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DaimlerChrysler AG. (DCX)

Q1 2007 Earnings Call

May 15, 2007 8:30 am ET

Executives

Friedrich Lauer - VP and Head of IR

Bodo Uebber - Member of the Board of Management, Finance & Controlling/ Financial Services

Analysts

John Lawson - Citigroup

Eric Celli - J.P. Morgan

Adam Jurewicz - Morgan Stanley

Max Warburton - UBS

Ron Tadross - Banc of America Securities

Mike Dean - Credit Suisse

Dan Manor - Och-Ziff Capital Management

Jon Backland - Man Securities

Horst Schneider - WestLB Panmure

Christopher Havel - Dow Jones

Michael Shields - Reuters

Stuart Hosansky - Vanguard Management

Yvon Gauthier

Costner Hurtz

Paul Griffiths

Douglas Carlson

Robert Haybager

Presentation

Operator

Welcome to the Global Conference call of DaimlerChrysler. At our customer's request, this conference will be recorded. You can listen to the replay by dialing the numbers you will find on your invitation.

A replay of the conference call with indexation and synchronized presentation slides will also be available as an audio file on demand in the Investor Relations section of the DaimlerChrysler website.

The conference will be followed by a question-and-answer session. (Operator Instructions).

May I now hand over to Mr. Friedrich Lauer, Head of Investor Relations, DaimlerChrysler AG. Thank you very much.

Friedrich Lauer

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

Today's conference call is a joint investor relations and corporate communications event and will therefore be attended by analysts, investors, as well as the media.

Bodo Uebber, member of the Board of Management responsible for finance, controlling and financial services will begin the conference with a presentation of our first quarter results. The presentation will be followed by a Q&A session. I will explain the process for this later.

Before we start I have a couple of administrative details. Slides to accompany this conference call are available on our internet site. And I would like to remind you that this teleconference is governed by the Safe Harbor verdict that you'll find in our published results document.

Please note that our presentations contain forward-looking statements that reflect management's current views with respect to future events. These forward-looking statements can be identified by expressions such as: "assume", "anticipate ", "believe", "estimate", "expect", "intend", "may", "plan"," protect ", and “should”.

Such statements are subject to risk 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 to be incorrect, then the actual results may be materially different from those expressed or implied by such statements. And forward-looking statements speak only to the date on which they are made.

Now I would like to hand over the conference to Bodo Uebber.

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Bodo Uebber

Ladies and gentleman, I would like to welcome you to our Q1 results conference call. Let me now turn directly to our results. In the first quarter of 2007, we sold approximately 1.1 million vehicles, slightly less than in the prior year period.

Group revenues decreased from EUR37 billion to EUR35 billion, a reduction of 6% due to adjusted foreign exchange rate effects and changes in the consolidated group. Revenues were at last year's level.

Although, we had to take a restructuring charge of EUR940 million at the Chrysler Group and charges of EUR54 million related to the new management model, EBIT of EUR2 billion was significantly above the prior year level.

EBIT in the first quarter of 2007 include a gain of EUR1.6 million from the transfer of interest in EADS. EUR0.8 billion of this amount was resulted from the close of last year's forward agreement, an additional EUR0.8 billion resulted from the participation in EADS by a consortium of German and international investors as announced in February, 2007. Net profits increased from EUR0.8 billion to EUR2 billion.

On chart 3, you can see the key figures of the first quarter in comparison to last year's results. Please note that all figures we disclose are now according to the International Financial Reporting Standards.

The free cash flow of our industrial business was significantly positive at EUR2.9 billion. Our cash flow was positively impacted by the transfer of interest in EADS, but also by the positive business developments at the Mercedes Car Group and the Truck Group. This resulted in an increase in net liquidity of our industrial business from EUR9.9 billion at the year end 2006 to EUR12.9 billion at the end of the first quarter.

Let me now turn to the divisional results starting with the Mercedes Car Group on chart number 4. The segments unit sales decreased, by 4% to 271,000 vehicles, reflecting sales of 258,000 Mercedes-Benz passenger cars and 10,800 smart cars. As a result of strong sales of the S-Class and E-Class, as well as our SUVs, Mercedes-Benz passenger cars slightly exceeded the prior year's level. It is encouraging that this was achieved despite the market launch of the new C-Class at the very end of March.

Lower smart sales reflect the discontinuation of the smart forfour and the model changeover to the new smart fortwo. At EUR12 billion revenues slightly exceeded last year's level. The positive shift in the model mix more than compensated for negative exchange rate effects from the depreciation of the U.S. dollar.

Chart number 5 shows the development of the EBIT, our new profit measure for operating results. The EBIT of Mercedes Car Group was transformed from a negative EUR700 million to a positive EUR800 million. This steep increase reflects the improved model mix, as well as enhanced efficiency due to our core program, which more than offset the impact of lower sales, exchange rate effects and the support of EUR82 million for financially distressed suppliers.

In connection with our efficiency improvements, we defined measures to optimize and extend the usage of our production equipment. Consequently, we had to increase depreciation periods, which led to lower annual depreciation amounts. This caused the positive impact on the EBIT of the Mercedes Car Group in the amount of EUR150 million.

However, please consider that this impact was offset by the charges for the support of financially distressed suppliers, the change in accounting for manufacturing leases and the allocation of corporate R&D expenditures to the divisions which are previously included in the Van, Bus, and other segments.

The prior year earnings included charges of EUR982 million and EUR203 million related to the discontinuation of the smart forfour and the headcount reduction program at the Mercedes Car Group.

The development of earnings clearly illustrates that the CORE program is running according to plan. Our main focus in the coming months lies on the implementation of defined actions to achieve our goals in 2007.

As far as products are concerned, in the first quarter we focused on the launch of the new C-Class and the new smart fortwo, which are both shown on chart number 6.

So far, both new models had a very positive reception from both the press and our customers. Ahead of their market launch, incoming orders were already at 80,000 and 50,000 vehicles for the C-Class and the smart fortwo respectively.

