhance productivity in all our business.

Thank you very much for your attention. I will be happy to answer your questions.

Question and Answer Session

Friedrich Lauer

Thank you very much, Dr. Uebber. Ladies and gentlemen, you may ask your questions now. I will identify the questioner by the name but please also introduce yourself with your name and the name of the organization that you are representing before asking your question. Get right to the point please, avoid using a mobile phone as this distorts the quality of the call for everyone and secondly please ask your question in English. Before we start the session the operator will explain the procedure.

Operator

(Operator instructions.)

Friedrich Lauer

Okay. We start today with the first question from Jung Geiger (ph 00:29:34), please.

[Jung Geiger]

Yes, good afternoon. Three questions if I may. First of all Mercedes your guidance seems to imply pretty much a break-even for Mercedes in the fourth quarter. I wonder whether you could just give us some details on what's the thinking process behind how much production cut do you envision that quarter?

Secondly in the third quarter you still continue to grow financial services. Can you just clarify the situation on refinancing and how much in the quarters to go forward such trend might even reverse and thirdly Dr. Uebber the current financial crisis, how much is this putting your medium term plan to come to a net gearing position on a structural risk. Are you looking at this plan and could we see a scenario with Daum living forward is just willing to have a higher net liquidity position and not move into a small gearing position. Thanks.

Dr. Dieter Zetsche

Thank you for your questions. As far as the first question is concerned I don't think I have to explain how difficult it is at that point of time to keep any future information making assumptions about a world which nobody of us knows how it will continue to develop. We have made the most recent assumptions we could about the development of the market which are in as I explained pretty bad shape at that point of time and we have assumed that we will try to reduce the supply of vehicles to the extent possible in accordance with the reduction of sales. In this regard let me tell you that we as we informed have decided about the first significant production cut in July this year. Unfortunately based on the logistics of the change we have to acknowledge the impact of that. It's basically or mostly in the fourth quarter so all the production – the sales reduction the third quarter could not be offset by production reduction in the third quarter and therefore we see this significant increase in inventories which affect our cash flow as was explained before.

And so we try of course by year end to minimize ideally to avoid excess inventory but that again of course depends on the – on this development in the markets which only to some extent we can try to forecast.

So we try and you always try to do that. We try to be realistic in our assumptions for the fourth quarter or for the remaining part of the fourth quarter and we only know afterwards if that was realistic or optimistic or pessimistic. Generally as always but never in such a volatile environment as we are right now. So it's our best guess what we have given you and we will do everything to accomplish those targets but we cannot sign them in blood in this environment we are in.

As far as your third question is concerned, ask your colleagues. You have asked from us six months ago a very different attitudes than you have today for good reason. At that time it was minimize your costs of capital and try to get to a slightly leveraged balance sheet. Now it's every cent you can keep in liquidity is a positive when we look at you. We do understand that but there's other changes we are experiencing right now and we adjust accordingly and the decision to stop for that point of time our buy-back program is one reaction to that, of course, and our own assessment, of course, not just reaction to what you tell us, and at that point of time of course liquidity is key and cash flow is key and we will act accordingly and manage the company accordingly and leverage the balance sheet is not a priority at that point of time (inaudible 33:58).

Bodo Uebber

To answer your question on the financial services part, I don't see – of course we are following so to say also the sales development of the Colics also in the 4th quarter so that as a precondition for financial services will be taken to our books. I don't see major – major changes of our penetration rates in the different markets but it is also holds true for bus, vans, trucks and for passenger cars.

If you asked me right now, growth rates fourth quarter, I would not assume the biggest ones Q4 compared to the Q3, Q3 portfolio we have in our hands, so acquisition wise. Refinancing wise we plan to be out in the markets with a (inaudible 00:34:46) first quarter maybe one to two billion euros. We don't need to so we have to relook at the development of the market and logistic wise we will go out or not seeing what the market is doing. Some commercial paper for but that is for the first quarter 2008.

[Jung Geiger]

Okay, thank you.

Friedrich Lauer

Next question from Max Oranson (ph 00:35:08) please.

[Max Oranson - Sanford Bernstein]

Yes, good afternoon. It's Max Oranson from Sanford Bernstein. Inevitably I've got kind of similar questions on liquidity if that's okay. The first one, on the write-downs in leasing in Mercedes, could you just give us an explanation of the basis of that and the timing of it and what your thoughts are on what would need to happen for you to need to take further write-downs. Related to that from a company point of view or a credit rating agency point of view at what point would you need to put more equity into financial services to compensate for this kind of activity?

And then the final question you've obviously improved your gross cash position during the quarter which gives you a bit a comfort. What is the minimum gross cash position the business needs for comfort? Obviously it can't go to zero. We need some money there for working capital purposes, but could you give us a feel for what is a minimum gross cash position the business needs? Thanks a lot.

Dr. Dieter Zetsche

I think all of those questions are best answered by Bodo, do you agree?

Bodo Uebber

Who knows? Okay. Let's go to the question. The write-downs of course which we have made a base (inaudible 00:36:25) future residual values at the end of the third quarter so it means end of September. So that takes into account for example redevelopment in the U.S. That takes into account certain provider (inaudible 00:36:40).

In the U.K. for example and these are the major impacts we have in these markets of course we take into considerations. Yes on top of that you have to make an assessment of course what kind of pre-term maturities you get back. So before the end of the term because these are good returns because these are under the really devalue in the contract so to say. And based on these assumptions we have made our assessment which lead to the 449 provisioning what we did (inaudible 00:37:11) portfolio information services is 20 million. That might give you the wrong direction because you have of course to make the calculations what are these leaders at the end of the term and the financial services portfolio shows you the current portfolio so you need to know of course the end of the term projections and you have to look where you have all the guarantees from other third parties to have the base line of what you're doing the provisioning.

