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Executives

Michael Mühlbayer - Head of IR

Dieter Zetsche - Chairman of the Board of Management and Head of Mercedes-Benz Cars

Bodo Uebber - CFO

Andreas Renschler - Head of Daimler Trucks

Analysts

Horst Schneider - HSBC

Stefan Burgstaller - Goldman Sachs

Christoph Rauwald - Dow Jones

Jochen Gehrke - Deutsche Bank

Max Warburton - Sanford Bernstein

John Buckland - MF Global Securities

Thierry Huon - Exane Paris

Adam Jonas - Morgan Stanley London

Daniel Schwartz - Commerce Bank

Aleksej Wunrau - BHF

Christian Hetzner - Reuters

Daimler AG (DAI) Q2 2009 Earnings Call July 29, 2009 8:00 AM ET

Operator

Welcome to the global conference call of Daimler. (Operator Instructions).

May I now hand over to Dr. Michael Mühlbayer, Head of Daimler Investor Relations, and Treasury.

Michael Mühlbayer

Good afternoon. This is Michael Muhlbayer speaking. On behalf of Daimler, I would like to welcome you to our second quarter 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, the CFO, Bodo Uebber, and the Head of Daimler Trucks, Andreas Renschler.

In order to give you maximum time for your questions, Dr. Zetsche will begin with his short introduction, directly followed by Q&A.

Before we start, I have a couple of admin details. I would like to remind you that this call is governed by the Safe Harbor wording that you find in our published documents. Please note that our presentations contain forward-looking statements reflecting Management's current views with respect to future events. These forward-looking statements can be identified by expressions like assume, anticipate, believe, estimate, expect, intend, may, plan, project and should.

These statements are subject to many risks and uncertainties. Examples of which are set out 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 these statements. Forward-looking statements speak only for the date they are made.

Now, I would like to hand over to Dr. Zetsche.

Dieter Zetsche

Thanks for joining us and welcome to our 2009 second quarter and first half results conference call. This is the third time we are presenting quarterly results against the backdrop of the global economic crisis. More than 8.5 million passenger vehicles were sold in the triad markets in the first and second quarter of last year. In the fourth quarter, however, this number dropped to only 6 million and sales have remained low ever since.

Various cost cutting programs were started to artificially support passenger vehicle demand in the first half of 2009, but despite these incentives, we expect sales in the triad markets to decrease by around 15% this year or in the triad market even 15% to 20%. Since the end of last year, the truck market has witnessed a dramatic slump. For the entire year 2009, we anticipate a decrease of 40% to 50%. The triad van market saw a collapse in late 2008, similar to passenger cars. Demand is projected to decline by 35% to 40% this year.

So, how did Daimler perform in this extraordinarily weak market environment in the second quarter? First, and foremost, the key message is with the exception of truck sales, the downward trend has been stopped. Sales are stabilizing also on a low level and there are signs of a beginning turnaround.

At Mercedes-Benz Cars a clear recovery is evident in the last months. In the second quarter we sold 287,000 units. That's still 90% less compared to last year, but is 24% more than in the first quarter of 2009. In some Western European countries, in the United States and in China for example, Mercedes-Benz Cars have grown its market share in recent months.

We've seen the gradual improvement in our van and bus business as well. Both divisions gained market share in their respective segments in major markets. While truck sales decreased further due to the global recession, our truck division still increased its share in nearly all major markets.

How are these results reflected in our bottom line? As projected in our last quarterly conference call in April, the severe impact of the economic crisis led to significantly lower revenues and earnings in the second quarter of 2009. EBIT declined to minus EUR1.0 billion. It's important to note that this figure includes special reporting items of EU600 million, in connection with repositioning initiatives at Daimler Trucks and with our divestment in Chrysler.

In the second quarter, we reached an agreement with Cerberus and redeemed our remaining share in Chrysler. The final legal separation from Chrysler is also involved in the U.S. Pension Benefit Guaranty Corporation, resulted in a charge of EUR0.4 billion in our second quarter results.

Net profit of the Daimler Group in the second quarter of 2009 decreased to minus EUR1.1 billion, due to the development in EBIT and lower interest result. Earnings per share came in at minus EUR0.99.

Without a doubt, these results are unsatisfactory, but they are not unexpected, and excluding the special reporting items, the key financials prove that our crisis management is gaining traction. Both free cash flow and net liquidity of our industrial business developed positively in the second quarter, largely driven by our successful working capital management.

Net liquidity of our industrial business increased to EUR4.6 billion at the end of June 2009. The EUR1.4 billion free cash flow in our industrial business also represents a significant step forward compared to the minus EUR1.1 billion in the first quarter of 2009. One of the reasons for the positive development of our industrial free cash flow is the substantial progress in the adjustment of our inventories. But, the market driven sales decline in all divisions still left its mark.

During the second quarter, we reduced our passenger car inventories by approximately 44,000 units. We are now back at our target level. All of our other automotive divisions have also successfully reduced their inventories and working capital.

Now, let's take a closer look at the developments in our individual divisions. Mercedes-Benz Cars sold 287,000 vehicles, 67,000 less than in last year's second quarter. Revenue dropped from EUR12.9 billion to EUR10.6 billion, but one has to bear in mind that last year's second quarter was an extraordinary good one. The decrease was especially pronounced in Western Europe and U.S. due to the difficult markets there. In contrast, unit sales in China increased by 27% in the last quarter, and we have gained market share. The increase in retail sales for China in the same time period was 57%.

Our second quarter EBIT figures for Mercedes-Benz Cars underlined. Despite the successful launch of the E-Class in this quarter, and the measures taken to reduce costs, we were not able to compensate for the market driven sales decrease. As a consequence, EBIT dropped to minus EUR340 million.

Additional negative effects on earnings resulted from the market pressure on sales prices and less favorable model mix. Nonetheless, in comparison to the first quarter of this year, with EBIT of minus EUR1.1 billion, the second quarter result is a significant step in the right direction.

In the [Detroit] market, the new E-Class has still provided us with renewed sales impetus. In Europe, shipments of the sedan version started at the end of March. The coupe followed at the beginning of May. By the end of June, we had already delivered 40,000 new E-Class sedans and coupes. We expect further momentum from the upcoming launch in important markets like the United States or China and the launch of the station-wagon.

The E-Class sedan has already regained market leadership in its segment in May. After four years in production and sales of 270,000 units, we have also presented the new generation S class with an even more dynamic design, more comfort and trail [placing] innovations it sets again the standard for automotive progress.