The Chrysler Group; retails sales fell by 2% to 674,000 vehicles during the first quarter. While retail and fleet sales in the NAFTA region decreased by 4%, Chrysler Group was very successful in its overseas business. Retail sales outside the NAFTA region rose by 13%. Sales of the newly launched models like the Jeep Wrangler and the Dodge models Caliber, Nitro and Avenger were very positive. This could partially offset the decrease in sales of minivans, Dodge Durango and Jeep Grand Cherokee models.

In addition, the Chrysler Group continued to reduce dealer inventories and brought them down from 608,000 to 501,000 vehicles at the end of March. As a result, unit sales in the first quarter of 2007 decreased by 8% to 642,000 vehicles and revenues were 8% lower at EUR10.2 billion, measured in US dollars, revenues decreased by 11%.

The Chrysler Group posted a loss before interest and taxes of EUR1.5 billion for the first quarter compared to earnings of EUR641 million one year ago. This deterioration reflects the gain of EUR390 million in the prior year, resulting from the adjustment of healthcare contracts. In addition, it results from the restructuring charge of EUR940 million related to the recovery and transformation plan.

Lower unit sales and less favorable product mix, caused a negative net pricing and financial support for financially distressed suppliers also impacted earnings. Nevertheless, the success of the recently launched new vehicles, as well as, the reduction of US retail inventories contributed positively to Chrysler Group's earnings. The recovery and transformation plan is designed to further develop the business model and to achieve a sustained improvement in profitability. Chrysler Group tries to breakeven in '08 and to generate a Return on Sales of 2.5% in 2009.

Among other things, the plan calls for cuts in non-utilized production capacity and staff reductions. Over 4,300 persons have already signed special pre-retirement and severance contracts.

On the other hand, the Chrysler Group will invest a total of EUR2.3 billion in new engines, transmission and axles by 2009 to improve its competitiveness. As products are the backbone of our business, the Chrysler Group is continuing its product offensive.

In the first quarter, the Chrysler Group launched the Dodge Avenger mid-sized sedan, while the Jeep Patriot gained momentum. They are shown on slide number 9.

At the North American International Auto Show in Detroit, we also revealed the all new 2008 Chrysler Town & Country and Dodge Grand Caravan minivans. With their unique Swivel 'n Go seating system, the new minivans would offer an innovative interior concept as an alternative to the popular Stow 'n Go seating system in today's minivans.

Let's now turn to the Truck Group. The division sold 190,000 vehicles worldwide similar to the high level reached in the prior year quarter. Here we have to consider the fact that the assembly of Sprinter vans for the North American market was relocated from the Trucks NAFTA plant in Gaffney to the new Charleston plant of our van operations at the end of 2006. This means that the prior year sales figure of the Truck Group included 6,000 Sprinter vans. Net of this effect the division's unit sales increased by 5%. This success was mainly driven by significantly higher unit sales of our Trucks Europe/Latin America unit, which increased sales by 12% and benefited from a positive sales trend in Germany, Eastern Europe and Latin America. In particular, demand for Actros lineup and for the BLUETEC Diesel technology was outstanding.

Our truck business in the NAFTA region also developed positively in the first quarter. Net of the 6,000 Sprinter vans sales of our Trucks NAFTA units increased by 3% to 46,000 vehicles. Here we benefited from the deliveries of EPA '04 vehicles, which we still had in our order book.

Trucks Asia increased its unit sales by 2% to 40,000 vehicles of the Mitsubishi Fuso brand. The increase reflects the slight recovery of demand in Indonesia, entire sales in the Middle East and in Australia, which altogether more than offsets lower sales in Japan. Revenues of EUR7.3 billion were in the same magnitude as in the first quarter of the last year.

Mainly due to further improved efficiencies, but also as a result of higher sales in Europe and Latin America, the Truck Group increased its EBIT by an impressive 25% to EUR528 million. Lower depreciation amounts due to the extended use of our production equipment supported this improvement. In contrast, the earnings were impacted by exchange rate effects.

As emission regulations have top priority for our customer's investment decisions, we have worked hard in recent years to adjust our model lineup with products and applications targeted to fulfill or exceed upcoming emission standards. At the beginning of the year, the Series 60 engines from Detroit Diesel and the MBE 900 and 4000 engines from Mercedes-Benz were certified by the US Environmental Protection Agency as fulfilling EPA '07 standards and were approved for general sale.

We also unveiled the new Sterling Bullet pickup, the truck for US Classes 4 and 5 that expands our range in the medium duty segments in North America. In the Class 8 segment, we presented the new Freightliner Cascadia at the beginning of May. And we also launched the new generation of the Mitsubishi Fuso Canter in Taiwan and Indonesia during the first quarter. Overall, we feel well prepared to fulfill customer's requirements also under the new emission standards.

Let's turn to financial services. Our financial services division reported a stable development during the first three months of the year. Although contract volume decreased by EUR5.2 billion to EUR112.5 billion, there was an increase of 3% after adjusting for exchange-rate effects. These exchange-rate effects resulted mainly from the America's region where contract volume decreased from EUR86.6 billion to EUR79.8 billion, however, adjusted by foreign exchange effects the portfolio of the America's grew by 1%.

In the Europe, Africa, Asia-Pacific region contract volumes grew by 5% to EUR32.8 billion mainly driven by further expansion in Western Europe, particularly in the United Kingdom and in Germany.

Especially in Germany, we further improved our services for small and mid-sized fleets by introducing the [three plus] product package that comprises leasing, maintenance and the tire service. New business amounted to EUR11.8 billion, 14% below the high level of the prior year quarter. Adjusted for exchange rate effects the decrease was 9%.

The division to EBIT decreased from EUR455 million to EUR419 million. This was mainly due to the appreciation of the Euro against the U.S. Dollar. In addition, higher costs for risk compared to the extremely lower level of the prior year quarter impacted earnings. However, such effects were largely offset by further efficiency improvement.

Let's now turn to our Van, Bus operations shown on chart number 15. In the first quarter of 2007, the Mercedes-Benz Vans units sold 62,000 vehicles, setting a new sales record for the quarter. This was particularly the result of strong demand for new Sprinter of which we sold 32,000 between January and March. In addition, sales of Vito/Viano increased by 18%.

DaimlerChrysler buses increased unit sales by 6% to 8,300 buses and chassis. The increase mainly resulted from higher demand in South America and the NAFTA region. This more than offset the decline of 16% in Western Europe compared to the very high volume in the prior year quarter.