So even though to talk about the percentages does not make sense you can – you know that you have a lease contract for it only for 10 months in your scope or for another – for the term of 24 or 36, all in all based on these assumptions, based on car lines and single contracts where you make these assumptions and then of course come up with these numbers. So at the end of the day the next quarter and also 2009 depends on the future development on used car values in the market. That's it. That's only what I can tell you and we will see and there's of course certainly the risk. I don't want to talk about opportunities. We might see a different world in three to four months but of course today everybody will see that as a risk but of course we are also somewhat far down the (inaudible 00:38:29) values from the future expectations basis.

You asked for the underlying equity ratio. We have today 7% in financial services. We are okay with that with the rating agencies. They're asking us how much equity we need for the financial services. You have to keep in mind that in our business model, the (inaudible 00:38:48) values are taken by the industry more or less as an extraordinary burden. So we have some risk sharing which comes up with 1 or 2% so it's a sort of a tiny one when you look at these numbers and so for that risk I don't need the equity, underlying equity in the financial services portfolio. So I feel fine with the 7% and that is also discussed with the rating agencies.

Your third question was the gross liquidity which of course we did quite well with our 10 billion constant liquidity on hand our target, so to say (inaudible 00:39:28) money we need minimum for the industrial business to manage is roughly six billion.

[Max Oranson - Sanford Bernstein]

Okay. And just one follow-up question, Dr. Uebber. You said that the credit line was there as comfort really rather than something you wanted to draw down. What would need to happen for you to draw down that credit line or to phrase the question the other way, you're saying that this bond issue in Q4 you don't need to do it, you'll review it based on rates. Can you just talk us through the trade off between doing a bond issue or CP a very high rate versus drawing down the credit line? How do you sort of make that decision?

Bodo Uebber

Again, you know we have to look at the financial markets over the development. I do think it doesn’t make sense to speculate when, what and if. We have to look at the development and then to inform you. So to say if we do so we don’t expect it. We don’t need to do it and I don’t think for the time being that should be the answer of this question.

[Max Oranson - Sanford Bernstein]

Okay, thanks very much.

Friedrich Lauer

Arndt Ellinghorst, would you please ask the next question thank you.

Arndt Ellinghorst – Credit Suisse

Arndt Ellinghorst from Credit Suisse. Two questions please. Firstly, do you see some suppliers struggling and we could see quite significant charges from Daimler helping struggling suppliers? We get basically a profit warning every day from automotive supplies these days.

And the second question is on financial services again. I mean I understand we’re all looking at a doom and dusk scenario now regarding financial services and that it’s all bad and nobody can ever do leasing and whatever again. (Inaudible 00:41:00) I think if that’s true the industry cannot resell any more cars especially premium makers.

So my question isn’t there also a chance for captive automotive financial services providers to potential gain quite significant market share in financial services from non-captive providers, i.e. banks, in this market and couldn’t you really develop this business more sustainable if you as a carmaker are in charge of residual values and marketing used cars? Extending your business model down the value chain offering leases for used cars and so on. So isn’t there quite a significant chance gaining market share in financial services in the longer run? Thank you.

Dr. Dieter Zetsche

Well, to your first question. Of course, we do see that the pressure in the system is putting a high burden on suppliers and I would like to add on dealers as well especially as far as refinancing is concerned. So in this regard, we share the concerns you were mentioning. What is different from the past is that we have highly sophisticated systems to understand as early as possible, kind of our own rating system which is established between the OEMs. Not to be surprised by what’s going on with our suppliers. Those were the cases where really pleaded heavily with surprise collapses of suppliers. When we work together with them, on a day-by-day basis facing challenges together, their exposure is still there but much more limited and that’s the situation I would see by today. We will see a number of a collapses in some of our suppliers but hopefully in a much more managed and controlled way than we have seen it in the past sometimes.

But I would like to add this is not just a problem for our suppliers but especially as financing is concerned, if you don’t some liquidity in the system, all together as an economy all together and an automotive industry as well, of course we will face problems at many ends. More down and up the value chain then with us as far as timing is concerned. Therefore, it’s really important for all of us that we get the system going again as far as availability of liquidity is concerned.

As far as financial services is concerned and Bodo will talk to that in a second. First of all, I very much appreciate your attitude that although crises and doomsday scenarios always include opportunities as well. And the stronger you are, the better your chance to leverage those opportunities while going forward. That’s definitely our intention for instance as well by continuing to invest into new technologies and be much better positioned in three years than potentially some of our competitors who might have a tougher time to continue to invest into those future necessities.

But, at the same time, especially as financial services concerned, nobody of us knows how the liquidity and the access to liquidity will develop going forward. And therefore, suddenly the kind of exposure you’re going for yourself, you have to balance opportunity against risks and therefore now I would say well that’s great. Let’s just sort of take all the financing into our own hands and forget about all our bad competition and have 100% penetration.

I don’t think that this would be a very wise move at that point of time seeing the kind of refinancing needs would generate with that. But I agree as well in that field, there might be opportunities as well and Bodo you can be more specific.

Bodo Uebber

I cannot anymore.

Dr. Dieter Zetsche

You don’t have to.

Bodo Uebber

So let me do. I’ll say only one remark on top of this. We were always and we will be always somewhat risk conscious also in the business. Yes there may be opportunities but on the other hand, you don’t have to forget that as long as you go in the direction of more percentages, you might make the mistake to buy deeper, for example, also in the rating, off the customers and so on. And we have made this risk consciously in the past and we will do also in the future. And that leads me to say more to the one let us be where we are right now that is pretty okay and let optimize out at this level instead of increasing the market share. Of course, in this regard we take opportunities yes but we might not to increase our penetration at this point and time.

