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Executives

Michael Muhlbayer – Head, IR and Treasury

Bodo Uebber – CFO and Head of Finance and Controlling, Daimler Financial Services

Analysts

Jochen Gehrke – Deutsche Bank

Christina Church – Barclays Capital

Arndt Ellinghorst – Credit Suisse

Stuart Pearson – Morgan Stanley

Horst Schneider – HSBC

Daniel Schwarz – Commerzbank

Thierry Huon – Exane BNP Paribas

Jose Asumendi – RBS

Edward Taylor

Charles Winston – Redburn Partners

Daimler AG (DAI) Q3 2010 Earnings Conference Call October 28, 2010 8:00 AM ET

Michael Muhlbayer

Good afternoon. This is Michael Muhlbayer speaking. On behalf of time, I would like to welcome you to our Q3 presentation. We are very happy to have with us today our CFO Bodo Uebber. In order to give you maximum time for your questions, Bodo will begin with a short introduction directly followed by Q&A. Now I would like to hand over to Bodo.

Bodo Uebber

Ladies and gentlemen, welcome to our Q3 conference call. Once again we are pleased to deliver strong results. During the Q3 Daimler built on its momentum. Sales, revenue and earnings rose significantly, unit sales and revenue increased by double digit rates compared to last year’s period, EBIDTA reached EUR2.4 billion EU and we posted a net profit of EUR1.6 billion EU. Accordingly the free cash flow developed strongly and further improved our net liquidity to EUR11.9 billion EU.

What are the reasons behind this ongoing strong performance? First, there’s our well established presence in the booming export markets of Brazil and Asia, and we continue to be very successful in the United States. The solid demand for our attractive products continued and actually exceeded our expectations in the Q3. An ongoing favorable model mix and pricing further enhanced our earnings. Cost reductions proved to be sustainable due to our ongoing disciplined cost management, and last but not least, efficiency enhancements and restructuring measures which replaced our temporary (inaudible) measures are clearly improved.

Now let’s take a closer look to each of our divisions. Mercedes Benz cars posted an EBDITA of EUR1.3 billion EU in the Q3 compared to EUR355 million one year ago. Return on sales increased to 9.5%, confirming that we are well on our way to our financial target of 10% over the cycle after 2012. All segments of the Mercedes Benz model range achieved sales increases in the Q3. Our dynamic momentum in China is unbroken. From July to September, unit sales rose by 140% and there’s no indication of a slowdown. Our sales in China as a percentage of our total unit sales increased quarter over quarter from 6% to 13%. Nevertheless, China is not the only driver for our improving sales. In other Asian countries and in the United States we also achieved a double digit increase.

The product mix remains very favorable. Unit sales of our E-Class and S-Class increased by 34%, 35% respectively. The E-Class and C-Class sedans as well as our S-Class continued to be the market leaders in their respective segments. The current strong demand for our top of the line models in the Chinese markets continues to stay at a high level. The market launch of the long wheel-base E-Class further strengthened our product mix. And finally, our success was supported by maintaining strict cost discipline.

Daimler Trucks attained an EBIDTA of EUR500 million. This compares to a loss of EUR127 million in the Q3 of last year. However, it needs to be added that the Q3 2010 EBIDTA includes positive effects of EUR178 million from the realignment of the healthcare and pension plans in North America and other special reporting items. There were opposing effects from charges relating to the revaluation of long-term warranty and service obligations as well as an increase in research and development costs.

In line with the economic recovery and the strengthening of our position in various markets, our unit sales rose 4% compared to the previous year’s Q3. In Western Europe the dynamic development of demand and the improvement of our market position led to a sales increase of 46% to 14,700 units. Sales in Latin America were also strong and increased by 45%. Further stimulus came from the Mercedes Benz Actros which has been sold in Brazil since August in order to meet the increasing demand for premium trucks.

In Asia, Daimler Trucks posted a sales increase of 42% mainly driven by a high demand in Southeast Asia, particularly in Indonesia. Our Trucks NAFTA unit increased sales by 1/3 to 20,000 vehicles. We expect the NAFTA Class 8 market in 2010 would show a moderate increase over 2009. A full recovery will not take place until 2011. Nevertheless, Daimler Trucks North America was able to strengthen its market share in the medium- and heavy-duty segments due to the favorable reception of the new EPA-10 engines. Our efficiency enhancements shows benefits above and beyond our repositioning programs in NAFTA and Asia which are on track or even ahead of schedule.

Mercedes Bens Vans reports a successful Q3 as well. EBIDTA rose to EUR122 million. The main reason for this success was a growth in unit sales with an overall rise of 34% to which all regions contributed. A significant portion of our Vans sales increase can be attributed to the US and our new joint venture in China. At the Hanover Commercial Vehicles show we presented the new generation Vito and Viano, which we are confident will create additional sales momentum.