Technological highlights include the world's first series production hybrid drive system with a lithium-ion battery in the S 400 hybrid, the most economical luxury sedan with a gasoline engine in the market. Its fuel consumption and carbon dioxide emissions make the new S 400 hybrid the CO2 champion in the luxury class.

Turning to our truck division, the figures show that it took longer for the economic crisis to effect the commercial vehicle business, but now the market collapse is all the more dramatic. As a result, Daimler Trucks unit sales decreased by 56% to 54,000 vehicles in the second quarter. All of our regional units are affected. Trucks Europe, Latin America, Trucks NAFTA and Trucks Asia.

In line with unit sales, revenue fell from EUR7.4 billion to EUR4.2 billion. However, our market share rose in almost all major markets, which is a very positive statement on the strength for our products.

Not surprisingly, EBIT of our truck division at minus EUR508 million, was below last year's record level. Beside, the lower sales in all major markets, an important driving force behind the decline of earnings was the re-alignment of Mitsubishi Mitsubishi Fuso Truck and Bus Corporation.

An additional factor was the repositioning of our truck business in North America, which we initiated last year. These programs are comprehensive answers to the structural changes in the commercial vehicle market, and we are well on track with implementation of our measures. With the adjustment of production, we reduced our truck inventories by more than EUR800 million compared to year end 2008.

One highlight on the product side was the European launch of the Mercedes-Benz Actros Construction a new model from the truck of the year 2009 family and to underline our ongoing commitment to the environmentally friendly transport solutions, Trucks NAFTA has developed the first hybrid truck for use in hazardous material transport.

Meanwhile, a few weeks ago, truck Asia launched the new Fuso Canter with Euro 5-compliant engines [in Europe]. The new generation of the Canter is one of the most technologically advanced, environmentally friendly light duty trucks worldwide.

Looking at our Mercedes-Benz Van business, we posted sales of 42,000 units in the second quarter of this year. Compared to the record figure for the prior year quarter, this represents a drop of 47%. The division's revenue of EUR1.5 billion was also significantly lower than in the second quarter of last year.

Across the board, Mercedes-Benz Van models were affected by the global economic decline and the resulting increase in the (inaudible) in all western key markets, unit sales held by double-digit percentages. The new member states in central and Eastern Europe suffered even more (inaudible). But despite sharp market contraction, Mercedes-Benz Van was able to strengthen its position in the segment of mid-size and large Vans in Europe. EBIT of Mercedes-Benz Vans amounted to negative EUR10 million after 262 million a year ago.

Cost savings from the initiated counter measures could not compensate for the drastic decline in unit sales. In May, we introduced our own form of stimulus package to the overall weak van market with our new diesel engine and [echo] transmissions for the Sprinter that Mercedes-Benz Vans.

With the new fuel efficient four cylinder diesel engine, OM651, the Sprinter fulfills the CO2 emission limits without any modifications. In combination with the newly developed eco six speed transition, the Sprinter delivers substantial fuel savings.

Considering the magnitude of the global recession, our bus business still reported relatively stable results. Daimler Buses sold 8300 buses and chassis in the second quarter, a decrease of 25% compared to the prior year period. We recorded a decline in sales in all major regions.

In Western Europe, the Mercedes-Benz and Setra brands were not able to match the high prior year figure. Unit sales of city buses remain robust but sales of coaches have declined. Despite ongoing strong demand for Orion branded city buses in North America, unit sales in the NAFTA region dropped by 44%. The main reason was the severe market decline in Mexico.

The economic crisis became also very apparent in Latin America, driving down the demand for bus chassis as well. The bus division's revenue at EUR1.1 billion fell at a lower rate than unit sales due to positive structural effects.

Daimler Buses posted EBIT of EUR49 million in the second quarter. Of course, that's significantly below the outstanding earnings level of the prior year, but still clearly in the [flat]. Even the relatively good development in sales of city buses worldwide and the measures that we have initiated to enhance efficiency and reduce cost could not prevent the earnings decline.

However, even in this depressed market environment, Daimler Buses obtained several major orders in the second quarter; 144 Mercedes-Benz Citaro LE city buses for Berlin, a [full out] order for 200 more Mercedes-Benz Conecto buses for Tashkent, Pakistan and 30 Setra S417 travel buses for San Francisco.

In June, we presented a technological world premier. The new Mercedes-Benz Citaro FuelCELL-Hybrid, first vehicle of our new generation of buses with fuel cells. The Citaro FuelCELL-Hybrid city bus does note emit any pollutants, operates near noiselessly and runs on less hydrogen than previous fuel cell buses.

That brings us to Daimler Financial Services. It's no surprise that the drop in car and truck sales is also reflected in our results here. New business fell by 16% down to EUR6.5 billion compared to the prior year quarter.

Contract volume amounted to EUR60.3 billion at the end of June 2009, that's close to the level of last year. However, as a consequence of the market situation and the sale of a part of our non-automotive portfolio in the U.S., contract volume decreased 5% compared to year end 2008 when contract volume totaled EUR63.4 billion.

The main reason for the decrease of EBIT to EUR79 million was the higher cost of risk, effectively the consequences of the economic crisis felt by our financial service customers. Still, it's not exceptionally high given the severity of the recession. Moreover, burdens on earnings arose from cost of liquidity measures and lower margins.

Like our other divisions, Daimler Financial Services has initiated further measures to increase overall efficiency, as well as reducing financing expenses for the leasing and financing business.

Coming back to the group level, we have initiated counter measures across all of our divisions and corporate functions to adjust our expenditures to lower revenue. We are cutting costs wherever it does not affect our competitive position.

In addition to short time work in our production, we've implemented rigorous reductions in personal costs on all higher levels and in the area of materials. Plus, we've prioritized our investment plans to keep cash outflows to the minimum we require to stay on plan.

During the first half of the year, our counter measures realized EUR1.9 billion in savings. We are confident we'll achieve or possibly exceed our EUR4 billion target by year end. We are largely focusing on turning one-time savings into sustainable efficiency gains, but we continue to invest in our key strategic areas, new markets and new products.

Our total R&D budget in the last quarter was even slightly higher than the second quarter of 2008. We will not mortgage our future. The comparison to our first quarter results shows how our cost savings have gained traction. Our counter measures work.

Although the results we are reporting today are still heavily impacted by the economic crisis, we saw signs of a moderate recovery during the second quarter. EBIT of the group, excluding the special reporting items, improved from minus EUR1.4 billion to minus EUR0.4 billion.