Although unit sales increased and revenues of the Van/Bus and other segments declined by 9% to EUR2.9 billion. This was solely due to revenues of about EUR400 million of the off-highway business that was still included in the first quarter of last year.

Looking at the boost in EBIT from EUR0.4 billion to EUR1.9 billion that is shown on chart 16, we have to consider that the first quarter includes income of EUR1.6 billion related to our equity investments in EADS. This was a combination of the closure of the forward transaction initiated in the first quarter of 2006, the transfer of shares in the subsidiary which shows our stake in EADS, and the valuation gain from a hedge contract on a further 3% of EDAS shares.

These special gains were partially offset by special charges of EUR114 million related to the implementation of the Power8 program at EDAS. All-in-all, the total contribution from EDAS to our EBIT was EUR1.7 billion.

Both the Van and Bus units contributed positively to EBIT and were able to increase their contributions. This resulted from higher sales volumes, the successful transition to the new Sprinter Van and lower depreciation due to the extended use of production equipments.

Some of the Bus and Van products are shown on slide number 17. Coming back to the group level now, let's take a look at net profits and earnings per share. Net profit increased sharply from EUR781 million to EUR2 billion. The factors influencing net income were largely the same that also influenced EBIT.

In addition to the improvements at the Mercedes Car Group and the Truck Group, the gains from the transfer of interest in EADS led to the growth in net profit. Earnings per share increased in line with net income to EUR1.89 per share.

Our key balance sheet and financial figures are shown on chart number 19. Compared to the end of 2006, we slightly increased our gross liquidity from EUR14.4 billion to EUR15.5 billion. This still includes a dividend, which was distributed after the annual meeting in early April.

Net liquidity of our industrial business of EUR12.9 was significantly higher than at year end 2006. Our liquidity position thus improved substantially resulting in excess liquidity. The change in net liquidity reflects cash inflows from the transfer of interest in EADS and the positive cash flow from the Mercedes Car Group and the Truck Group, which were partially offset by cash burdens at Chrysler Group.

The group's equity ratio adjusted for the dividend payment was 17.9%. This increase reflects the significantly higher net profit and lower total assets. The equity ratio of our industrial business improved from 27.2% to 29.2%.

Compared to year end 2006 the funded status of our pension plans improved by EUR0.3 billion to a remaining [gap] of EUR2 billion. This improvement was in particular due to the returns on planned assets and contributions to the pension plans.

The funded status of our post-retirement or healthcare plans improved slightly from minus EUR14.1 billion to minus EUR14 billion. This is mainly a result of exchange rate effects. You can find more details on the status of pensions and healthcare on slide number 24 of this presentation which is available on the internet.

For the first three months the free cash flow of the Industrial business was EUR2.9 billion, significantly higher than the EUR1.1 billion for the comparable period in 2006. The strong increase resulted mainly from the business development at Mercedes Car Group and the Truck Group and the cash inflow related to the transfer of interest in EADS. Further details on cash flow figures are provided on chart 25 of this presentation, which is available on the internet, again.

Now, let's turn to our expectations for the year 2007 as a whole. DaimlerChrysler expects overall unit sales to increase slightly in 2007, compared to the 4.7 million vehicles sold in 2006. The Mercedes Car Group assumes its unit sales in full year 2007 will be at least equal to the record level of the prior year. The Mercedes Car Group will continue to implement the CORE program and expects to achieve a return on sales of more than 7% in full year 2007.

The Chrysler Group will implement the Recovery and Transformation Plan and will continue its product offensive with the launch of eight new and five refreshed models in 2007. Unit sales should be higher than in the prior year. We expect a significant increase in unit sales above all outside the NAFTA region.

The Chrysler Group's EBITs in full year 2007 is expected to be negative at EUR1.6 billion, including charges of EUR1 billion related to the Recovery and Transformation Plan.

The Truck Group anticipates significantly lower unit sales in 2007 than in the prior year, due to customer purchases brought forward to 2006 as a result of strict emission regulations unit sales are expected to significantly decrease in the United States and Japan. The Truck Group's results, therefore, is unlikely to reach the level of the prior year, but the division expects to be well above its cost of capital.

The Financial Services division strives to achieve further efficiency improvements this year. Financial Services aims to achieve a Return on Equity of more than 14% in 2007. Based on this planning, the DaimlerChrysler Group's total revenues in full year 2007 are likely to be of the same magnitude as in 2006.

The Group EBIT is expected to be at EUR7 billion. This figure includes a gain of EUR1.6 billion from the transfer of interest in EADS, charges of EUR1 billion related to the Chrysler Group's recovery and transformation plan, and EUR0.6 billion in connection with the implementation of the new management model.

Please note that these earnings guidance relates to the current structure of the Group. The effect of the future concepts for the Chrysler Group and the realignment of DaimlerChrysler have not yet been taken into consideration.

On chart 21, we summarized the key issues of our agreement with Cerberus to transfer the majority of our Chrysler business. Chrysler Group's industrial and financial services business will be transferred into the Chrysler Holding LLC.

In that holding, the private equity investor Cerberus will hold a stake of 80.1% and we will hold the remaining 19.9% interest. Cerberus will pay a total amount of EUR5.5 billion. Of this amount, EUR3.7 billion and EUR0.8 billion will be used to strengthen the equity basis of the industrial and financial services business of Chrysler respectively.

The balance of EUR1 billion will go directly to us. In addition, we will grant a loan of EUR0.3 billion to Chrysler Corporation LLC. According to the agreement, upon the closing of the transaction, we transfer the industrial business completely free of debt. Due to the anticipated negative cash flow, in particular, in connection with the restructuring, the transaction will give rise to a cash outflow of EUR1.2 billion for DaimlerChrysler. Let me point out that this amount is fixed.

Taking all this together, we will end up with a net cash outflow of EUR0.5 billion.

On the other hand, all obligations for pension and healthcare costs will be retained by Chrysler companies. In addition, we will discharge long-term liabilities of the Chrysler Group, resulting in a prepayment compensation of EUR650 million. The repayment of this very long-term debt with interest rates followed by current market rates was planned independent of the deal.