Daimler Busses posted an EBIDTA of EUR11 million in the Q3. The decrease in earnings is due to a less favorable model mix. Whereas sales of bus trusses in Latin America continued to develop very positively, sales of complete busses in Western Europe remained below last year’s level.

In line with the higher sales volume of our automotive divisions, business volume at Daimler Financial Services increased as well. Growth was particularly dynamic in China and Korea. EBIDTA rose to EUR317 million. This improvement was mainly due to the lower cost of (inaudible) and higher interest margins. Net credit losses amounted to 0.8% in the Q3 and are lower than during the crisis. To sum up, Daimler posted another solid quarter with EBIDTA of EUR2.4 billion supported by recovering markets and our strong product portfolio. Year to date our EBIDTA amounts to EUR5.7 billion; thereof, EUR5.4 billion from ongoing business.

And now what do we expect for the rest of the year? Markets for motor vehicles worldwide will continue to rise, in particular due to the strong demand in export markets and growth in China. As a result we are raising our guidance for EBIDTA for ongoing business for the Daimler Group to more than EUR7 billion. The product portfolio of Mercedes Benz cars is proving itself to be very attractive and competitive. It gives us the confidence to increase our 2010 unit sales for the Mercedes Benz brand by a double digit rate compared to 2009. The division will continue to benefit from strong sales and good margins, as well as from the positive effects of our successfully implemented efficiency programs. On the other hand, we expect seasonally higher marketing and services costs in addition to relatively higher product-related expenditures in relation to CO2 related technologies and upcoming product changeovers. Taking this into account, we expect a divisional EBIDTA of approximately EUR4.5 billion for the fiscal year 2010.

For Daimler Trucks we raise our guidance for EBIDTA from ongoing business to more than EUR1.1 billion thanks to the favorable (inaudible), very competitive products, and our successful repositioning in North America and Asia. Mercedes Benz Vans is expected to generate earnings of approximately EUR430 million due to increased sales and efficiency enhancements. At Daimler Busses we anticipate an EBIDTA of approximately EUR180 million, and for Daimler Financial Services we expect EBDITA from ongoing business of more than EUR900 million, supported by decreasing cost of risk and good interest margins. We expect the high level of earnings in the Daimler Group and the high level of liquidity which we have already achieved should provide the basis for an attractive dividend payment for 2010.

To sum it up, we are well prepared for the future. We have an excellent product portfolio, an embedded regional footprint and we have an efficient working capital and disciplined cost management. And now I will be happy to answer your questions. Thank you.

Question-and-Answer Session

Michael Muhlbayer

Thank you very much. Ladies and gentlemen, you may ask your questions now. I will identify the questionnaire by name, but please introduce yourself with your name and the name of your organization before asking your question. To (inaudible), firstly please avoid using mobile phones and secondly, please ask your question in English. Before we start, the operator will explain the procedure.

Operator

(Operator Instructions.)

Michael Muhlbayer

Okay, thank you. We’ll take the first question from Jochen Gehrke. Jochen?

Jochen Gehrke – Deutsche Bank

Hello?

Michael Muhlbayer

Yeah, now we can hear you. Go ahead.

Jochen Gehrke – Deutsche Bank

Sorry. Yes, good afternoon. Three questions if I may. First of all, on your outlook for Mercedes, that would roughly imply we have EUR1 billion of EBIDTA to expect in the Q4. In the light of what you achieved in Q3, should we be aware of any significant cost increase or is this a reflection of a conservative outlook? Then secondly, on the Truck side with regards to North America, a sequential drop in order intake. Could you just shed some light on the EPA 10 changeover and what dynamic you’re seeing currently in the market? And then thirdly on the strategic side, your net liquidity now is almost back to the level that you recorded pre the crisis. What do you want to do with this money? Now I’m not going to the point of share buybacks, but if you could just shed some light on your strategic thinking. I think during the quarter we read press reports about your intention to potentially look into Fiat Industrial. Is this something that Daimler would be seriously considering, expanding the business by acquisitions? Or are you taking a different approach? Thank you.

Bodo Uebber

Thank you, Jochen. I think (inaudible) three questions but even more we will take, so I’ll try to do this shortly. First getting to Mercedes Benz cars, I do think there’s first of all no worry about the development. We have seasonal related costs in the Q4, for example marketing services costs which we also had in the past, in every Q4. And again we have to make the final calculation of investments for example, which leads to some increase in costs in this quarter. And we have of course increasing, as we already commented, costs for CO2 related cost. And that happens in the Q4, seasonal so to say and has not the effect that we have to reevaluate our long-term targets. Our long-term targets are intact within 10% after 2012. Even I would say when we see the development of the whole year, I do think I would add a little bit of benefits to our May discussion in China. So that’s the Mercedes Benz cars.