The major part of this improvement is attributed to Mercedes-Benz cars, where EBIT has risen from minus EUR1.1 billion to minus EUR0.3 billion. Plus, the earnings situation during the last three months has also improved at Mercedes-Benz Vans and Daimler Financial Services.

Although, we expect some stabilization in the second half of this year, global demand for passenger vehicles is suspected to decline by approximately 15% compared to 2008. Prospect for the medium and heavy duty truck markets are also unfavorable. Significant decreases of 40% to 50% are likely for Western Europe and Japan and a drop of 30% to 40% in the NAFTA region.

Pre-buy effects in the U.S. market towards the end of 2009 are very unlikely, so we do not expect the market recovery before the beginning of 2010. We also anticipate a distinct decline in Russia and Eastern Europe. In van markets, we do not foresee a significant improvement compared to first half of this year either.

In regard to bus markets, we estimate stable demand for the city bus segment in 2009. However, we believe the conditions for the coach market will remain difficult.

What consequences will these assumptions have on our sales in 2009? Mercedes-Benz Cars will meet the challenges of this difficult year with an up-to-date and competitive product range. Therefore, we assume sales in the second half of the year to exceed those of the first half.

As we do not see truck markets recovering during the remainder of this year, sales volume of Daimler Trucks in the second half of 2009 is expected to stay on the level of the first six months. Mercedes-Benz Vans also expects only a slight improvement in unit sales in the second half of the year. Daimler Buses anticipates a repeat of the sales levels of the first six months in the final six months of this year.

Now, let me give you our outlook on the earnings situation. At Mercedes-Benz Cars, we will benefit from the full availability of the new E-Class and the savings effects from the wide-ranging measures we have initiated. Therefore, we expect a gradual improvement in profitability over the remaining quarters and positive earnings in the second half of 2009.

Our Daimler Trucks division anticipates continued burdens from depressed markets in the second half of the year. The initiated countermeasures will not fully offset the sales decline. EBIT of Mercedes-Benz Vans will also continue to be affected by overall weak demand. However, low should have already been reached in Q1. We expect a slight earnings improvement in the second half of the year.

Despite the decrease in unit sales and the difficult development in the coach market, Daimler Buses expect to achieve positive earnings in the second half of the year. The division will also face higher R&D expenditures related to new products. Daimler Financial Services anticipates rising credit defaults and continued high refinancing expenses. The EBIT in the second half is expected to be slightly positive. At the Group level, thanks to our measures to cut costs and expenditures by a total amount of at least EUR4 billion, we anticipate a gradual EBIT improvement from ongoing business in the second half of 2009.

So, as you connect the dots in our first half story, we believe they shape a clear picture. Automotive industry is still in the midst of an extraordinary crisis, and yes, this crisis is taking its toll on Daimler as well. But, what's important, we put a comprehensive and rigorous crisis management in place and these measures are working. We have strong products and technologies. We continue to invest in our future, and our organization is adapting to the new reality. After hitting rock bottom in the first quarter, we are now fighting our way back.

Ladies and gentlemen, thank you for your attention. Now, Bodo Uebber, Andreas Renschler and I will be happy to take your questions.

Michael Mühlbayer

Thank you very much Dr. Zetsche. Ladies and gentlemen you may ask your questions now. I will identify the questioner by name, but please also introduce yourself with your name and the name of your organization. Two practical points; firstly, please avoid using mobile phones and secondly, please ask your question in English. Before we start the session, the operator will explain the procedure.

Question-and-Answer Session

Operator

(Operator Instructions).

Michael Mühlbayer

Okay. We take the first question from Horst Schneider.

Horst Schneider - HSBC

Horst Schneider here from HSBC. I've got a couple of questions. First of all, it's relating to your inventory development. I would be interested in any indication about inventory development in the second half of this year, whether we might see a restocking effect in H2 and if you are seeing really the lowest point here at the end of H1?

Then the second is regarding your cost cutting measures. As you told us in the last conference call, you're implementing this year cost cuts in the amount of EUR4 billion and I would be interested to which extent all these measures have been implemented already in the second quarter?

The third question is relating to residual values. I would be interested how residual values develop here in Germany and Europe against your as how is the trade-off there, eventually even a positive net impact, and may be we even see some writebacks on residual values at the end of 2009?

Dieter Zetsche

As inventories are concerned, we have reached the targeted levels, actually in some divisions, namely Mercedes, done more than we planned to do in the sense of reduction of stock. Looking forward, and that was your question, roughly spoken, this is about the level we will maintain towards the end of the year. There might be a little bit up and down on the Mercedes side. A few units higher is not impossible, but it's about the range we are now. On the truck side, further decrease is planned for and the same applies for Vans.

Cost cutting, just in general, as I reported, EUR1.9 billion out of the EUR4 billion have been booked in the first half. We are on track for the second half and as I indicated, perhaps even more. Bodo can come back to that and then answer your residual value as well.

Bodo Uebber

Cost cutting measures, Dieter has already said. There might be some opportunities for the second half and, as you know, of course, it is a work in process report, what we do right now here. EUR1.9 billion is booked into the P&L. Of course, we are working on all the measures in different implementation stages, but as we said, we confirm that we can shoot for the EUR4 billion, even some possibilities to do more.

Residual values, overall in the U.S., a good situation. Means, from a trend perspective, we came down with the loss there, so same applies to the UK. In Germany, it's not as positive when I look at the difference in that, but also a stable situation, that holds true for passenger cars. On the truck sides we do have pressure on the used car prices overall. That holds true for all the regions we are in, but you know that the levels we are in the truck business compared to the passenger car business are very far lower. Therefore, we are well provisioned. But I also have to say there is risk in that business, so for the next quarters we have to see what the developments are. Currently we see this positive, but as I said, there's also risk in that business, also in the next quarters to come.

Michael Mühlbayer

We take the next question from (inaudible).

Unidentified Analyst

I just have three questions, two relating to Mercedes Cars and one related to group cost cutting. If we can start with the cost cutting, of the 1.9 billion you've announced, I think you said in the presentation that 45% are related to headcount, i.e., some of it [closed a bit] and some of it I assume permanent. Can you just answer the people who say you've just benefited from a government handout here and therefore as you grow volumes you won't get operating leverage, so to give us some confidence that those cost savings are permanent?