From the deal, we anticipate an impact on our net profit according to IFRS between EUR3 billion and EUR4 billion for the year 2007. Overall, it was very important for us to structure the deal in a way that there remained no further cash risks for DaimlerChrysler. We just have at stake of 99% which will be included in our financial statements by using the equity method. We expect the transaction to be closed during the third quarter.

Ladies and gentlemen, thank you very much for your attention. I am now happy to answer your questions.

Question-and-Answer Session

Friedrich Lauer

Thank you very much. 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 the organization that you are representing before asking your question. Let me add two practical points. First is please avoid using a mobile phone as this disturbs the quality of the call for everyone, and secondly please ask your question in English. Before the start of session the operator will explain the procedure.

Operator

Thank you. (Operator Instructions)

Friedrich Lauer

We'll start today with the first question from [Yvon Gauthier]

Yvon Gauthier

Yes, hi. I have three questions, if I may. First of all on trucks, looking at the first quarter of the year significantly above last year, and the remainder of 2007, I wonder whether you could just describe on how you see the year evolving, and whether you see any risks as one of the quarters could actually end up being negative on the basis of a US downturn that is in the anticipation?

Second question with regards to Chrysler, looking ahead to the union negotiations, I wonder whether you could actually state who is running on behalf of Chrysler the union negotiations? Is it going to be Daimler, or is it going to be Cerberus that is driving this union negotiation?

And thirdly, with regards to your cash flow, I wonder whether you could outline what the negative contribution from Chrysler was, both on an operating, as well as, from a restructuring charge basis? Thank you.

Bodo Uebber

[Yvon], thank you for your questions. We will go first to the question on the trucks: Truck Group and the question you had on the quarterly development. Of course, it depends a lot on the sales development. We are pretty confident that Europe will do well. We had, especially in Europe, a good first quarter and we do not assume whether this development will change or during the year, so positive aspect here. Second quarter and third quarter will be as planned within Freightliner with a downturn of Class-8 by 40%. This is more or less confirmed, I would say, also by the competitors.

So we are according to plan, and as we said, we do not plan for a negative quarter overall in the Truck Group due to this effect. The second quarter will, let's say, be the most interesting one, I would say, from the Freightliner point of view, and we do assume during third and especially fourth quarter, the order intake going up into, nevertheless, a better situation in the third and fourth quarter.

Japan, in the first quarter it was slightly decreased in Japan, which is due to the EPA down, not the EPA, but the Japanese regulations introduction, which comes in over quarters, so not by a certain date, but it develops over quarters. So, I do think, first of all, in the first quarter we did a good job, also market share was within Fuso. And so, the situation there is also as planned.

All in all, as planned with Fuso, as planned with Freightliner, and I would say a better expected than planned within the European business.

So, we are, let's say, I do think in a good way we said our profit target this year will be lower than last year, but as you have seen, we have our minimum of cost of capital, so we do think that we are well above our cost of capital for the total year.

Your question regarding the unions, of course, there will be one who is in charge of Diamler, sort of, of course on behalf of Chrysler. And therefore, as we said, we will do the closing during the third quarter and the negotiations will be then done on behalf of the new entity.

The third question that you had for the cash flow is the following. First of all, we had the EUR3.5 billion income for the EADS. Of course there were also certain outflows related to the personal measures we have taken with the new management model and other stuff if you remember or we have a little bit of Fuso recall cash outflow, we have a level of smart cash outflow in the first quarter. All-in-all, roughly EUR500 million so that the net of the EUR3.5 and this EUR500 million is EUR3 billion.

So the remaining story is the following; that we had a higher cash outflow within Chrysler, which goes in the direction of over 800 billion, so that the remaining business has a respective positive one.

In that cash flow you have to consider that we have build up some inventories in the Mercedes Car Group to the launch of the C-Class in this March; and of course the ramp-up again in some countries also for the van business.

So, all-in-all from my point of view a very good cash flow development and to make this picture complete, the cash flow burden of the Chrysler Group in the first quarter is already included in the transaction which we have announced yesterday. So the net of the transaction of EUR0.5 billion there is included the cash burn of the first and the second quarter. So there's no further burden out of this.

Yvon Gauthier

Sorry just to understand the last point. Out of the EUR1.2 billion that you agreed to pay, a significant portion of that has already flown through the accounts in the first quarter, do I understand that correctly?

Bodo Uebber

Correct; yes.

Yvon Gauthier

Thanks.

Friedrich Lauer

Okay we take next question from John Lawson please.

John Lawson - Citigroup

Thanks very much, John Lawson from Citigroup. Could I first ask just for a little elaboration on the change in depreciation policy. I am assuming that the longevity of the benefit effectively saved overtime. So, could you just confirm effectively that the way that you've have changed policy by extending lives does lead to a gradual shade of benefit overtime from the 800 million that you will see this year?

Secondly on EADS, I think you did scare us actually back in April '06. That the first time of 7.5% sale would have a billion gain on it. It seems to have been a bit downgraded in the meantime even though the price was fixed. I wonder if you could explain that detail and perhaps help us understand what will happen to that remaining 3% of EADS, which you currently have hedged contracts on?

And then finally just on new management model charges. You are saying there are going to be EUR600 million on your special items this year. Is that the end of it or will we be looking for further new management model charges even into 2008 as originally envisaged thanks?

Bodo Uebber

John to your questions, first of all the extended use of production equipment does follow technical changes or measures which come out of CORE. The whole measure is born out of CORE and was spread over the other division so to say. And what we do here, we are using equipment across car lines and across life cycles and also extend the flexibility in the plans so that we can use the equipment longer than anticipated technically wise. That will also lead to a certain different investment level in this aspect. So this will be a process, which harmonizes over the time, over the longer period. So, you will see also here an impact, so to say on the cash flow, which I do think is the ultimate goal in the usage of that otherwise it would not make any sense.

The EADS question, I might refer this question to investor relations. I cannot tell you what the difference right now, is it EUR250 million. We might give you an answer here, later on if you call investor relations to look for this difference from last year to this year to the EUR750 million. But, all-in-all I do think what is very important that the cash impact is here in the books, which certainly is the EUR3.5 billion in total, of course. But, sorry I do not now in mind what the difference was.