Then to Daimler Trucks, first order intake – the order intakes in Q3, let’s first, the order intakes in Q2 were much influenced by big fleet needs, what we had. So what you can see now in Q3 that these big fleets, of course they don’t order every quarter so to say. In this quarter, in Q2 it happened, so we have a natural decrease in the Q3. All in all of course we have to acknowledge that maybe when we look back to the Q1 of this year we had the expectation for 2011 that there is a huge increase in demand. I do think right now we would say that we have a moderate 2010 and then we have now to reevaluate the 2011 market assumptions. I do think our colleagues from (inaudible) may have already had the assumption of I do think 30% to 40%. I don’t know whether we are in that range but maybe somewhat lower, but that we will talk about also in the Divisional Day in November. So there will be an increase in NAFTA but maybe also not this huge increase, what we might all had expected from the beginning of 2010.

EPA 10 engine is doing very well. Our penetration is fantastic so the take rate is very good, and we get very good feedback from customers regarding EPA 10 feedback of the performance of the engine.

Your last question I do think we’re already to. First, net liquidity – of course first we had a strong quarter in cash flow in Q3. We are now in total at EUR5.3 billion I do think. I already have to tell you that the Q4, we will see of course higher investment levels. We are very disciplined in investments, no doubt, but in the Q4 we will see higher levels and we will see also the building up of inventory for Mercedes Benz cars in terms of the logistical transitions of cars to China, for example, or to the US. So you have to build up some inventory there. And secondly we have to change over all the A- and B-Class. So we will see some inventory buildup and that will have an impact on the Q4 cash flow.

But all in all, the net liquidity, I do think that currently we do believe that the markets will sustainably develop in our basic scenario as we also commented for the next couple of years. There’s a lot of talks about double dip risks in the US. There’s talks about the heartlanding in China, there are talks about currency wars and so on and so forth, and I don’t think that it’s now smart to talk about net liquidity and distribution and share buybacks, kind of that stuff, in the kind of space we are currently in.

And therefore I’m happy to have this high net liquidity. It is from a risk management point of view the right thing to have currently, but what I can tell you right now of course, due to the high liquidity and it was (inaudible) in my speech, that I regard this liquidity level and also the operating level as an attractive level to talk about the dividend – what can be attractive for the dividend. That’s no doubt and I would also confirm without saying what kind of number I have in mind, but I do think we commented a lot of times about it that our payout ratios from the past were 40%. But at the end of the day we have to talk about this with the Supervisory Board in February and to make the decision. And I do think we have an attractive base for that.

You raised the question about Fiat Industrial. I have to say I do think it’s our duty as a company to look at corporations and to look at what is going on in the market, and therefore, of course, every kind of movement in the market we should focus and we should make up our mind what we are doing. I do think currently you have not seen a move, and of course if we would move – which I currently have not in mind – of course it would be always a move which is in the interest of the shareholders and not in the interest of something else.

Jochen Gehrke – Deutsche Bank

Okay, thank you.

Michael Muhlbayer

Okay, we take the next question from Christina Church, please.

Christina Church – Barclays Capital

It’s Christina Church from Barclays Capital. I have a couple of questions. Firstly coming back to the Trucks division, I was just wondering if you could talk a little bit about any of the effects in Q3 that we should be thinking about. Cause I noted that the sequential EBIDTA moved was rather disappointing I would think in that you saw a movement in revenues of EUR580 million quarter on quarter; you only had an EUR8 million improvement in EBIDTA. I was just wondering if there’s anything in there that we should be thinking about for the Trucks and whether this sort of sequential move is something we should expect similarly in Q4 and on into 2011 for more recovery in the Truck market. And then I had a question, I’m going back to Mercedes for an exchange – I was just wondering if you could update us a little bit on your hedging policies and where you stand now in coverage for 2011, and maybe also for 2012. And whether you could just mention about China within that, how you hedge China – whether it’s included in your net open position for the US dollar when you give these hedge rates. And then very finally on China, as well, I was wondering if you had any comments to make about some of the rumors that have been, that the Chinese government is looking to increase their consumption taxes again in order to harm the higher engine vehicles. Is that something you’ve heard being discussed? And also I think they’re talking about a one-car policy in Beijing. Are these things that you see as significant risks going forward or just something that you will bear in mind? Thank you.

Bodo Uebber

Christina, thank you for your questions. First I start with Daimler Trucks. Of course we have as booked a number of EUR500 million. We reported that we have special reporting items, positive ones, which is also good money I have to say – EUR178 million coming from changes in engine plans and from a lawsuit we had, an early release of a provision, two components, and we have some minor changes in the repositioning charges during the quarter, but only minor ones. Of course what we also stated, and I do think it’s important to see that we had also opposing effects from charges relating to the reevaluation of long-term warranty and service obligations which hit the quarter, and some increased research and development costs.

And therefore of course, if I look at the number adjusted so to say EUR320 million, the quality of the number is higher than the EUR322 million if I do say so. The Q4 will develop as we have guided of course, not more, not less. I’m pleased with the development currently, what we have achieved. You know that our further progress in Trucks is depending also on freight line approvals program and earnings situation. That develops quite okay; I have commented it ahead of plan. And that is one of the biggest levers of course for Daimler Trucks to increase its earnings levels.