Then on the underlying margin in Mercedes-Benz Cars, clearly under producing by 44,000 in the quarter we've just been through. On an average ASP basis means you missed out on about 1.6 billion of revenue. Now, you did a 53% marginal margin sequentially Q2 on Q1. Why is my logic incorrect that if I multiply that 0.53 by 1.6 billion actually in the quarter just gone, you did nearly a 5% EBIT margin and EBIT would have been nearer 500 million when we adjust for the one off that are above the line in Mercedes-Benz cars a tremendous performance given the volume trends you see.

Finally, you talk about selling more cars in the second half than in the first, but equally say the visibility is still not great, i.e. Q4 we don't have a strong call. So that that mean you actually do have great visibility going into Q3 and therefore as you match your production with your sales, you know, there's the second question, you may actually see some sales growth in Q3 on top and we can look forward to a substantially positive EBIT margin in Mercedes cars in Q3?

Dieter Zetsche

First of all, to your cost question, I think we never held back with a clear statement that the 4 billion in 2009 consists of quite a significant amount billion in 2009 consists of quite a significant amount are constant and go to the bottom line, on a consistent way, but as well, reductions which are kind of one time in their character and that's pretty normal if you have direct, short-term, you will have these components in a cost program normally. Of course, we are very much aware that our task going forward is to replace these one time effects by ongoing savings, looking forward to 2010 and following years and to the extent necessary, and possible, add further actions to that.

So that applies to all categories including you said headcount. I would prefer to say personnel costs, where obviously as we have announced, there, for instance, some of or considerable part of these savings related to labor, time reduction with proportional salary reductions and these are not agreed for the long term but at the time being till June next year. So once again, generally we have to make sure that we turn the short-term actions into sustainable actions, within the personnel cost reduction, it's reflected as well, a reduction of headcount of 15,000 year-to-date, which is combined by about 10,000 outside of Germany and 5,000 within Germany. So these are obviously permanent savings going forward, including in this number.

The second question, to the extent I understood when you said under produced, if I got it right, what you were referring to, we have two forms of inventory reduction. The one is our inventory, wholesale and AG inventory, which has been reduced. In this case, we basically realized our revenues relative to retail sales. The second reduction which occurred was on retail level. There, of course, we do not realize revenues and thereby sales contribution with our retail sales, but they are basically sitting within the dealer body. At that part, you could say that in the market we perform better than we do with our sales, but with our own reduction we do not have this kind of negative impact on our earnings. Still, I would not object to your conclusion that we did a decent job in Mercedes last quarter.

Visibility, we know pretty well how we're doing on the cost side and what we can accomplish there. We have some visibility as far as the market is concerned. At the same time, of course, still risk as far as the market is concerned because we continue to live in pretty volatile times and on that basis we made our statement in the sense of guidance where we expect Mercedes to go for. I don't think we are living in times where we should become more specific and precise than what we have said.

Michael Mühlbayer

We take the next question from Stefan Burgstaller, please.

Stefan Burgstaller - Goldman Sachs

Stefan Burgstaller from Goldman Sachs. Just a couple of questions. In the release you mentioned a release of building of pension provisions and also the discounting of long-term provisions. I was just wondering, should we think about this as one-offs or more of ongoing nature?

Second, also trying to dig in a bit in your operating or underlying operating performance. On page 26 of the EBIT book, which you provides helpfully, you showed that in Mercedes car group, the negative impact from volume, structure and pricing was 1.9 billion.

So on the back of envelope we would allocate $1 billion of this impact on the volume side, that's from negative operating leverage. Could you explain what is the constituents of the delta, the other billion and how should we think about this other billion going forward?

Finally, in terms of the percentage of your workers on short time week in Germany, are you also planning like your peers, Audi and BMW, to move off short time week in Germany after August and would this negatively impact your 4 billion target for the full year in terms of cost savings? Thank you.

Dieter Zetsche

Bodo starts with the pension.

Bodo Uebber

Stefan, first of all, the subject regarding the German Pension Protection Association, where we have booked in the first half year, 78 million. The normal level was last year kind of 20 million, for example. So that has increased in the half year. We expect the same amount for the time being for the second half, but it could also increase further when we get new expected actuals from this association.

What that is in 2010 and '11? I can't tell you right now. It depends on development of insolvencies and other stuff in Germany. The long-term, the interest rates, of course, which we had to take into account for the long-term provisions, of course, is something which we do have to do evaluate each quarter.

So that means if interest rates are increasing in the next few quarters, for example, you would see a positive development in this regard. If you would see a further decrease of interest rate levels, you would see a further burden in this regard. Of course, we would inform you in our disclosure what the impact would be. Of course, I regard this right now as the interest rate development was so fast in that respect that we have a kind of one-off, so to say, in that quarter.

You asked for the page 26 and the volume effect there. Of course, in that volume effect here, of course first of all, you take the difference between two quarters, is first of all not pretty easy Q2 and Q2 in this regard to compare, it's better to take the data always and to accumulate for first half and first three quarters to get a better precise number because we have some kind of effects which are in here which are related not to the difference of sales or the difference of revenues.

For example, when we talk about incentives, for example, they are related to the total sales you have in that quarter. I want to regard from the 1.9 billion, roughly 35% or 40% as elements which are related to incentive levels or the used car business where we got rid of a lot of inventory and on top also, the cost effect on residual costs, so to say, were all short-timing does only compensate for the fixed cost element in that. So that's roughly as a guidance here what is in there.

Now I do think we have the last question.

Dieter Zetsche

At least I didn't get it, one element which is included and I think you asked specifically for Mercedes is the mix effect, restructuring effect....

Bodo Uebber

That is right, of course.

Dieter Zetsche

…between the car segment and between countries, which is significant and almost in the same magnitude as the volume affects right away. I think that was the missing half you were asking for.

Stefan Burgstaller - Goldman Sachs

The final question was just that, what do you intend or similar to Audi and BMW to move off short-time week in Germany?

Dieter Zetsche

Of course, we had in the first half of the year the necessity to reduce production below sales in order to get rid of the inventory and while we are now in sync, already by that we have better sales and production situation, plus the effect of the E-Class and GLK, all engines available and so on.

We, clearly, expect higher production volumes than in the first half. That will have its effect on the need for short labor as well. At that time, it's not decided to which extent we will get out of this program on the car side, but certainly will be significantly less than the first half.