Your last question regarding the new management model, yes, we are planning for the EUR600 million. But, again, we are producing more savings already this year than we have charges in this year and not everything here is related to severance payments, it is also related to certain projects to harmonize standards and make process improvement and so and so forth.

So the second message, we will have more savings here than in the one-time recognition. Of course, in '08 we will have a further burden here we announced. I do think earlier on EUR2 billion in terms of new management model, EUR1.3 billion was related to reduction of staff and EUR700 million related to project expenses. Due to the development this year that we do see the, let's say, that we don't use these funds per person so to say as we have planned. I do assume the numbers being better than the EUR2 billion at all. But, again, there will be something in '08.

John Lawson - Citigroup

Thank you.

Friedrich Lauer

Our next question from Eric [Celli] from J.P. Morgan, please.

Eric Celli - J.P. Morgan

Hi, good morning. I appreciate the question. There's still some confusion about what's going to happen with the Chrysler Finance Funds. Do we assume that Daimler is going to assume these obligations? And then if that's the case than how will the Chrysler compensate Daimler for this? I mean, are they going to refinance the debt and pay Daimler through retire with these bonds? Is that how it's going to work and has that happened before closing?

Bodo Uebber

First of all, we don't do the business for Chrysler Financial in the NAFTA region. In the NAFTA region the Chrysler Financial business will be done by Chrysler Holding so to say on behalf of all the ownership 80% of Cerberus. We Daimler, will do service in all the other international markets, for example Europe, for the Chrysler products, which is roughly all in all the remaining portfolio which we will service of 2.5 billion roughly and of course we do that to make profits on the one hand and giving a good service. So, there is no, that's at an arm length spaces so we will not resume any residual value risk, for example. But, of course, we will take the credit risk, because we are the underwriter of this portfolio, but in this way we are doing a service. The Chrysler Financial's business, I said for the NAFTA business will be financed by Cerberus and by Chrysler by their own and not from the Daimler side. There is a clear cut in this aspect.

Eric Celli - J.P. Morgan

So, those will remain outstanding for the foreseeable future until those are potentially refinanced?

Bodo Uebber

There is nothing outstanding here. It was a clear cut.

Eric Celli - J.P. Morgan

So the Chrysler North American finance funds will stay outstanding and they confirm finances in the way they see fit?

Bodo Uebber

I can -- it's a little bit difficult to understand you right due to I don't know the connection. Can you repeat it again?

Eric Celli - J.P. Morgan

Yes, I was just clarifying that the Chrysler Finance North American bonds will remain obligations of Chrysler Group LLC?

Bodo Uebber

No, as I have said, these bonds are guaranteed by us. So, therefore, we have to take care about the bonds. There is no doubt, and, as I said, we will bring these liabilities down over time, but we will be not, let's say, in the market and it has not any impact on the net liquidity. If you refer to the Legacy bonds, the Legacy bonds will be between signing and closing, that is 1.85 billion bonds in total. They are callable at specific make-whole levels, and this we will exercise between signing and closing.

Eric Celli - J.P. Morgan

Right, and those are the Chrysler Auto bonds that Auburn Hills and all that. I am referring to the Chrysler Financial N.A. bonds, are those going to be brought back on your balance sheet and then unwound over time?

Bodo Uebber

Again I repeat it. First of all, the Chrysler Financial portfolio in the future after closing will be financed not by Daimler. The financial liabilities, in the company liabilities we take over as Daimler will be driven down overtime by 12 months due to maturities. But that has not an affect on the net liquidity. The net liquidity will stay where they are, and these financial liabilities are backed, off course, by liability and therefore it's not an impact.

The only issue is that we have to change the structure overtime. For example, we go down with our commercial paper volume immediately because we have these excess bonds, so to say, on our books. And then we change this structure in between 12 months into the right structure we want to be again in 12 months. This had, not at all an impact on the net liquidity of the industrial side, it will stay as they are right now.

Eric Celli - J.P. Morgan

Okay, but for Chrysler Finance N.A will have to refinance and repay you guys every time?

Bodo Uebber

There is nothing that they have to repay in this view. If you could please call in this relation sorry, but I do think you have there a wrong understanding on that. As I said, Chrysler Financial is doing their own business and they are financing by their own. The bonds, we will drive down as I said before.

Eric Celli - J.P. Morgan

Their own finance funds. Okay, thank you.

Friedrich Lauer

Okay. We take the next question from Adam Jurewicz please. Adam Jurewicz?

Adam Jurewicz - Morgan Stanley

Yeah, can you hear me? Sorry, hi, can you hear me?

Friedrich Lauer

We can you hear you very well.

Adam Jurewicz - Morgan Stanley

Sorry about that. Two quick questions. First, kind of technical on pages 16 and 17 of the fact book. There seems to be some discrepancy, very sharp discrepancy in Q1 Truck Group wholesale deliveries and retail deliveries, specifically the wholesale Western European volumes down 23% year-on-year we get the retail sales up three. Now you cited, part of the improvement in the Truck Group profits was improved, sales in the quarter in Europe, but can you explain why the wholesale crushed so much year-on-year? Is there some kind of issue there? Please explain that.

And second, just on the subject of cash return and Dr. Zetsche was asked about it yesterday, I know, and I believe he said, could you please wait until tomorrow's call to speak with Bodo. So here we are. Is there anything you want to elaborate on now that the "poison pill" of the healthcare liability has now been managed here. You may not be vulnerable in terms of where your share price is relative to last year, but in terms of your growing net cash planning liquidity and having that healthcare effectively gone, you may be under some pressure in terms of usage of cash. Can you explain to us, after you get your single A rating, I think that's still a target of you to get a single A credit rating, how do the priorities then line up in terms of use of cash please? Thank you.

Bodo Uebber

Adam, to your first question, of course it's a little bit complicated, I do know. But, that refers only to the Sprinter vans, the difference, if you look it up. So the Sprinter vans, you have to clearly, they are mentioned in the first line, and you have to put that also down in the second line means Western Europe.

Adam Jurewicz - Morgan Stanley

Got it.