From a cost point of view, from a process point of view, we have done everything to put this to units, on a position to benefit from every sale and increase of course what we get, and this is so to say done; and now we have to see of course the market developments in North America and also in Southeast Asia and also in Europe, of course, for our European business. And we are in line with our flight plan so to say also to be here, benchmarked with our long-term targets.

Your Mercedes Benz cars question, the hedging policy, of course which is a good question. We are, we have commented for quite some time we are hedged in 2010. Of course we don’t have to talk about it, it is almost done, so to say – the year is six weeks to go, seven weeks to go till Christmas. We have in 2011 60% hedged and we are, we have a three year (inaudible), you know this, and that brings us roughly in 2012 to 20% to 30%, somewhere in that range. Of course you know that we are doing this at all the times, so to say, so we have a mixture of different spot rates in our hedge spot portfolio. I do think for 2011 with 60% I do think it’s quite okay from a risk point of view, I would say, and you know that we have partially voted for options and for callers and for hedges. The portfolio there is from my point of view a good structure.

China is included in our exposure. We have commented how big our exposure is. I do think the last time we mentioned it, it was $13 billion US. There is included our China portfolio of course, because China is more or less, their Yen is somewhat pecked compared to the US dollar. One thing on the other hand you have also revenues from the Middle East, for example, which are also invoiced in US dollars. So the portfolio as such is of course not only the US-related portfolio.

Your last question was to- The consumption (inaudible) I’m not aware that we have fear. Of course there are many cities in the world which are defining some rules and procedures of the even then odd number can go in and so on into the cars. We have London, we have Beijing; right now we have to cope with that environment, no doubt. But I’m not aware in China that we have a new consumption tax there but I will follow up on it.

Christina Church – Barclays Capital

Thank you.

Michael Muhlbayer

Okay, thank you. Next question we take from Arndt Ellinghorst.

Arndt Ellinghorst – Credit Suisse

Thanks for taking my question. You’ve mentioned now discussions in main China where you were referring to the potential scenario where Mercedes’ margin could be down next year offlettish. Now you mention it in your own speech that the way things look right now it could be a touch better. Could you just confirm which scenario we’re currently looking at? Is it a more offlettish margins scenario, could the margins even be higher on average next year than this year? And then secondly, you mentioned that CAPEX obviously seasonally will increase towards the end of the year, inventory will increase towards the year end. Can you just confirm that you will not burn cash in the Q4? Thank you.

Bodo Uebber

Maybe I begin with the second question. Of course I would not regard one quarter maybe even negative cash flow as burning cash, therefore I mentioned the year to date number of EUR5.3 billion. I do think building up inventories in the Q4 for the logistical chain to China or to the US – and you know we have Chinese New Year in February where we need to have some units of course in the market that the people can buy it. And I don’t know, one year, last year we made a little bit of a mistake that we had not enough volume in the market. So I would not regard that as a cash burn. So the working capital increase which we will see due to China and the US for example, but also due to the A- and B-Class model changeover I think I would not regard as cash burn, investment also not. But the Q4 will be most probably negative so to say, due to the fact of what I have already mentioned right now in terms of inventory building up.

Arndt Ellinghorst – Credit Suisse

Which gets us to the second question that next year could be pretty good then in terms of your sales performance.

Bodo Uebber

No, no even that I would say is good information because as I said, China, next year will be intact. I think the market will further increase; we have no sign of slowdown. Of course you cannot discuss what kind of percentage it is but the preparation for selling in China, also with regard to mix is totally okay and intact, and what we prepare is to have a good start into 2011 from a sales point of view. So there’s nothing- It’s good that we do it because we might miss the next increase of course in the beginning of the year 2011.

I do think the first question was, the margin- Of course in China we don’t comment but I do think the answer to your question was more in regard to the margin is such for 2011, in total.

Arndt Ellinghorst – Credit Suisse

Yeah, exactly.

Bodo Uebber

Okay. Of course we don’t go now into a guidance discussion because we are not right now in February, but maybe we don’t have any guidance next year that we have to discuss anyway. We said on the Divisional Day that next day we’ll have from a product portfolio point of view changeovers and preparations, this is ‘11 and ‘12. So therefore of course we will do everything of course to keep our margin. We will do everything even to improve it as we said to our target, but we have some headwinds from the product portfolio which we discussed. We will have also some headwinds maybe from raw materials; that depends a little bit on how the world economy is doing. On the other hand, and we have CO2 related costs which we also commented. And on the other hand we do everything to offset and try to offset these kinds of negatives with other positive elements – pricing, of course, for example is right now positive.

So that we have to take into account. We will talk of this internally in our update. In December you know that we have always our planned discussion of next year and then we will see whether we, what kind of margin we can deliver next year. I do think it will not be a bad margin because you know, we always come in at a high level. I do think we are a bit better than we have thought in May and we are full on track to deliver the 10% after 2012.