Arndt Ellinghorst – Credit Suisse

Could you remind us what your dealer financing receivables are at this stage? And what are the defaults on these receivables in particular?

Bodo Uebber

Of course, they are pretty low. I don’t have the number available right now here but the risk for the dealers is a (inaudible 00:46:05) of one.

Dr. Dieter Zetsche

I mean, that’s one element which is different for us than for most of our competitors, which is Germany, where we basically have agents and no dealers and we own the inventory anyway. So in this regard, specifically in our largest market Germany, we have no exposure in that regard.

Bodo Uebber

And, Arndt, we have put on the slides, you might not have seen it, on Slide 21 in my presentation, we have 7.6 billion in wholesale financing.

Arndt Ellinghorst – Credit Suisse

Alright. Many thanks.

Bodo Uebber

So that is roughly, I don’t know, it’s 11% or 12%.

Arndt Ellinghorst – Credit Suisse

Alright. Thank you.

Friedrich Lauer

Next question from Adam Jonas, please?

Adam Jonas – Morgan Stanley

Hi, good afternoon. It’s Adam Jonas, Morgan Stanley. Just a couple of questions. First, which foreign exchange rates concern you most right now? There’s obviously been a huge amount of volatility. Just wanted to off the top of your head if you could give us the ones aside from the US dollar of course (inaudible 00:47:03), which most concerns you.

And which emerging market sources of demand concern you right now as you’ve been seeing how your business progressed there very rapidly up until the last few weeks? And then just a third, just clarification, can you just confirm clearly whether Daimler is included in any German government bank rescue package? Thank you.

Bodo Uebber

So, Adam, most of all, of course we have some opportunities in this work. No doubt. And you mentioned one is currency. Of course, the US dollar is I would say an opportunity right now. And we did our hedging with options, which is quite a good position, so we try to work down so to say the average exchange rate so to say for these different currencies down in this direction, for example, taking the options and buying other ones or buying forwards and so on to optimize the structure of our hedging. We are currently in 2009 at roughly 70% with our hedging structure, which we have, which as I have said before not all (inaudible 00:48:36) on this regard.

I would say the second opportunity is (inaudible 00:48:41) right now from a development point of view that we had the same strategy as we had for the US dollar and some opportunities. And of course we are somewhat there in the netting position with Fuso to Mercedes-Benz, which is also netting kind of risk volatility what we had.

And certainly of course the third biggest impact goes further down to the Brazilian market and to other markets. In the UK, (inaudible 00:49:10) closely to watch the development there and to take our actions if the markets are favorable. The UK, the pound, is not as let’s say as good in the development as the US dollar and that’s it. So we take all opportunities what we can to get this opportunity so to say into our books.

Dr. Dieter Zetsche

As far as emerging markets are concerned, still in September and ongoing in October, in China, we have very high growth rates from September (inaudible 00:49:43) with 67% or something like that. In Latin America, or Brazil specifically, we had similar positive rates even though at much smaller base so the absolutes there are much less relevant. In India, we did very well as well again on a small basis.

But in Russia, the 70% drop of the stock exchange has affected our customer base and we have seen in Russia we still expect to meet our more recent sales expectations, which were considerably higher than the original plan. But there definitely the dynamics have slowed down significantly and that is the market, the emerging market, at that point of time which seems to be affected by that time the most among the emerging markets, negatively affected.

Bodo Uebber

But anyway, your last question from the action the government takes regarding the banks. Of course in Germany we have a bank. It’s called the Mercedes-Benz Bank and I’m happy to get the deficits there, which is doing quite fine right now. But I do think it’s a theoretical question. So we are not doing any derivatives. We don’t have any I don’t know real estate stuff and the ones you have seen in some other banks in the world. So that’s a theoretical question I do think.

Adam Jonas – Morgan Stanley

I only asked the question not because of your portfolio because obviously the left side of your financial services balance sheet is (inaudible 00:51:24) with some of the things that we’ve seen in the banking side, traditional banking side. I only asked if we have a liquidity freeze perspective. If we had, were people were kind of fearing of this complete shutdown? Then at that point theoretically you be a part of a government program?

Bodo Uebber

Theoretically, we got, but as I said also right now we have a strong deficit there in the bank, which is quite okay developing.

Dr. Dieter Zetsche

I mean, we have heard the comment of one of your colleagues that automotive companies basically are banks which has not helped the share price development of the industry altogether, which is technically to part of our business, correct, but certainly the specifics are pretty different as to (inaudible 00:52:15) the specific example.

Adam Jonas - Morgan Stanley

Clearly. Thank you very much.

Friedrich Lauer

Next question will be Christian Hetzner please.

Christian Hetzner – Reuters

Yes. Hello. Christian Hetzner here from Reuters. I just had a few – sorry, can you hear me?

Friedrich Lauer

We can hear you.

Christian Hetzner – Reuters

Fantastic, sorry. Christian Hetzner here from Reuters. I had a few questions I was wondering you could help me out on. First of all, I thought I caught something that Mr. Uebber had said about the potential, or the negotiations about the Chrysler sale. It sounded like an agreement had in principle been reached, but that the one thing that still had yet to be decided on was simply the date, so perhaps you could be more specific about that in case I misunderstood.

Bodo Uebber

Misconception; no new news.

Christian Hetzner – Reuters

No new news? So there is no construct – I mean, could you at least say whether the talks were constructive, or are they making progress at the moment? Specifically –

Bodo Uebber

We are in talks.

Christian Hetzner – Reuters

Right. But do you expect then that a deal would have to be reached by, I don't know, November 4th, which is when I guess GM and Chrysler are supposed to reach an agreement before the presidential elections?