Bodo Uebber

That is where this I just [halted]. So that is a difference comes from.

Adam Jurewicz - Morgan Stanley

Got it, Bodo.

Bodo Uebber

So, if you would correct this numbers by 6000 you are on the right path.

Adam Jurewicz - Morgan Stanley

Great.

Bodo Uebber

Okay. So that was a easy one.

Adam Jurewicz - Morgan Stanley

Can I say so.

Bodo Uebber

Okay, not easier than, Adam that -- okay, the dealers essentially said yesterday that I should go there into details further, and I do think I have made clear that to our 0.5 billion cash flow outflow of attention is a fixed number. Also including the first half year of Chrysler estimated cash burden, so to say, also fixed, within that number. I do think that is one thing which was very decisive for us to get a deal which is fixed, so to say, that there is no change to these numbers. That is the first case.

Second, you are right with your assessment that after closing the deal, the impact on pension and on healthcare and other stuff will not be anymore an impact on our net liquidity. We have a remaining a book value for Chrysler in our books, which I said before, which we will account for at equity that will be, let' say, so to say, the remaining opportunities, interest which was related to that.

Clearly, we have right now a liquidity position of 12.9 billion industrial in our hands. We have 1.5 billion, as I said before, five days after end of March. We have already paid the dividends, which are then 11.4 billion. Part of the cash burden of Chrysler Group is already included there, and Dieter Zetsche and myself, we do see clearly an excess liquidity, which we would, as we always said, is a question is there, growth for products and for markets is there anything we have do for the balance sheet.

I do think from a balance sheet point of view, we have said that we go to 40% equity ratio over 12 months' period. So that looks fine also in terms of single A rating, and we think that the money we do need to strengthen the balance sheet, we have also in our hand. So we clearly state today that we have excess liquidity in our hands also for the shareholders, which is even a good issue I would say, so even something, which shareholders will enjoy. We have not yet defined the amount of money here, which is the excess, but we say there is excess and we'll come back to the shareholders, let's say latest in February next year to define with what's kind of matter we will take here the option to the shareholders.

Adam Jurewicz - Morgan Stanley

Okay. Thanks very much.

Friedrich Lauer

And we'll take the next question from Max Warburton, please.

Max Warburton - UBS

Yeah, hi, Max Warburton from UBS. Just two questions; back on this issue of the Mercedes depreciation charge Uebber, if you could just confirm, I mean John Lawson, alluded to this, is it correct that there is going to be something like a EUR150 million EBIT uplift on Mercedes in each quarter this year. We are talking about a number of something like a 600 million benefit for the full year? And then could you just help us understand how that fits with your guidance. Previously you said more than a 7% margin that's been reassured today. But this uplift looks like its worth something like 120 and 130 basis points.

So are you effectively lowering guidance on like-for-like accounting basis or should we just sort of automatically interpret your more than 7% as more than 8.5%, because that seems to be the mechanical effect for this accounting change. Could you just explain that?

And then second question, your friends over at BMW in Munich have undertaken a strategic review recently, which they have been open with the market above, they've been thinking a lot about their future whether they are right size, or they have got the right strategy, what the ideal capital structure is.

Is the new Daimler going to go through the same process, actually sitting down studying what it needs long-term and then presenting results? You mentioned something on capital structure next February, but obviously there are some bigger issues in terms of the size of Mercedes and depends on the size etcetera.

Are we going to see a strategic review on the way at Daimler or is the price as much more informal, it's just going to be ongoing discussion with the board? Thank you.

Bodo Uebber

Going first to your last question Max, I just think you are right with your assessment. First of all we have done the strategic review last year which you clearly saw the outcome.

One of the outcomes yesterday, and of course we have presented to you last year in September some of this outcome for the Mercedes Car Group, we had presented that for the Truck Group in November. And I do think I would do so as once in a while also with financial services as kind of remaining part in Vans and Buses. But okay the test was not to develop them over time.

What we will do is, of course, ongoing questions of strategy of course even after Chrysler Group we will sit together and to develop our strategy further on, but there is not a big review so to say.

To your first question, first of all let me again state what I have forgotten when I mentioned or talked first about the extended use of production equipment. All this is also in line with our competitors. But we can see here in the annual reports when we compare and due to our talks of course, to them is fully in line also with them.

But as you said the EUR600 million for the Mercedes Car Group and the EUR875 million for the total group is roughly you can take each quarter as EUR150 million. But I would like also to tell you that we hedge for Mercedes Car Group as I said before also some burdens, the reallocation of the research cost also for the truck group and the other divisions, and of course we have the impact on the manufacturing lease.

If you put everything together, you get quite something awash. Although I have to point out also that the manufacturing leases is something which goes back over time. Again, we will stick to our target as I said with our 7%.

You have seen that we moved over at least and went to more than 7%, but also we clearly stated in other conference calls that we do a review this year of the aspirational level of the Mercedes Car Group and we will come with an answer of this during this year.

Max Warburton - UBS

Thanks. Can I just have a quick follow-up question? Back on the strategic thinking etcetera, when you come back to us in February '08 and talk about the ideal capital structure, would it be realistic to expect some more specific financial targets?

Do you have a specific financial target of Mercedes you just talked about. You have over-the-cycle margin target for Trucks. Van and Bus we've never really had any numbers for. Would you be willing to talk about our third division in more detail in a year and maybe even a group level start to set some group financial targets, not just in terms divisional margins, but return on capital, cash-flow, long term earnings potential etcetera?

Bodo Uebber

I will pick that up what you said. I just think it makes. I will review that with the board. Whether we will give some more details on the van business and the bus business also aspirational wise. So, I will talk to the board with this issue. So, I take this over as a task so to say and we could think about this. I have to talk to the board, when we will do so. As I said also financial services has to have his divisional days at this end. And of course, we are also talking, we will talk about capital structure and other stuff within the board, especially when we talk about our excess liquidity, we have not made up our mind now where the levels will be, but we will come up with a matrix here.

Max Warburton - UBS

Right. Thanks very much.

Friedrich Lauer

We take the next question from Ron Tadross, please.

Ron Tadross - Banc of America Securities

Good afternoon. Can you hear me?

Friedrich Lauer

We can hear you.