Arndt Ellinghorst – Credit Suisse

Now, I have to follow up with one thing. We’ve seen quite interesting incentive data from Mercedes across the board. Is that something for you that is a concern, rather how fast you see it or how these incentives develop? I know your message is this is all in line with budget, but maybe the budget you set at the beginning of the year. Given the positive pricing it should be a different one now, so why do we see an increase in incentives at Mercedes in many markets?

Bodo Uebber

I do think I can cool you down a bit because not only our data compared to our budget is better, but also our budget is lower than the last year. So it means our incentive spending, and I get this data of course on a monthly basis, also for the US, and we are following it closely no doubt because we know that we want to derive all our business not with incentives but with profitable growth. So the incentive spending right now is lower than last year, by far lower than last year. The pricing and positioning we have is very good. Our hit list, where we are compared to our competitors in number one, two, or third position, we are in many, many markets with the highest share in number one position in residual values which is also important towards our bigger competitors. And therefore the pricing right now what I see from the data is okay.

There’s a difference of course in the data you see and I see. Of course I do not think I should disclose it cause then you see it and I do think it’s too competitive. The Autodata data in the US does not include, they only include official programs, for example. So special programs from the manufacturers, and there might be some who are doing special programs, you do not see in this data. When you look at the year to date data in the US incentive spending we have reduced that percentage wise more year to date than others, although I don’t like this – you know, this data is not complete. And on top of my data I look into it as fully inline both with the budget and even with the trends.

Seasonality, we had the model year changeover later than the other competitors, and therefore we saw all our hikes and peaks in August. I do think even by September data goes again down, compared to August again down. So all what we see also in terms of residual values, that tends to also in Germany and in the US, we are at very good levels. It’s pretty stable. We don’t see trends towards negative so to say from a residual value point of view, also not in Germany. From my point of view all that I can see is everything is okay, we are heading into the right direction.

Arndt Ellinghorst – Credit Suisse

And the increase in marketing expenses in Q4 at Mercedes has nothing to do with the aging portfolio including discounts or nothing whatsoever.

Bodo Uebber

No, no – nothing. It’s services, it’s part of services. For example you have the end of the day calculations so to say for example for dealers, where you get the final invoicing. Of course there might be deviations. These are services, costs for certainly marketing services like ads, commercials, so on and so forth. So it’s nothing with incentives and residuals or something like this. It’s pure costs.

Arndt Ellinghorst – Credit Suisse

Okay, thanks.

Bodo Uebber

So everything is in line with our targets.

Arndt Ellinghorst – Credit Suisse

So we should expect a good margin, thanks.

Bodo Uebber

We will report to you in February about this.

Michael Muhlbayer

Okay, next in line is Stuart Pearson.

Stuart Pearson – Morgan Stanley

Just wondering from the last question on pricing, maybe just turning the question over to China. Obviously not all that business will be consolidated, and some of the data we see there indicates a bit of slippage in the premium end of the market. But it’s nothing too untoward but maybe you can update us on the pricing situation for luxury cars in China. And then just secondly you touched on residual values, there – maybe you could just clarify if there’s any off-lease disposal profits in your Mercedes number for the Q3 and whether you expect any more going forward. And finally just on the CAPEX longer-term, you revealed a plan in Beijing I think back in May, just showing a strong ramp up in Mercedes CAPEX. Can you just confirm whether that’s still valid in either direction and whether maybe that needs to be increased with the stronger demands that we’re seeing around the world right now? Thank you.

Bodo Uebber

Okay, Stuart. To your first question in China, I’ve not the information that the price positioning is jeopardized by our development. What we see, also the data I have there, I can only discuss it from a Mercedes point of view. I don’t have the data of the other competitors. It’s a pretty stable situation in terms of the overall kind of incentive spending, and of course it’s not a very high one. The other data I have to follow up, the competitive data, maybe further on we can talk about this but I have to follow up and talk to the Chinese guys, to our own guys.

Residual values, of course just as we explained the system – when we started seeing three years ago or maybe two years ago when we had differences in residual values, two things you are doing: you are building up provisions of course, but your new sales are correctly priced and the residual values are set at the new level. Therefore of course you might see in some quarters some ups and downs with changes to what you have provisioned, so to say, but the new sales you are putting into the market are at the levels where you normally should not have deviations between the residual value and your actual used car prices at the end of the day. Therefore you have minor fluctuations but not big ones, so the profits are not impacted by this only minor volatility.

The CAPEX questions, of course the CAPEX we have told you in February that we will spend, I don’t know – EUR8 billion or EUR9 billion for two years, EUR8 billion, EUR8.1 billion. At Daimler, we are very disciplined in the spending, so I expect at the end of the year that we are not fully in this EUR8 billion. Again, we will update you in February again for two years, 2011 and ‘12. So due to the very disciplined approach we are somewhat underneath this level but again in the Q4 we will see a higher one than in the Q3 and the Q2.