Bodo Uebber

I have to ask for your understanding. We are in talks, and that is the only statement we can make, so it does not make any sense when you – I'm sorry, when you ask us further questions.

Christian Hetzner – Reuters

Okay. Well, thanks very much. First of all –

Bodo Uebber

Sorry about that, but –

Christian Hetzner – Reuters

No problem. I'll just move on very, very quickly. You had mentioned that these are unprecedented times for the industry. I'm just kind of curious, your core program had led to be savings about of about €7.1 billion, do you expect that you might need to introduce a new core program at Mercedes or at Daimler Trucks, and what kind of savings could you expect from that?

And then very quickly, just maybe a statement about the overall production cuts for 2008, what they'll likely be, and if you expect any further ones for 2009, would that result in job cuts as well?

And lastly, you had mentioned suppliers, I was just kind of curious, would you perhaps intervene were Chefla (ph 00:54:28) to try to break up Condi (ph 00:54:29) or whether Condi itself would, you know, split into a rubber and automotive group considering that there had been this attitude that there were additional synergies to be gained by merging Chefla with Condi and keeping that entire group, in a sense, as one big supplier? Thank you.

Bodo Uebber

Thank you for your questions. As far as your first part is concerned, we are very glad that we have successfully planned and executed the core program and the corresponding programs in the other divisions, and before the financial crisis took shape, we basically started further programs which were not core too or something similar in the other divisions, but a broader scope to address the strategic and the efficiency opportunities and challenges going forward in all divisions.

On the Mercedes side this is called Go for Ten, and within this basic framework which has been set, we are now of course reacting to the increased challenges which we are facing in order to define the scope and depth of those programs going forward. We are in the middle of this process and you can be assured that we will do everything necessary to make adjustments in accordance to the changes in environment we are facing. You will always have a delay between the impact of those programs and the environment, especially when the environment changes as fast as it did in the last few weeks and months.

But directionally as we have proven with our announcement a few days ago, as far as the North American truck market is concerned, we will do what it takes in order to adjust ourselves to the environment. And I ask for your understanding that I cannot and do not want to be more specific at that point of time, and that very much applies to your question regarding production cuts as well. I told you that our objective is to keep or bring back inventories to their sound levels, and where they're exceeded, we obviously have to reduce production more than sales going forward, and where it's in line we have to do the same.

So, the defining factor is sales, and sales is always an assumption going forward, therefore we can't say anything specific and definite on the production either and when you talk about production cuts about 2009, of course you have to ask again what. So we have to set a plan for 2009 with an assumption about sales, and if this assumption is correct, we will execute our production plan, and if this plan is too optimistic or too pessimistic, we will adjust production accordingly.

Those are the principles, and I ask for your understanding that this does not lead to number or to employment impact or whatever.

Chefla Condi, I'm afraid we have the wrong call to discuss this topic, we are as much observers as you are.

Friedrich Lauer

We'll take next question from Cristof Hobal (ph 00:57:57). Cristof Hobal, are you there?

[Cristof Hobal – Dow Jones]

I'm there. Can you hear me?

Friedrich Lauer

We can hear you.

[Cristof Hobal – Dow Jones]

All right. Cristof Hobal from Dow Jones in Frankfurt. Two quick questions if I may, first question is you said during the second quarter earnings release that the additional costs to raw material prices will exceed €500 billion in full year 2008. Could you maybe give us an update on that, just like maybe a bit more specific?

And second question, given that September is almost over, how is the car sales development so far this month at Mercedes Benz? Thank you.

Bodo Uebber

Based on the second quarter estimation for you, as you saw in the market, we had a burden compared to 2007 of somewhat over €500 billion. That’s true what you said. Currently, we were honestly, the last few months, a little bit higher even than the number that I tell you right now. We roughly right now for raw materials at 800 billion, roughly compared to 2007.

Dr. Dieter Zetsche

As I mentioned before, we do believe on the Mercedes side that we will be able to offset those (inaudible 00:59:00) or out of those 800, the majority was not assumed, put into our plan for 2008. And by better results in the remaining bill of materials, we continue to believe that we will be able to offset that increment across the increase within the original plan’s assumptions against those.

As October is concerned, we always see but we have seen in more exaggerated ways (ph 00:59:36) in recent months that the kind of developments in the market are very much defined by the last days and weeks and therefore (inaudible 00:59:50) is of limited value. Generally spoken, it’s fair to say that the markets have not recovered anywhere and that affects the sales more than anything (ph 01:00:05).

[Cristof Hobal - Dow Jones]

Thank you very much.

Friedrich Lauer

Next question from Philippe Houchois.

Philippe Houchois – JP Morgan

Yes, I have two questions please. One is, going back on this thing right now (ph 01:00:18) and I think what’s happening is as you re-price your leasing in the U.S. in particular, I was just wondering are you seeing an increasing number of customers putting back the cars to you as a corporation than the other business program (ph 01:00:34)? And are you faced with an increase in the number of used cars you have to recycle and therefore more price to put them (ph 01:00:43) which is kind of a negative cycle for resale values in the U.S.? (Inaudible 01:00:47) and second one coming from this, second one I want to know about is could you give some color to the comments about the profitability of Smart. You seem to be selling a lot of them in the U.S. And generally speaking, are you still happy with the development of Smart profits?

Bodo Uebber

Philippe, your first question’s regarding the prepossessions (inaudible 01:01:10) of course a trend. As I said before cost of risk increased in the third quarter. That was true especially for the material and passenger car business (ph 01:01:20) and also the repossessions in that of course increased in September compared to August and July and the total third quarter average was higher than the second quarter of 2008. Just to adhere something on the truck side in the U.S., even we had a slightly better development in this regard. Overall, taking everything into account, Q3 was worse than Q2 in credits/losses.