By no means, this would negatively impact our EBIT development. If it's in line with our plan, then obviously their labor cost savings related to that are in line with our cost-cutting plan as well. If we produce more than that, then on the one hand we would have less savings on the labor side, but certainly over proportional benefits from the revenue side. So in this regard, I definitely see not to risk in their development.

Michael Mühlbayer

So we take the next question from Christoph Rauwald.

Christoph Rauwald - Dow Jones

Christoph Rauwald from Dow Jones. Three quick questions if I may. First one would be following up on BMW's announcement earlier today. Does Mercedes-Benz have any plans to leave a Formula One or at least to scale back investment as part of the current cost-cutting efforts?

Second question would be, did the recent sales stabilization continue in July? Could you give us an indication on what you expect in terms of sales this month at Mercedes-Benz Cars compared to July last year?

Third and final question would be, there has been some noise on a new wide-ranging cost reduction program similar to the core program possibly looming later this year and you must have stated actually at the AGM that job cuts can't be ruled out if the market conditions don't ease. Do you expect the current cost-cutting efforts to be sufficient looking forward or are there more cuts to be expected? Thank you.

Dieter Zetsche

Well, to you first question, we have embarked much earlier on significantly cost reduction programs in our F1 engagement. With the result that, for instance, this year we have about 30% suspected spending below last year's level and we are pretty sure that last year's level was below some of our main competitors spending in 2008.

We are making our own decisions on F1s and we have no plan to exit at that time, but we said this really all the time that this is not a [natural ore], but we will ask ourselves about the costs and the benefits. If the ratio is positive frequently and continuously, and on that basis our account status is going concerned on Formula One at much lower costs than we used to have and we expect next year's spending to be much below this year's spending.

Again, as far as sales are concerned, we are not in position to give July numbers. Our understanding is that the industry-wide improvement of order intakes in the March, April, May periods has kind of flattened out in June-July, not specifically for Mercedes, but generally. Therefore, this will reflect in their sales going forward to some extent, but so far not in the sense of a deviation of our planning and expectations.

Cost program, I would consider the current Daimler-wide cost program of 4 billion as a wide-reaching program already. I don't think that the question how we call our programs is the main issue. We, obviously, have made significant progress on the Mercedes side, while we are running under the core umbrella within our go for 10 initiatives. We have one package, a significant one addressing efficiency and cost-cutting, and with this one we are making very good progress again and as well, personnel costs being one element I was just referring to significant headcount reductions we have accomplished already. At that point of time, there is no plan for a major program in the sense of headcount reduction as you were asking.

Michael Mühlbayer

We take the next question from Jochen Gehrke, please.

Jochen Gehrke - Deutsche Bank

Three questions, if I may. Two related to trucks. First of all, your competitors that already reported, Scania in particular, was mentioning that in the third quarter, they see significant ramp-up in daily production rates given that inventories on their side seem to have come down to an inventory corrections. Is that something we should anticipate for your European activities as well and generally marketwise, when do you think inventory correction is done in the truck industry in Western Europe?

On that same subject in the past when these activities were all very profitable, you always pointed out that your European, Latin American activities are very comparable profitability wise as Scania. Is this still the case in the downturn and if so, shouldn't we read that NAFTA is heavily loss making and that potentially your restructuring actions are insufficient to turn around that business and that you might have to cut even deeper into the organization?

Thirdly, on your cash development, I recognize that you are not very clear and specific about your profit guidance, but could you talk about your cash flow outlook for the second half of the year? Is there any reason that we should assume that you are burning cash in the second half, given you are assuming sequential rise in profitability? So, do you expect to exit the year on a similar level of net cash as we have currently? Thank you.

Dieter Zetsche

Mr. Gehrke, let's look at your assumption that we saw our business Latin America and Europe, like we pointed out when there were good times in the market, we see the same also in this condition. So I'm not happy with the result, but compared to our competitors, I can confirm what you have said before also, in the spare time. So indeed, we have two regions where we are hit much more dramatically in the market condition, think about in the United States for example, just the third year in a row and compared to the very weak 2008, we are hit with another 30% to 40% market reduction.

So, that was to recently initiated there the programs, the repositioning program as well as in the U.S. as in Japan. There we are on track in some of the programs we are ahead of schedule. Again, market condition was worse and so we could not overcompensate with the programs this more dramatic market development, but we are on track and, of course, we need some time for our restructuring efforts, or in other words to reduce the breakeven point further.

For some examples, in our restructuring programs we have the last plant closure in the U.S. in 2010 in Portland. So I'm very confident that we are able to achieve our planned breakeven reduction for the year 2010. So it needs some acceleration but just don't forget, no excuse, this is no excuse, this is not good, we have to do (inaudible) a lot of homework overall, but this is the ongoing thing. But the market conditions are really sometimes pricing as to more activities at once, but again I'm very confident for 2010.

Dieter Zetsche

I think one of your question on Daimler, I think.

Jochen Gehrke - Deutsche Bank

That was related to Daimler.

Andreas Renschler

From the cash point of view. So first of all, I do think in the first half, especially in the second quarter, a well done job by our divisions to reduce inventory levels, especially Benz car but all divisions contributed to that success. There is some further potential of in the second half, also in the truck area, regarding inventories. Not everything is done yet there, on the Van business too.

Overall, of course, we look at our net assets in total. There's not more than only finished goods so to say or inventories to keep an eye on. But as we also said, we don't give a cash flow guidance, so a precise guidance, the heavy volatility also in the market, so therefore we don't make a precise guidance but we do everything to be cash positive and I would not exclude for the total year that we are cash positive. There are effects from the cost measure side of course, which we will address.

We will look again at our investments as we have already said, what is relevant for strategically or for the long run and we keep it on the very low level, if possible. Of course, also from the market side, we do see on the passenger car side as we have said some upward trends but also on trucks, let's say kind of flat scenario. All in all, we will look at our cash and see that we are positive with our measures on the cash side.

Jochen Gehrke - Deutsche Bank

So can I just follow on Mr. Renschler just back to NAFTA. I understand that this takes time for all these measurements to come into play. But the market where it currently is in terms of volume is certainly unprecedented. Can you give us some sort of indication what type of market you need to breakeven with this business? Is it with the unused structure would you breakeven with a market of last year or with a market level that we have in the current year? What are the volume do you really need in this market?

Andreas Renschler

I think when you look to the actual situation, and I think you're right, this is the worst situation we had after the Second World War in the United States and we don't expect big recovery. We see some slightly improvement in the market next year, but this is besides everything. We are preparing, we strive to prepare ourselves for a very worst market scenario in the United States, so whatever happens next year from a scenario point of view we try to prepare us down.