Stuart Pearson – Morgan Stanley

Okay, but longer term you’re still targeting a significant ramp up in–

Bodo Uebber

Yes, of course we are. That’s right.

Stuart Pearson – Morgan Stanley

I mean, that hasn’t changed (inaudible) in May.

Bodo Uebber

These are our targets right now, and as I said we update them now in October and November, December. But there’s currently what we decide, what we showed you in May – it’s on this status.

Stuart Pearson – Morgan Stanley

Okay, so nothing’s changed. Thank you.

Bodo Uebber

Okay.

Michael Muhlbayer

Okay, next question we take from Horst Schneider.

Horst Schneider – HSBC

Yeah, good afternoon. Horst Schneider from HSBC. Three questions if I may. The first one is with regard to the development of personnel costs. We had this week again in German newspapers that the unions could demand earlier than expected for next year a pay raise, so to which extent should we expect the burden from higher personnel costs in 2011 next to the CO2 costs and the higher raw material costs that you expect for next year? And then the second point is with regard to pricing. Maybe you can give us some indication to which extent prices have developed positively year to date and also in the third quarter. I know you are not splitting that up in your presentation but maybe you can give us a percentage indication to what extent pricing has improved compared to last year. And then going forward for me, the most difficult question with regard to the forecast I have got to do is how pricing will develop also within the next two quarters and over the next two years maybe. So I see that all premium car makers are ramping up capacity. Do you think that at some point of time the pricing could reverse and get negative again? Or do you expect for a longer term horizon now stable to rising prices still in the premium car market? And the last issue is also related to that; the last question is with regard to financial services profitability. Do you think that we can work with a level of profitability that we have seen in the Q3 also in the next few quarters? Thank you.

Bodo Uebber

Horst, first of all, personnel costs 2011. Of course I cannot and I will not discuss now special subjects in terms of the subjects you are mentioning, whether there’s a discussion of course in the industry that in two months we could pull forward the wage increase. On the other hand you know, this particular point of course would do an earlier increase of something which I think is a relative increase of what, I think 2.7% or so, and I do think we don’t have time to discuss the impact on this two months, to discuss what would that mean. But in general of course, this year we have now, the Q3 and the Q4 has not any more the wage cut which we had for every employee and for the management of course in Daimler, so therefore first next year we will compare to the second half of this year will be so to say flat plus the increases of course which we have agreed to in the unions. There will be an increase as in we will come more in a natural situation as we were so a couple of years ago, and as we always try to offset also these increases we have to do more on the efficiency side to offset these impacts. That is what we are striving for at the end of the day. But we will see relatively (inaudible) increases in wages and salary next year worldwide.

Horst Schneider – HSBC

Sorry, how many percent of your total personnel costs come out of Germany?

Bodo Uebber

We don’t disclose this subject. I do think look into the please Annual Report 2009. You’ll find it on the last pages, a section where we disclose the total volume of personnel costs. And I do think thereof 60% you might head into the right direction.

Horst Schneider – HSBC

Okay, thank you.

Bodo Uebber

Pricing wise we are, of course we said- You do understand that we cannot discuss in detail pricing here and we will not because it will be pretty competitive data, what we are doing there. So we are of course compared to, last year was a very special year. So the difference between last year and this year is a bigger one, and I’m not only talking about one percentage point, so it’s a bigger benefit we have this year. Next year and for the future we will benefit from I would say a better or a higher price positioning of new models for example, where we even could be able to do better on the pricing side for the next years. So I don’t see a negative; I see opportunities in this regard.

Horst Schneider – HSBC

So sorry, again, for that one I think BMW quantified the effect in the Q2 conference call. They said I think 1.5% positive pricing compared to last year. Do you think it’s a higher number at Mercedes or…?

Bodo Uebber

Well, I maybe want to know their number but I don’t, I don’t want to market my number.

Horst Schneider – HSBC

That’s the same thing they said.

Bodo Uebber

I do think our disclosure’s very good and if the guys would like to disclose this kind of stuff, okay – I’m fine to hear it. But as I say I don’t want to join them.

Horst Schneider – HSBC

Okay, alright. No problem.

Bodo Uebber

Sorry. Financial services, we had of course a very good quarter with EUR317 million in earnings. This is of course not the run rate we can keep. There are two elements in that – one for the Q4 and more for 2011. One thing is of course that from an interest point of view, due to the low interest rate and the central banks, which are not increasing their rates. And of course that’s now happened a couple of quarters again, and of course we have an open position where we earn from this point of view, somewhat the earnings contribution we get from this angle; and on the other hand we had two releases of provisions in the Q3 regarding one of our non-automotive portfolio in the US because of a loss situation overall in the world as passenger cars are doing well, trucks are not on a good level but not deteriorating, and Eastern Europe is again on the not very positive level but also not deteriorating. So we had to release some of the provisions in the US. All in all I would say the run rate is somewhere at EUR250 million right now but that is not the run rate also for 2011. That is lower due to this interest effect which I don’t regard a sustainable for 2011.