Philippe Houchois – JP Morgan

It’s not so much repossessions I’m asking about. I’m asking about customers who have had a car on lease for two years and comes renewal time, the price is going up, and they decide that they’re not going to be customers of Mercedes anymore. They put the car back to you and then you miss a sale and also you have to deal with an increase in your stock of used cars to have to recycle to the market.

Bodo Uebber

Well, Philippe, we kind of developments we don’t see.

Philippe Houchois – JP Morgan

Okay, so that’s not an issue right now? Okay.

Dr. Dieter Zetsche

As we mentioned already in the last call, fortunately by the second-half of last year, we established a new commission system with our dealers in order to incentivize a stronger participation in used car retail sales which helped us to significantly shift the percentage, even though the total volume increased by high lease returns as well to shift the percentage of cars being leased versus cars to be auctioned. Significantly in our favor, that helps us in the current situation (ph 01:02:20).

Philippe Houchois – JP Morgan

Yes, okay. And Smart profits, are you happy with that?

Bodo Uebber

Yes, we were happy in the second quarter with Smart. Of course we said always that we are operating with positive (ph 01:03:04) of Smart. While also the U.S. is of course (inaudible 01:03:11) but with this current exchange rate right now of course it does better than before.

Dr. Dieter Zetsche

We sold 20,000 Smarts in the U.S. in the first three quarters, which goes significantly beyond our original plan for the full year. We are making money with Smart. They’re obviously not in the magnitude of S-Classes. But as we said before, in 2008, we will be positive with Smart and that’s the fact and the case. And from a marketing point-of-view, it’s a great success with Smart, and from a reputation point-of-view, of course, as well. Economically it’s positive, but it’s not the biggest lever we have in our business systems.

Philippe Houchois – JP Morgan

Yes, okay. Thank you very much.

Friedrich Lauer

Next question from Daniel Schwartz please.

Daniel Schwartz – Commerce Bank

Yes, hello. Daniel Schwartz from Commerce Bank, I have one question concerning your mid-term targets, specifically the 9% EBIT margin for the automotive business. Are these still achievable, not in 2010, but in the longer term, after you, for example changed your long-term assessment of the U.S. truck market? And the second question is the write-downs of residual values, 449 million; could you give us a split, a geographic split for these write-downs? And just for understanding, the basis for the write-downs is the deterioration in the third quarter and the assumption of stabilization going forward? Is that right?

Dr. Dieter Zetsche

Well, as far as your first question is concerned, we always said for the respective divisions and for the group all together, those financial targets we have set ourselves are the average throughout a cycle. Obviously, at that point of time, we are either at the bottom or are on our way to the bottom of the cycle, where obviously, we never assumed we could come to those numbers.

I can’t tell you when the cycle will be back to average, normal or to a positive side. Therefore, I can’t tell you when, but I can clearly tell you that we continue to be committed to those targets and strive for those targets in an average market environment, which we don’t have at this time.

You mentioned in North America. I think that’s a good example. In North America, our assessment told us their average of the cycle will be lower than we assumed, structurally lower than we assumed a year or two years ago. And therefore, we said we need an adjustment to our business model in order to be able – in this new assessment for the average cycle volume – to still meet our financial targets. And that’s exactly why we made those structural changes in our business there in order to be able to continue to pursue our targets. So, I think that’s a very good example to explain how our thinking is in this regard. Bodo, as far as residuals are concerned?

Bodo Uebber

Yeah, Daniel, to your question, it’s roughly two-thirds U.S. and one-third U.K., roughly, the split and you asked about the basis on this, of course, is are the future expectations, of course, and what we saw, of course, in the market was in Q3 sales and markets were down, the channels were down, so to say and that is the same impact you can see, then on the residual value side on the expected future values that you take into account when you’re doing your impairment tests and everything what you need to do.

Daniel Schwartz – Commerce Bank

Okay, thank you.

Friedrich Lauer

Charles Jen (ph 01:06:59), would you please ask the next question, thank you.

[Charles Jen]

Yes, hello, good afternoon. Just a follow-up, first of all, on the issue of residual value; I was wondering if you could comment on the specific situation of Germany, because our understanding is that BMW did mention not just the U.K., but also Germany and possibly, Spain as possible risk areas for residual value risk going forward.

And a second question on trucks, if you could be more specific on your view on the market trends for both North America and Europe and also, regarding Europe more specifically, whether you think the flexibility of your industrial footprint is strong enough to withstand a 20% drop in demand, for instance, in Western Europe. Thank you.

Dr. Dieter Zetsche

Perhaps, I start with the latter one. As I said before, it’s very clear to ask that we cannot ultimately influence the overall world economy or the overall size of our automotive markets. What we can do is try to adjust to a given environment which we find. In this regard, of course, our objective would be let’s start with your scenario, a 20%. If that were a case we would have to face, our objective would be to adjust to that environment.

The problem, of course, is that you can’t do that in sync. So, in these cases you do not talk about cutting some fat, but you talk about significant structural changes, which you have to apply and those you can’t do from today to tomorrow.

I think we have proven in the past – I hope that’s your perception – and definitely it’s our clear commitment to act fast and decisively in whatever actions we need to do in order to make those kind of adjustments. That’s our clear intention and you can measure us against that in the future, but once again, they will not be in sync with whatever developments we see outside.

Beyond that, I think is speculative now to assume what might be these changes we will face. Nobody knows. We don’t, but we have to take them as they are and then do what it takes to adjust in accordance. Residual values.