Ron Tadross - Banc of America Securities

Okay. Thanks. I guess, just on the balance sheet. Is it fair to say that your EUR8 billion of cash and marketable securities will not be materially impacted than by the Chrysler sale from here on now?

Bodo Uebber

Yes.

Ron Tadross - Banc of America Securities

Okay. So, if I assume that Chrysler probably needs about EUR3 billion of working capital, roughly, is than is it fair to say that this is going to be financed by Cerberus?

Bodo Uebber

Yes, as I have always stated that is financed by Cerberus.

Ron Tadross - Banc of America Securities

Okay. So, then--

Bodo Uebber

Or by banks whatever, not by us.

Ron Tadross - Banc of America Securities

So then how should we think about the fact, if we assume that it seems like there is negative equity value sign to Chrysler vehicle manufacturing. If I assume that the financial company is worth about book value, why would this be if you had four bidders. If you had three or four bidders why would it be that we had negative equity value assigned to Chrysler vehicle manufacturing?

Bodo Uebber

I would like to refer to this what Dieter Zetsche yesterday said. We had clear criteria's for our deal, which we have worked on. You can really go to our press releases there. And we have clearly made a decision here on all the aspects we had in mind, Cerberus was the one who was on the lead. And this was, of course, with many aspects you can see a package here, which you'll look at this here from many angles and that was a right one we have taken here. Sorry, I do not want now to go in this kind of details again.

Ron Tadross - Banc of America Securities

Okay. So, then on the quarter, your SG&A and R&D were down as a percent of sales about a 100 basis points each year-over-year. Is this a new lower level now as a percent of sales?

Bodo Uebber

No, you cannot derive from quarterly developments any strategic directions. So, this is not the case here. You have always stuck to relations between the quarters. Of course in G&A that's a little bit different. When you extract all the, let's say, special reporting items here in this area than you clearly can see that the G&A is going down with last year. Let's say kind of 0.5 billion savings that we have developed over time that we would look further as I said before with a new management model.

Ron Tadross - Banc of America Securities

Okay. But, your R&D on a Euro basis should be may be flat to up going forward?

Bodo Uebber

No. I do not want to give quarterly development targets now for the quarters. So, I just think that the question which is a good one, of course, for our annual meetings, because we have to look at this stuff over a couple of years and not over quarters.

Ron Tadross - Banc of America Securities

Okay. Thank you very much.

Bodo Uebber

Thank you

Friedrich Lauer

Next question from [Costner Hurtz] please.

Costner Hurtz

Hello, can you hear me?

Friedrich Lauer

Yeah. We can hear you but, if you could speak a little bit louder please.

Costner Hurtz

Okay. Hi, Bodo, I have just one question. You are talking about the high liquidity of Daimler yet and I was talking about the shareholder meeting next year. So, just my question is, if I see it right you have net liquidity around EUR12 billion at the moment, so do you think about a special dividend for the shareholders at the moment?

Bodo Uebber

I have already answered this question to somebody, but, of course, there is, as I said, excess liquidity. But we have not made up our mind with what kind of measure we will target this positive issue, we have not decided yet.

Costner Hurtz

Okay.

Bodo Uebber

Yeah. Okay.

Costner Hurtz

Thank you.

Bodo Uebber

Thank you.

Friedrich Lauer

Okay. Next question from Mike Dean please.

Mike Dean - Credit Suisse

It's Mike Dean from Credit Suisse. Just had another question on depreciation related to Mercedes. Depreciation, and this is just to get a better indication of the EBITDA margins going forward, depreciation has fallen by about 16% over the past three years for Mercedes. Without mischanging the accounting policy that you put through in the first quarter, should we have expected depreciation sort of fallen further this year?

And then just on the Max's question again, are you saying that the 7% margin target is achievable even without the change in the accounting policy? Thank you.

Bodo Uebber

Mike, that was a very good question and to try to give a, that I answer this question and to try to get a better feeling on the target on the percentage, but, of course, it was a nice try, so to say. But as I said before, we will target for more than 7%. We are very confident in achieving this target. Our CORE program is running very well. Say today, we are at roughly 80%, 85% of what we have to implement its measures. So we are working on the remaining 15% in terms of cost measures and other stuff. So I am pretty aware that we'll achieve the targets. And as I said before, during the next course of the year, we will certainly give the guidance for the, let's say, aspirational level of the Mercedes Car Group development. The 15% of the depreciation, I am little bit looking around here. So I do think it will stay where it is right now. So I do not have a better answer right now, but we could provide something better, I don't know, when you call Investor Relations.

Mike Dean - Credit Suisse

Okay. Also just on financial hedging, could you just update us on your level of financial hedging for Mercedes going forward?

Bodo Uebber

The financial hedging, right now we are more or less, we are hedged this year. So, below everything that is over 90%, you can call hedged. That's the other stuff is fluctuation of the exposure we are next year. I am talking now overall in the company, DaimlerChrysler, we are with 50% -- roughly over 50%.

Mike Dean - Credit Suisse

That's great. Thanks a lot.

Bodo Uebber

Okay.

Friedrich Lauer

Okay. Next on the list is now [Dan Manor].

Dan Manor - Och-Ziff Capital Management

I didn't actually tend to ask a question, but since you mentioned my name I'll ask the question, anyhow. Can you explain why, now that you have divested the Chrysler business, why, I mean, not tomorrow, the next month or so, but overtime why should the Truck business and the Mercedes Luxury Car business stay under the same roof?

Bodo Uebber

Why not?

Dan Manor - Och-Ziff Capital Management

But I don't think they have anything in common, do they?

Bodo Uebber

Dan, I do think yesterday also in the statements of Dieter, he has elaborated on the future ongoing of the Daimler AG into the future and we have clearly defined the parameter of the Group, and that's my answer. I do think there are from, let's say, many aspects of point of view. There is a strong link between the divisions whether that is brand wise, also processes wise and that makes all of that makes sense. We will, in the future get to our potential in each of these divisions. We are sure to get to these levels of – inspirational levels with the Mercedes Car Group. We will deliver with the Truck Group, the benchmark level we have to achieve due to our size. We will get to the over 7% over the cycle as of '08, and of course, if there are changes in the market that even these numbers get higher, we will target for this, because we are the biggest in the world and we will unlock this potential. Within the Van business, we have clearly, also a good business case where we can be at the benchmark level after launching our new Sprinter, and with the Bus business already we are there. So putting all this together I do think there is no reason to think about something different as of the management will unlock this potential in the future and that for the sake of the shareholder and also the share price.