You asked another question before about the stock inventory level of the European competitors, if I got it right. I think there is not a big relief seen. I know that several companies announced certain things, but when we talk through in our last meeting for example, everybody still has the potential to see another stock reduction in the second quarter. So it could be certain specific situations at companies but basically, not as high as the first half but in the second half we have another potential as an industry point, from a industry point of view for to reduce the stocks.

Bodo Uebber

Gets us to make it little bit more precise, when Andreas said prepare for, we are in total agreement that the market is what it is and of course in such a dramatic change of the market conditions which are unprecedented, as you already granted, it will take some time to adjust to that. But we totally read that we have to earn money with great [honor] and this can't last, that can't last forever. The market, be it as it is.

Michael Mühlbayer

Next question we take from Max Warburton.

Max Warburton - Sanford Bernstein

Two questions, please, on operating leverage really and cost reduction. Dr. Zetsche and Mr. Uebber, you know as analysts look at operating leverage and a source of discussion on the Q1 call was the apparent 66% negative operating leverage in Mercedes. Another time you said there were some special items in there, some financial services or residual value write-downs in Mercedes. We seem to have an identical level of operating leverage in Q2. Are there any special effects in that number and/or could you just explain to us again why the operating leverage in Mercedes seems to be so much more severe than in most other car companies? That would be really helpful.

Then the second question related to this, I'm actually going to refer to two slides in your presentation pack. You talk about 1.9 billion of cost savings in the first half being achieved, but on page 26 in your profit walk-through, you actually give some numbers for cost savings in the quarter of 629. I've looked it up, what you did in Q1. You give the same helpful profit bridge and you give a number of 281 for the first quarter. So it looks like you are saying that cost savings or cost changes, say, 910 in the first half in the EBIT bridge, but in this counter measure slide you talk about 1.9 billion of savings. Could you just explain to us the difference?

I guess the 1.9 is versus a budget, but is it kind of fair for us to assume that for the full year, the real saving is about half of the 4 billion number, because I'm still struggling a little bit to understand the difference between the two numbers on page 20 and page 26. Thanks a lot.

Bodo Uebber

Yeah, Max, your question to the first to the 1.9 billion, of course we have said clearly that we have a counter measure program that means, okay, a mix between efficiency measures and on top measures we introduce during the crisis. In this aspect when you see on page 26, the effect in the second quarter, but we've also disclosed to you that we have the effect from the German Pension Protection Association, for example, and we have the impact on the interest rates on long-term provisioning which is roughly together 350 million.

So if you add this two, you get number of 629, and if you would add, we have of course not disclosed here, but we do have a bus business, we have a van business and we have headquarters. Unfortunately, so to say, because it is also a cost burden, but of course we could reduce the cost also here.

If I add all of these numbers together, we come to a level of roughly to the 1.1 billion. So if I then would include all the effects from short timing, on top of that I get into directionally the number of 1.4 billion roughly which we had in the second quarter and that gives you the explanation.

If you now add the first quarter where we have disclosed that we have roughly 400 million to 500 million in counter measure effects, which you couldn't see, of course, not in the [walk], because we had also some effects, for example we mentioned there, I do think it was the E-Class launch for example and some investment in technology and so on and so forth. So that makes a completion to the 1.9 billion. The first question, Dieter?

Dieter Zetsche

Perhaps, I can say one word to the operating leverage. I'm certainly not in a position to question the ways how you assess the business and operating leverage is obviously one element. If you, for instance, consider we would have the same turnover or EUR1 less, but in the $1, we would sell mostly smart and other one mostly S classes, then obviously there's EUR1 less revenues would carry an operating leverage of multiple thousands of percents, which doesn't make too much sense.

So to relate the change in EBIT just to the change in turnover, I think, reflects only one dimension. Specifically in our case, quite obviously the sales mix change as we mentioned before is a significant element not directly related or not in the first place related to change in revenues. The same applies, of course, to any changes in incentive levels which do not apply to the units you lose, but to the overall units you are selling.

In this sense, I accept, of course, your KPI. It's not one we would steer our business to and when you make the comparison to other common effectures, the point probably is that, for instance, the S-Class segment is at the point of time about their most severe hit segment and that's one where we were by far the strongest of our competitors, and therefore this impact is more severe on us than on others.

Those seem to me to be the differences at that point of time, but the other way around, I'm pretty confident that those segments have more or at least faster potential of recovery. In this sense, I think we have good opportunity as we have seen if you want from Q1 to Q2 to improve with similar leverages in the other direction as well.

Max Warburton - Sanford Bernstein

Can I just have one follow-up question on it, Dr. Zetsche? You mentioned incentive levels explaining part of the disparity in this very simple operating leverage measure. Can you just remind us, what incentives are booked below the revenue line and what are booked above? Because the operating leverage numbers should capture incentives that are booked of revenues it did sound like quite a lot is appearing in marketing expense in Mercedes. Is that correct?

Dieter Zetsche

Well I think that's completely in you might come into some gray area when you talk about content, for instance, changing content in the sense of similar to incentives. But other than that, that is all in and reported. I did not want to give the wrong indication in this respect. For instance, to our best understanding, the increase in incentives for Mercedes, for instance, is not higher than the one for BMW, for instance. Rather, the opposite.

Michael Mühlbayer

Next in line is John Buckland, please.

John Buckland - MF Global Securities

Thank you. Just going back to the truck. Because there is one of the developments looks quite odd, actually, is that order intake and when we compare what's happened sequentially between Europe and North America, where sequentially between the second quarter and the first quarter order intake in Europe has gone up, but the opposite has happened in North America.

Now, given where we are in terms of the truck cycles where the North American truck cycle turned down earlier and the economy in the U.S. theoretically should be perhaps increasing before the Europe, I just wonder if you could explain that sort of apparent anomaly and whether this order intake in the second quarter is a temporary phenomenon and that when other truck makers talk about of a young fleet, underutilization of existing fleets and still low levels of freight some haulage, whether this, we could see the order intake sort of fall off again in the second half of 2010 in Europe?

Bodo Uebber

I think first of all, when you look to United States, the order intake there is the same leverage when you look to the industry order intake. The reason there is the only customers who are still ordering but not regular every month are big fleets. So there you see sometimes [certain] a drop when big fleet is not ordering two months, then you see a further decrease and it will come back and so. Like I see the class 8 market in the United States this year, it will be more or less that we have achieved bottom line, it looks like that. So, maybe there are some slight increased possibilities in the class 8, at the second half year. But this is really very, very slightly, more or less, our expectation is flat.