Bodo Uebber

Sir, you are right, of course, I commented on the impairment side, on the 449. Of course, we see also in these markets used car values going down, but we have no necessity to do any impairments in that portfolio. Of course, the German market is a bigger portfolio, no doubt, but the Spanish market, for example, is a very small portfolio with regard to leasing.

Charles Jen

On Germany, could you specify the size of the German leasing portfolio?

Bodo Uebber

I don’t have here now the break down, but just wait.

Dr. Dieter Zetsche

Flipping pages as fast as we can.

Bodo Uebber

We are flipping pages here to have these numbers. So, from a leasing point of view, what I have mentioned before, it’s 7 billion.

Dr. Dieter Zetsche

It’s 7 billion.

[Charles Jen]

Okay, thank you.

Friedrich Lauer

Okay, we take next question from James Maxwell, please.

[James Maxwell]

Yes, good afternoon, a couple of questions. The first one was just on the raw materials side and I was thinking in particular, your own steel pricing and where you stand with that and at what point you going to start to get some benefit from falling prices there?

And my second question – I’m sorry to come back to it – but, is the issue of (inaudible 01:10:50) liquidity in funding. In listening to you, it seems that you are – relaxed might be the wrong word – but, certainly more comfortable in that front than, perhaps, the market things here.

I take into consideration you’ve arranged the 3 billion syndicated loan, but when you look at over 20 billion of short-term debt, I’m just wondering what gives you the confidence that you’re going to be able to finance that over the next six or nine months? In particular, maybe you could explain what you’ve been able to do in the last few weeks in commercial paper and other markets that, if we listen to people, we would like to believe that they’re all pretty much shot.

Dr. Dieter Zetsche

Let me start with the raw materials side. We have a firm scheme with most of our raw material suppliers, which basically, on mathematical equations, brings those changes, those spot-market changes in a somewhat dampened way into our system. Sticking to that system means that we have some delay in order to benefit from the spot market value changes which we have seen recently.

We do believe it’s prudent to stay with the system and to accept the delay rather than first accepting all the increases coming through that system and now, stopping the system and hopefully, we really will see the benefits of their prices coming down as well. So, for that reason, we will benefit from the positive developments we are seeing, but in a delayed way.

[James Maxwell]

And that would take how long to feed through?

Dr. Dieter Zetsche

Six to nine months is the delay, more or less.

[James Maxwell]

Okay.

Dr. Dieter Zetsche

Bodo, you are ready?

Bodo Uebber

The number you mentioned, of course, is a 12 month number or longer term number, so for the quarter, of course, the amounts are far lower than you mentioned. So, I mentioned before, the one to two billion in bonds and on the short-term financing, it’s far lower than the number you’re mentioning for fourth quarter.

In total, of course, you have to looking out to our disclosure; it is composed of the deposits from our expense bank in Germany.

Dr. Dieter Zetsche

Which is increasing.

Bodo Uebber

Which is somewhat increasing, it might be in a better position than other banks. I don’t know and, of course, we have also to roll over our bank loans of 7 billion, which is okay, what we do each quarter. It would be unfavorable in the last couple of months and all commercial paper, of course, is a smaller part here, where we do think we have access to the commercial paper. And, honestly, I think we are presenting here the numbers.

I don’t know. I assume to be relaxed. Of course, we are doing our business here and we are balanced, so to say.

[James Maxwell]

The 7 billion of bank loans that you’re rolling over, is that a series of bilateral lines that you’re finding no problems rolling those forward?

Dr. Dieter Zetsche

Yeah.

[James Maxwell]

Yeah, okay and for the moment, I know that the half year the CP has arose for the low amount. Is it still around to the low amount or have you managed to do any CP?

Bodo Uebber

It’s a low amount.

[James Maxwell]

Okay.

Bodo Uebber

Okay?

[James Maxwell]

Yeah, it comes back to the question earlier which was about whether if the markets failed before, at what point do you potentially look to benefit from the same type of packages to get access to finance that some of the other banks have and I take your point this is not about asset quality, it’s simple about access to liquidity.

Bodo Uebber

No, as a matter of principal we don’t get into this speculation stuff. Sorry to say so. Thank you.

[James Maxwell]

Okay. Thank you very much.

Bodo Uebber

Thank you.

Friedrich Lauer

Okay, we take next question from Daniel Schaefer, please.

Daniel Schaefer – The Financial Times

Yeah, hello, Daniel Schaefer from The Financial Times. I’d like to ask three questions, if I may. Firstly, your competitors, Hyundai and Fiert (ph 01:15:04) have painted quite a gloomy picture of 2009 today, with Fiert saying that the demand could drop 10 to 20%. Do you expect a similar drop in demand for your products in 2009?

And secondly, the write-downs on the residual values, they are not included in your forecast for the EBIT for 2008 and I just wanted to know if that’s kind of a normal way to exclude it from the forecast? To me, it seems that loan-loss provisions seem to be part of the normal operating business of the company.

And the third question’s to Mr. Thatcher. You mentioned that there could be some collapses of suppliers and severe strains under re-financing for that. Do you see something already happening, especially among the second and third tier suppliers? Are there some of them already in deep trouble and what are you planning to do to actually help them?

Dr. Dieter Zetsche

Well, to your first question, first of all, as we discussed before, I do believe nobody is in a position to give forecast how the overall financial and economy will develop going forward. Now, we can compete. Who knows the world’s numbers and see who is the best in that. In that spot, I think we would contribute in the sense of a self-fulfilling prophecy to a more difficult future environment.

Because psychology and confidence and trust obviously are the key words going forward and we would rather be – not by being blindfolded and not trying to prepare for risks – but, we rather, do not want to contribute to this kind of environment in knowing the more gloomy picture than the other guy, but rather in building confidence and trying to help us all out of this crisis and therefore, I would like to leave my comment about 2009 with that.