Horst Schneider – HSBC

Could you quantify the release of provisions?

Bodo Uebber

Roughly, the run rate, keep it this way – the run rate of Q3 is roughly EUR250 million.

Horst Schneider – HSBC

Alright, thank you.

Michael Muhlbayer

Okay. Next in line we have Daniel Schwarz.

Daniel Schwarz – Commerzbank

Thank you. Daniel Schwarz, Commerzbank. One question regarding the Truck guidance. You increased your Truck guidance by EUR100 million you had positive impact, or one over one (inaudible) in Q3. Does it imply you’re lowering the guidance or is this new guidance excluding the special items of the Q3? And then the second question is regarding residual values. You mentioned some positive developments. Is that mainly coming from the US? Is it also coming from Germany and the UK? And can you say how residual values develop in China? Is it comparable to other markets or is the used car market structurally different to Europe and the US?

Bodo Uebber

Daniel, to your first question of course we might have been presize. The 1100 does not include the positive special reporting items, what we had until September and that were roughly EUR200 million – the EUR180 million in pension and other stuff, so it’s roughly, I do think EUR200 million is our year to date. And then of course the as booked number will be higher than 1100.

Daniel Schwarz – Commerzbank

You reported EBIDTA above EUR1.3 billion.

Bodo Uebber

Yes, yes. So the 1100 is only the ongoing profit which excludes all the special reporting items we have disclosed to you until September.

Daniel Schwarz – Commerzbank

Okay.

Bodo Uebber

The second question of course residual value development, I said okay, it’s stable. We have a stable development on a good level, so to say, and that holds true for the US, for Germany and the UK. So there’s currently no high volatility in these markets. In China we don’t have, we might be able to do residual but only on a very small level, so we don’t have currently so to say a leasing business in China so I can’t deliver you developments here on used car prices as I would be able to do this of course in the UK and Germany and the US.

Daniel Schwarz – Commerzbank

Okay. Okay, thank you.

Michael Muhlbayer

Okay. Next in line is Thierry Huon.

Thierry Huon – Exane BNP Paribas

Good afternoon, it’s Thierry Huon speaking from Exane. One question about China – could you share with us the contribution of Chinese business to the Mercedes car a bit?

Bodo Uebber

Well I’m awfully sorry to say so, no.

Thierry Huon – Exane BNP Paribas

Maybe you could give us some color because–

Bodo Uebber

Quite simply we don’t disclose the regional distributions of all model development.

Thierry Huon – Exane BNP Paribas

I know. Usually we’ve got these numbers and they are an (inaudible) of the level, and so you are putting it in the EBIDTA. So maybe it would help us to understand how much the Chinese market is now representing in terms of profit contribution.

Bodo Uebber

Of course as I said we don’t disclose it. We have the unit sales there which are very favorable, we have a good mix in China because it’s S-Class wise one of our top markets where we sell S-Class. And of course also we have E-Class now with the long wheel base in China so we are doing very successfully. But please I ask for your understanding; we are not disclosing regional profits, sorry.

Thierry Huon – Exane BNP Paribas

Okay. So I’ve got another question or just a reminder. Could you remind me where the capital gain you had in (inaudible) is taking place in your P&L? Is that in the operating profit or is that below the operating profit?

Bodo Uebber

No, we have it included and we have disclosed it as the (inaudible) charge in the backup and in our spec sheet you see a slide where you can see the effect, which was booked not in a division; booked under others.

Thierry Huon – Exane BNP Paribas

So it’s in the reconciliation.

Bodo Uebber

Yes, right. It’s (inaudible) but it’s in the EBIDTA. It’s in the EBIDTA.

Thierry Huon – Exane BNP Paribas

And that explains why we have such a high positive number in the elimination reconciliation level in (inaudible).

Bodo Uebber

That’s right.

Thierry Huon – Exane BNP Paribas

Thanks, thank so much.

Bodo Uebber

But of course therefore we disclose also the information that you can if you want to exclude it for your analysis you are doing.

Thierry Huon – Exane BNP Paribas

Okay, thanks.

Bodo Uebber

And of course we have the Omega case, the legal case end where we had the release of the provision in the Q3 of over EUR200 million. Okay.

Thierry Huon – Exane BNP Paribas

Thank you.

Michael Muhlbayer

Okay, next question we take from Jose Asumendi.

Jose Asumendi – RBS

Thanks very much. Going back to working capital, you provide some commentary on inventories for the Q4. I was just thinking whether we could see an improvement as well on payables and receivables complementing this rise in inventories. Second question on Trucks – as we head into the Q4, how are you seeing the incoming orders progressing in Latin America? Do you think you’re seeing more, are we seeing a consolidation on Q3 levels or is there still more potential upside on those figures? And last on pricing, I mean you have increased your prices in North America for trucks to compensate the cost of new technology. How is that progressing and have we already seen the improvement in the profitability? Thanks.