It will be much different in six and seven in the United States. There, the market decline is much more dramatic compared to last year and there I see some further market decrease in the second half. In Europe, you're right, compared to the very, very, very weak first quarter, we see some increase, but compare this increase off the order intake for Europe in the second quarter and compare it to last year, its minus 50% still. So there, you could not develop out recovery for the second half of this year. The expectation we have in the market and you could see it in the first half year is between 40% and 50% and it will still stay like that.

Dieter Zetsche

I think one effect which might explain the discrepancy, which is in the first half competitors, even more so than we, but we as well had cancellations out of the order book and these at net order intake further decreased the numbers and increased the percentage of decline and those cancellations are there's not much left to be cancelled for all competitors. So these are off. Therefore, when you take the gross order intake before cancellation, I think you have less of an improvement second quarter versus first quarter than including those cancellations.

Bodo Uebber

Ands, we are not unhappy to see this. Anyway.

John Buckland - MF Global Securities

Do you have any sense of how the market would develop in 2010? I mean, you had almost three years of decline in NAFTA region. Will it be the same for Europe, do you think?

Bodo Uebber

Our expectation is today more as a scenario. Because, you know, tell me while all the markets will look exactly 2010. The scenario is more or less that there will be no improvement in Western Europe, only slightly improvement in Western Europe. Because if you look to not only us but about Western Europe specifically, NAFTA, I said it already. No, no. Okay.

John Buckland - MF Global Securities

Yeah I'm asking about Europe.

Bodo Uebber

You're right. Okay, okay. Thank you. So if you look to the Eastern Europe part where a lot of growth came the three years, we have now a decrease of more than 80% so I don't see a lot of potential there. But on the other side, as I said, the indication number that we have achieved the bottom line and I don't expect the same situation in NAFTA. Where we have three years in a row of decreasing market.

John Buckland - MF Global Securities

Can I just ask another question about [another subject] on CapEx and depreciation? In the annual report you had this big number for CapEx potential, obviously you had some ambitious plans about models and technology, et cetera and you've got to revisit that. But when you look forward beyond this crisis period, are you now got a new plan which says that your CapEx will be more closely matched to depreciation or is it still a situation where CapEx will be higher than depreciation, 2011, '12, for example.

Bodo Uebber

So basically, when you look to our potential investment in emerging markets or our weak states, so to say, because in Brazil, we are in, I think, there will be still a focus on that because they are the growth in the next couple of years, also before the crisis was and is expected.

What is really driving our investment in R&D this year, for example, is the emission regulation and we don't have a chance in the United States this year. For example, we have to fulfill from 1st of January next year ['010]. So, of course, I can save a lot of R&D money this year, but then I cannot sell trucks any longer in January 2010. That comes on top.

So all the investments we are doing are for products to fulfill sort of emission regulations and year ['06] is upcoming. The next thing in Europe, the very big emission, next step for emissions and the same is in Japan. We have to prepare at the moment for a new emission regulation that's cause Japanese '09.

So that we will bring on a mid-term of cause in line with all depreciation, but in certain years where all these emissions regulations change around the world, we have to invest so we are able to sell truck in the [Western Europe] emission now.

John Buckland - MF Global Securities

Is there a comment on the same question on the group level, the Mercedes car level?

Dieter Zetsche

Well, directionally, it's the same story driven by the two elements. One being that we want to have a fresh and young product lineup and not eat our feed potatoes and the other one tier two reduction for the Passenger Car fleet will continue to stretch our R&D budget. Of course, we're doing everything on the one hand to be as efficient as ever possible to get the output with as little resource as possible.

Secondly, towards everything else in investment, which does not directly relate to new products and technology for CO2 reduction. So we are aware of higher than depreciation investments this year and we will not come to a completely different situation next year.

Michael Mühlbayer

Next question we take Thierry Huon.

Thierry Huon - Exane Paris

Just a quick one on Mercedes car group. When do you think you will reach the sweet spot for the year in your E-Class? Would it be in H2 of this year or more likely H1 next year? Did you booked any launch costs during Q2 for the new versions of the E-Class to come? Thank you.

Dieter Zetsche

When you are talking about the sweet spot, I guess you mean that we are running at peak capacity on the sales side.

Thierry Huon - Exane Paris

With the best margins.

Dieter Zetsche

Including, of course, best margins in the beginning, hopefully. So, we have been ramping up pretty fast and are almost running at capacity by now. Of course, the introduction in further markets, especially of the coupe which is not finalized and the addition of further engines, plus then the station wagon and ultimately the convertible will further strengthen our offering in our lineup in that segment.

So we are certainly coming closer to that point in Q2. It clearly was not the case in Q3. We are coming closer and I don't know if you can by quarter exactly, define that but, let's say, next year, we should be very much be running at full speeds and at good margins.

Thierry Huon - Exane Paris

About the launch costs? Did you book any launch costs during Q2 for the new versions of the E-Class?

Dieter Zetsche

Well, we do not have any one-time in this regard. Of course we have expenses which are related to the marketing side, for instance. Then, of course, in the beginning, you have higher hours per vehicle than you do after half a year of launch time. Those are incremental expenses during launch as well. Then you have some CapEx which you take over in your books during that timeframe, but that is normal in every launch. It's not a specific number.

Michael Mühlbayer

Now Adam, it's up to you.

Adam Jonas - Morgan Stanley London

Dr. Zetsche, just a clarification on your comment about German-used car prices. I think you said that they had stabilized, but I'm not sure. Because we heard from some of your competitors that used car prices in Germany were still under great pressure, even continuing to decline.

Dieter Zetsche

Well, I think it was Bodo who made that comment.

Adam Jonas - Morgan Stanley London

Apologies.

Bodo Uebber

Okay, what at least we said is that definitely in the U.S. and in U.K., we have very encouraging development of used car prices. Certainly, less so in Germany, we did have very good used car business during the first half of the year as far as volume is concerned, especially of young used cars. The pricing was kind of flat and improving by now.

Adam Jonas - Morgan Stanley London

Do you guys disclose or can you disclose roughly the amount of risk provisioning or residual provisioning that you're taking on the truck side like your competitors do? I mean, presumably you're taking these provisions, either splitting them between the truck division or finance, but can you first confirm that you are taking still higher provisions, what's the risk loss percentage on the book and anything else, so you could put some quantification on.