As far as residual values are concerned, your observations are right. I would like to add that within the numbers and forecasts for Mercedes, the write-downs and residual values are included as I do agree with you those are operational issues. But, it’s true as well that specifically, within this year, based on the unusual situation with Chrysler, we gave a guidance for Daimler with a clear definition on pure operations and that was the only reason why this number’s not included in the Daimler forecast, but we have made it very clear and transparent at every point what is the number with and what’s the number without, so it’s up to you to add or subtract those values, which are all transparent and available.

We do not want to suggest that residual values would have nothing to do with operations; certainly not.

As far as suppliers are concerned, they are one or two cases where we specifically work with the suppliers at current times. Obviously, like in the case of banks or other institutions – it’s not helpful to name those and then again create self-fulfilling prophecies – the way we interact depends on our involvement.

In some cases, we try to separate ourselves and to minimize our involvement. In other cases, we try to do everything to avoid collapse of the supplier, to help them steer around it. That very much depends on the given situation and that our specific relationship and our involvement.

Daniel Schaefer – The Financial Times

Thank you very much.

Dr. Dieter Zetsche

You’re welcome.

Friedrich Lauer

Before I take the next question, there’s just one remark. There are still many people on the list and only a little bit more than ten minutes left, so please limit yourself to just one question. (Inaudible 01:19:31) short answer and we take now next question from Terry Huron, please.

[Terry Huron]

Terry Huron speaking from (inaudible 01:19:39). Sirs, I had a question about what you intend to do in terms of CapEx and dividends. Are you planning to catch your CapEx program and maybe your dividends in order to save cash?

Dr. Dieter Zetsche

As far as CapEx concerned, we try to avoid every not really necessary investment and on the other hand, we try to steer forward and continue in all the investments which are made to build a more successful future. And I did already repeat to mention CO2 as one of those elements which might potentially put us in a competitively better in the future than we are by today. So, in this regard, minimize or avoid any unnecessary and use our strength to be able to invest into a future on an on-going basis.

Bodo Uebber

And your question regarding the dividend, of course, we will disclose this at the press conference in February based on our year-end numbers, which we will then have achieved.

[Terry Huron]

Okay. Thank you.

Bodo Uebber

Thank you.

Friedrich Lauer

Next question from Gregar Clausson (ph 01:20:54), please. Sorry, can’t hear you. Okay, then we’ll take Christian Breichtspringer please.

Christian Breichtspringer – Oppenheimer

It’s Christian Breichtspringer - Oppenheimer from Oppenheimer. Maybe you can help us a bit more to understand the operating leverage in the Mercedes business. When I look at your volume outlook for the current year, you say roughly the same volume as last year, so that would suggest for the fourth quarter a volume decline somewhere in the region 12, 13, 14%, but at the same time, you suggest that you’re just going to be break even in the fourth quarter.

I know there are a lot of aspects, elements working in that number, but maybe looking back, taking 2007 as a starting point, what would you say was your cost structure in Mercedes? What was the fixed cost and what is the variable cost? So, what is roughly the operating leverage that we can see in that business?

Dr. Dieter Zetsche

Well, beyond the impossibility to answer that question within the short answering time I was given by our Master of Ceremonies here, I think we have to understand that those break even numbers always neglect the fact that there are typically not only volume and fixed cost, but pricing is an element as well and those tend to go together in up and down markets and therefore, I don’t think that we gain a lot by entering into this discussion right now.

What I can tell you is that with core and with our on-going activity we are able to maintain and deduce our cost structure fixed and variable, including additional content in our products until today and that’s certainly a pattern we have to try to maintain going forward; CO2 being a challenge in this regard and we discussed that before.

And as I said before, if we see volumes decline, then we have to reduce our overhead and our fixed cost structure in order to keep a break even below the volume we can accomplish. So, there are no fixed costs in this sense, other than amortization practices. The other fixed costs we have crack to make them variable. That is the task for management. That’s, at least, my understanding.

Friedrich Lauer

Next question from Frank Biller, please.

[Frank Biller]

Hello, good afternoon. A question on the truck side; I noticed that your development in Western Europe was pretty better than the whole market. I was wondering what was different within the Daimler Truck Division here and how will that continue? What about your flexibility, especially in the truck division here?

Dr. Dieter Zetsche

First of all, I would like to thank for the way you put that question. I do believe that for the first three quarters, the truck division has shown impressive performance, especially in Europe and Latin America, the main element certainly being very strong focus on efficiency programs and on cost-avoidance reduction.

Secondly, we have tried to use the marked conditions in order to have a positive pricing development in a successful way, which we are benefitting from.

Third, we have been relatively conservative in putting orders on our back log and therefore, we have seen less order cancelations. We have seen order cancelations, but less cancelations than most of our competitors. Those might be three elements which are helping us today, but I do not want to deny and we said that openly, that obviously the incoming orders for the industry all together, including us, are clearly indicating that we will not be able to continue at the same levels going forward.

[Frank Biller]

Thank you.

Friedrich Lauer

We take next question from Yurgen Peba, (ph 01:25:17) please.

[Yurgen Peba]

Yes, hi gentlemen. I have just this one question. On the corporations BMW, we don’t hear a lot in the past weeks, so either it is thing has really cooled off a bit compared to a couple of months ago or is it just because media do focus on many other things right now?

Dr. Dieter Zetsche

Well, I would say the amount of stories you heard about that was to some extent understandable media hype as well because it’s an exciting story. On the real side, we have discussed in the past, we have discussed in more recent times, we have discussed specific issues and we continue to see opportunities in those specific topics to come to mutual agreements. There are no new news. The discussions are constructive. Nothing has changed in this regard.