Bodo Uebber

Okay, Jose, thank you for your questions. You had the Daimler Trucks question on the order intake in South America. We expect it roughly on the same level. Of course we have the election there, you know it. We are on a high level first of all in this market, no doubt, but now we are expecting on the same level for the development, which does mean that after the election- I don’t know whether the election already happened? It happened? Yes, okay. And we did expect a drop down now to a stable development, which is good because the level is very high, the earnings are good, margins are also very good in this region.

The pricing of EPA 10, you ask, we have a very good position because, as I said before, a very good feedback from the customer with the performance on our engines. And therefore also we can so to say on our cost position for the EPA 10 which we commented is, the price is $9000, and so we don’t have here to spend on the incentive. Because we are good in our performance that means we are in an earnings position for all EPA 10 engines.

The first question was the working capital question, of course. There could be of course some offsetting factors from the investment level as you said – trade payables, suppliers, but also maybe a lower receivables level which could positively impact but it could also be negatively. So that is something of course we will see in January of course how it developed. But you know, there is sometimes a day where you close the books and then you have to trade payables in, and then they are up or down at this point in time and the day after they are different. So and therefore I do think it’s better to focus on the total year development. This quarterly development of course, you cannot derive too much of course, positives or negatives from it. So the year to date number right now is very good, Q4 from our point of view like we also said, we’ll be negative in the Q4 but we’ll still be at a very high level for the year 2010, and that is most important. And for next year we will do our best of course with a good earnings level to get also a good cash flow.

Jose Asumendi – RBS

Thank you very much.

Michael Muhlbayer

Next question we take from Edward Taylor.

Edward Taylor

Yes, hello, this is Edward Taylor. I have a question about the situation perhaps with reference to Fiat. If Daimler is looking at opportunities in the market, is this mainly because Daimler has identified gaps in its portfolio where it feels the need to acquire more skills? Or is it more currently a situation where opportunities have come up and it’s obvious that everyone has a duty to look at these things? Just some more granularity on the drivers of any potential activity in that area. Thank you very much.

Bodo Uebber

Edward, I only want to speak in general about it because we are not in contact with Fiat, so to say therefore that you don’t get a misunderstanding. But in general speaking, when we look at corporations of course, whether they fit or whether they bring us more forward as we are today, for example. We have all corporation and cost share (inaudible). This is one example where we are putting a lot of benefits, they too, we too on our current position. And at the end of the day that is the question when you see on the one hand maybe some movement in the market, maybe you have to look into it or not and then you have to ask yourself if it can improve your position. I do think we are positioned in general very good in cars and also in trucks. But again, you would always look at something where you could say your situation would even be better than today’s one. So I do regard it as a natural behavior, what we are doing here. Okay?

Edward Taylor

Thank you very much.

Bodo Uebber

Thank you.

Michael Muhlbayer

Okay, next in line we have Charles Winston.

Charles Winston – Redburn Partners

Yeah, hi, good afternoon. Charles Winston from Redburn Partners. I just wanted to go back to the topic you raised in terms of the warranty charges in the Truck division. If you go look at the cash flow I can see about EUR700 million of non-cash charges in the industrial division in the Q3. Bearing in mind that there were some non-cash gains buried in the quarter, for instance the provision release relating to the court case and things, if you add it all up it looks as though on a growth basis we could have been seeing something like sort of EUR900 million, maybe even EUR1 billion of warranty and other non-cash charges before the gains that you identified in the P&L. Is that thinking correct, and if it is, where are these non-cash charges spread? You’ve clearly identified some of them in the Truck Division, but have we seen other warranty costs and non-cash charges in the quarter across other divisions as well? And perhaps you could sort of quantify the split of how those non-cash charges have impacted the reported margins. Thank you.

Bodo Uebber

Charles, I do think it is the best thing- You know I don’t have a problem to go into this but I would like to do this with a high quality. If you would call please (inaudible) because these EUR900 million and EUR700 million, I cannot really follow up this kind of impact. Our earnings quality is a very good one, I can only tell you. There are no big relievers or revisions. We have disclosed our pension positive income. You see the provisions on a page in the interim report; there’s also no big movement I would say, no releases. So for your follow up please call investor relations.

Charles Winston – Redburn Partners

I wasn’t trying to attain the result; I was actually trying to suggest that it might have been better than the reported number suggested.

Bodo Uebber

No, the cash flow did not change. Oh, yes… The cash flow as booked as it is right now, we have disclosed it. Of course it will not change because the cash is the cash. Therefore yeah – I can only answer it this way. There cannot be other impact there because the cash has to be in the liquidity and therefore a fixed system. But anyway, let us talk about it with investor relations.

Charles Winston – Redburn Partners

Okay, will do. Thank you.

Bodo Uebber

Thank you.

Michael Muhlbayer

Okay. Thank you. This was our last question, so ladies and gentlemen, thanks 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. I hope to talk to you again soon. Thanks and good-bye.

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