Bodo Uebber

First of all, Adam, of course if there would be a huge issue we would certainly disclose it. If there would be huge impacts. On the financial services side, I provided you in the backup with the loss development. The only thing what we'll like to say there is in the U.S., for example, we see a positive trend of the loss ratios in the passenger car side and on the truck side the loss ratio is a little bit deteriorating of course due to the effect in the market, as long as these markets are at 50% levels and so depressed, of course there is some pressure on the customer side, on the truck side. That's it, Adam.

Michael Mühlbayer

Okay. Next is Daniel Schwartz.

Daniel Schwartz - Commerce Bank

Daniel Schwartz from Commerce Bank. Two questions are you currently talking [which we know] on a corporation on the Smart Forfour and would you say it's necessary to have a joint venture partner in the smart program if you want to enlarge the smart program?

Second question, just for clarification, the Chrysler cost in the second quarter was 100 million below what you guided for. Will we see this 100 million in Q3 or are the overall costs just 100 million lower than you expected?

Dieter Zetsche

First question, it's not necessary but certainly wouldn't hurt if we could partner in some form or the other on the smart side, to which extent ever going forward. I would not make any comments on potential steps in this direction.

Bodo Uebber

Daniel you are right, and thank you for the question. That relates to the guarantee we have given regarding the pension, in the pension area. You know, we have these three installments or three payments of USD $200 million where we have already paid USD $200 million in the second quarter.

Therefore, we have made the provision. But the guarantee of $200 million we have given is not provisioned for, so to say, because of course there's no reason to do so because Chrysler is so to say in a new ongoing business and as long as they are ongoing business, we cannot provide accounting wise for provision there.

So that is a difference to that what we have said of up I do think in the press release, and in the Q2, we have booked for the three time USD $200 million but not for the guarantee. Of course that will not happen of course in Q3 or Q4 as long as Chrysler is doing well as a corporation.

Michael Mühlbayer

Okay next question from Aleksej Wunrau.

Aleksej Wunrau - BHF

Hi good afternoon Aleksej Wunrau of BHF, thanks. Just three short ones. But the first on your free cash flow indication for the second half, that was quite reinsuring. So is it fair to assume that you from a current standpoint would like to keep your dividend payout for 2009 stable? Secondly, can you provide some idea of the amount of the de-stocking loss in the second quarter and thirdly, you are mentioning a rise in delinquency rates in the car financing business. Is this another risk of posting as you say balanced result in the financial services segment for the full year? Thank you.

Bodo Uebber

Of course, every question to dividends I refer to our February meeting to talk about this there. The free cash flow of course what you mentioned, yes, we had to take into account of course that being the first half had a huge and positive and good impact on the working capital. Of course, that will slow down in the second half and what I mentioned were opportunities of course for the second half, but I also said we don't give guidance for the second half in terms of cash flow.

The delinquency rates, I didn't really get the correct question, so of course there is risk in the financial services side, also on the second half I cannot exclude risk deteriorating. But what we see right now, what we have provisioned for in the first quarter of course and what we have done now in the second quarter means that we think that we come out with a second half profit slightly positive also with respect to the risk situation we have currently.

Aleksej Wunrau - BHF

Okay.

Bodo Uebber

Second question, I don't know, was there a second question left.

Dieter Zetsche

Yeah you were talking about destocking loss.

Bodo Uebber

Okay.

Dieter Zetsche

There's probably a difference between selling a car on order or out of stock, potentially, especially in segments which were more hit by the decline in the market than other segments. To the extent this was the case, that was of course consummated in our overall incentive level and reporting, but I do not see special amount of destocking loss, so to turn it the other way round, we could say while we admitted and I am not changing that, that we could have reacted faster last year and reduced the increase of stock levels, we have proven meanwhile that that obviously was something which we could fix and fix relatively fast and now we are back where we ought to be.

Michael Mühlbayer

Next question is Christian Hetzner

Christian Hetzner - Reuters

I was wondering if I can ask you a couple of quick questions. First of all perennial one about BMW, can you give us any update as far as your attempt to form an alliance with BMW is concerned. You had also made a comment to the press about savings in 2010 that seemed to indicate you were looking at 4 billion as well. I was wondering if you could give some sort of indication about that.

Also, just can you give any indication about what quarter you would expect to actually make a profit on your operating level? There was a comment made by Mr. Uebber earlier about cash, I believe it was we cannot exclude that we will be cash positive at the end of the year, at the end of June it was 4.6 billion in net industrial cash, so unless there's some sort of massive cash drain in the second half, could you basically sort of say this is going to be the bottom and it's just going to get better from here as industrial net cash improves and no dividend has to be paid. Thank you.

Unidentified Company Speaker

Question number one, no news.

Bodo Uebber

I am sorry to be very frank and short. We don't give an indication about 2010 (inaudible) and ask for your understanding in this regard when you ask about savings and other stuff and for the free cash flow I had made the comment, but I don't comment here on the net liquidity forecast. So wait until we have booked the Q3 and Q4 numbers and we will see where we are.

Michael Mühlbayer

So our last question comes from (inaudible). For another one, very last question, [Aleksej Wunrau].

Unidentified Analyst

Just a quick question regarding the Smart Forfour. You just said that it is not necessary but it would not hurt if you can partner with somebody for smart. Regarding the Smart Forfour specifically, I'd like to understand, do you think that the premium car maker can make good money under B segment? Do you think that I fully understand that the Smart Fortwo is a specific concept with two seats for big cities like Rome, Paris or London or Berlin but I don't understand what can you make differently from broad line car makers under B segment under traditional B segment.

Bodo Uebber

First of all, it's probably a fair assumption that no car manufacturer makes record profit in the B segment. The fact that we are positive with the smart is related as you already assumed to the fact that we are not a me too product there, but that we are very special and not just a cheap entry but if you want a premium offering in that segment, and we said it all the time, we would not consider to increase the smart family with potentially a four seater if it were just another four seater. If our people don't have better fantasy than you, what could we do different than others, then we will not make it four seater. If we do have ideas to do things different, then it might make sense to go forward but only under that condition. That is very clear.

Michael Mühlbayer

Ladies and gentlemen, thank you very much for your questions and for being with us today. Corporate Communications and Investor Relations remain at your disposal to answer any further questions you may have. We hope to talk to you soon again. Thanks and good-bye.

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