[Yurgen Peba]

Okay. Thank you.

Friedrich Lauer

Next question, Alexis Vunerau, (ph 01:26:25) please.

[Alexis Vunerau]

Hello, good afternoon. Coming back to your better performance in the truck markets, have you just caught up the delivery bottle next in the beginning of the year or have you gained market shares and if yes, do you know whom from?

Dr. Dieter Zetsche

I think we have. Obviously we have, over time, recovered the loss from the foundry shortfall in supply. We were optimistic in the beginning of the year that we would have a chance based on very strong products.

In the first place, very good performing (inaudible 01:27:09) to gain market share throughout the year. At that point of time, this seems to be a realistic expectation. So, we were more hampered in the beginning because of shortage of supply rather than obviously benefitting from that now. Today, I think that’s our strength in the market place right now, which is somewhat better. We see at least a stable market share in 2008 versus 2007 and a potential improvement.

Alexis Vunerau

Thank you, thanks a lot.

Dr. Dieter Zetsche

You’re welcome.

Friedrich Lauer

Next question from Sabrina Bloomer, please

Sabrina Bloomer

Okay, hi. Good morning, just another strategic question. There’s news that Nissan would be interested in a 20% stake in Chrysler. Have they approached you or have you approached them or is it entirely a discussion Nissan is supposed to have with (inaudible 01:28:04)?

Dr. Dieter Zetsche

There have been no talks about that topic between us and anyone, any other third party. Therefore, I cannot comment on those rumors.

Sabrina Bloomer

Okay, thank you.

Friedrich Lauer

Next question from Christine Tierney, please.

Christine Tierney

Hello, Dr. Zetsche, Mr. Uebber. I was wondering if you could a little bit about the valuation of the Chrysler stake at zero. Is it just a function of the market in the U.S.? Could you talk about that and also, is it an indicator of the price?

Bodo Uebber

It’s a function of accounting, which led exactly to that result, totally independent of our assessment of the value of Chrysler or the stake or whatever.

Friedrich Lauer

Next question from Wolfgang Gunther, please.

Wolfgang Gunther U.S. Vault Management

Wolfgang from U.S. Vault Management in Zurich. I have just one question meaning Q3 it seems like you spent around 1 billion in cash for share buy-backs, but I think you also involve some kind of derivative, right? (Inaudible 01:29:12) and I just want to have an assessment. Are there additional outflows of the existing program where you have some kind of commitments on the derivatives?

Dr. Dieter Zetsche

No.

Wolfgang Gunther – U.S. Vault Management

Nothing?

Dr. Dieter Zetsche

Nothing.

Wolfgang Gunther U.S. Vault Management

Okay.

Friedrich Lauer

The next question from Sworsi Asumandi, (ph 01:29:25) please.

[Sworsi Asumandi]

RVS. Hi, could you give us, please, of how fast are the second-hand truck prices falling in Europe and what is the value of your operating lease assets at Daimler Trucks?

Bodo Uebber

I’ll give you an indication. It’s a very low one. The lease report — it’s a very low one and we don’t have right now the percentages here. We are not going to give you the number here in this development percentage-wise.

[Sworsi Asumandi]

Sure, or how many trucks do you plan to buy back in the next three years?

Bodo Uebber

To buy back — as I said before, it’s a very low number, which we have here, so it’s even that I don’t have to mention it to you, so we are not every exposed in this regard to the Daimler Trucks. Worldwide, but especially also in Europe — Europe is even a lower portfolio relatively wise compared to the U.S. So, it’s not a pretty big exposure here.

[Sworsi Asumandi]

Right.

Bodo Uebber

So, nothing what should you concern or us concern.

[Sworsi Asumandi]

Okay.

Friedrich Lauer

Next question from Henrich Zuchman, (ph 01:30:37) please.

[Henrich Zuchman Reuters]

Henrich Zuchman, Reuters. So, one quick question. Is it fair to expect no operating profit at all (inaudible 01:30:49) of the fourth quarter?

Dr. Dieter Zetsche

We have tried and we explained the basis for that and certainly, the environment we are trying to do that to give you guidance for Mercedes and how it’s an issue of mathematics to conclude and assumption for the fourth quarter.

[Henrich Zuchman Reuters]

Thank you.

Friedrich Lauer

We have now one very last question, and I hope a short one, from Phillip Avier, (ph 01:31:25) please.

[Phillip Avier]

(Inaudible 01:31:22) just a technical question regarding Chrysler. Actually we don’t know what will happen if you (inaudible 01:31:31). But, a technical point of view, now the equity value is at zero. Actually, a new priced to put equity for the next quarter or actually, you can stop the consideration of Chrysler on the topic and the second point, are we getting the linked liabilities to Chrysler, see a variation of equity at zero, doesn’t it you to push to write down the equities to make for the wider operations, forgetting all liabilities linked to the Chrysler stake?

Bodo Uebber

First thing you have seen that we have not only written down the book value to zero, but we had then to account for the long-term assets, which was a loan, so the $400 million loan — Euro loan — we had to reduce to 80-somewhat a book value. That would also go further regarding the equity consideration of Chrysler.

Your second one is something which we have to talk about in February, year-end, when we do our evaluation, so I cannot tell you anything about future assessments of the assets here. We do so in February when we disclose our year-end figures.

[Phillip Avier]

Okay. Thank you.

Friedrich Lauer

Ladies and gentlemen, thank you very much for your questions and for being with us today on the phone or on the internet, corporate communications and investor relations remain at your disposal to answer any further questions you may have. We hope to see you again soon. Goodbye.

Operator

Ladies and gentlemen, thank you for your participation today. This concludes today’s conference. (Operator Instructions). Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!