Dan Manor - Och-Ziff Capital Management

So maybe, let me just rephrase this, say this truck guys do not achieve the levels that you have set for them to achieve, will you take, say a more drastic action, maybe?

Bodo Uebber

Dan, the only answer I have to this, you will see these targets to develop and nothing to achieve and nothing else.

Dan Manor - Och-Ziff Capital Management

Okay, thank you.

Friedrich Lauer

Okay. We take John Luke as the next. John Luke, please. Okay, then we take Jon Backland please.

Jon Backland - Man Securities

Good afternoon, and thanks very much. This is Jon Backland from Man Securities. Just one question, I am not quite sure, because I am not quite sure about if what the pension and the healthcare liabilities that are left with Daimler AG, because obviously most of it goes to Chrysler Group, but some of it stays with Daimler. Now one other thing that I just picked up yesterday, you said that on the pension, the Chrysler Group pension was significantly over funded. Does that therefore mean that the pension and liability that's shown at end of March is significantly bigger for Daimler. I wonder if you could just fill in these numbers on page 19 of your presentation for Daimler alone?

Bodo Uebber

Okay, Jon certainly these numbers are subject to and then some of the numbers are subject to closing. We have to make also the closing here, I give you the following numbers subject to closing these.

Jon Backland - Man Securities

Yes.

Bodo Uebber

The benefit obligations, which will be retained by Chrysler are at the end of December $29 billion roughly, of course sorry, but we don't confuse here exchange-rate swaps, and the under funded status of the healthcare obligation, which will be retained by Chrysler is in $17.5 billion. Okay.

Jon Backland - Man Securities

Do we need to offset this from some assets, presumably?

Bodo Uebber

I have not got your message?

Jon Backland - Man Securities

Sorry, I thought that the funded status strain on (inaudible) is net of assets, isn't it?

Bodo Uebber

Sorry, with the pension stuff it is two, as of 31st of December coming back to the pension the planned assets are 31 billion. So there is over funded status within Chrysler, retained by 2 billion.

Jon Backland - Man Securities

Yeah.

Bodo Uebber

Okay. Dollars.

Jon Backland - Man Securities

Yes. Dollars, right. Okay. And just on Mercedes going forward, obviously, in the first quarter one of the things you have mentioned is quite clear, is that you have had a big benefit from the mix. The SUVs are very strong as Class, and you said you have got 50,000 orders for smart, I'm actually assuming that the smart has got a lower margin than your top largest selling cars and SUVs. So do we start to see, in any quarters, matching the mix being negative, and I was just wondering what your total smart volume expectations are given you got 50,000 orders already for the new four and two?

Bodo Uebber

John just to make it clear, of course the C-class now coming up will also have an impact on our mix, just going forward, because we have also in the scope the A and B-Class for example. And of course the main aspects, also on top of that we will of course certainly see sales growth over the quarters. And therefore I do think I expected that all the good development over the quarters.

I am sorry to say so with the smart. Of course you are right with your assessment that might be, the tinier the car is that the less the profits are in this case. But we stick of course with our breakeven target, which are 100% true we will achieve and we do see the quarterly developments here of course or the monthly developments where they are.

We don't give sales target for the smart. We have not done so and we do not want to. We would like to see, also we have good opportunities in the U.S. no doubt, to even increase these sales, but we don't have a profit target. But we are very sure that we have even a better product than before.

John Lawson - Citigroup

Okay and last question on this, changing the accounting of leasing from what was a financial lease to operating lease. As you say it was negative in 2006 and becomes positive in future years?

Bodo Uebber

Over time. Yeah

John Lawson - Citigroup

Can you give us some order of magnitude of the change, and how that's developed in the first quarter and how that can develop in future quarters?

Bodo Uebber

Please I do not want to go in the quarterly development here, but as last year it was a manufacturing lease we had there, which we handled on a group level and then pushed it down to the divisional level.

Last year it was an impact of roughly 400 million. They are actually related to this issue roughly 300 million and that develops overtime. If a normal lease say is 36 months or something like this, you will see that diminishing overtime.

John Lawson - Citigroup

But does it go to a positive?

Bodo Uebber

No, not to a positive.

John Lawson - Citigroup

Just reduces from minor so you have fun

Bodo Uebber

Yeah.

John Lawson - Citigroup

Okay, thank you very much.

Bodo Uebber

Yeah, please.

Friedrich Lauer

Next question from Horst Schneider, please.

Horst Schneider - WestLB Panmure

Horst Schneider from WestLB hello. One question from my side regarding further asset disposals. You can give us an update if you consider the sales for the real estate assets in the quarter of this year. And may be can give also an indication if that is going to hit the short- term or may be also an indication on the amount of real estates you are going sell this year?

Bodo Uebber

We have started the project one year ago. We have last year sold an amount of portfolio of roughly EUR600 million. We had at this point of time said that we are investigating a portfolio of EUR3 billion to EUR4 billion. That doesn't mean that we will sell all these kind of portfolio.

And again it will be an ongoing task in our company to optimize the net asset base, and I am sorry to say so, but it will be always taking you by surprise when we announce one or the other optimization in this area.

Horst Schneider - WestLB Panmure

Okay, thank you.

Friedrich Lauer

Next question is from [Christopher Havel]. Please.

Christopher Havel - Dow Jones

Christopher Havel from Dow Jones from Frankfurt good afternoon. I have got one question regarding the currency hedging. Am I right to assume that the natural hedge of the future Daimler AG will be negatively affective through a Chrysler disposal? And if so are you taking any measures to prepare for that at the moment? Thank you.

Bodo Uebber

Chris, to your answer there. Yes, there will be an impact from the Chrysler business, because Chrysler international sales had an offsetting exposure in the total exposure, it will not be substantially this effect. And as the currency exposure at all is a permanent issue to look at how to close it, it will be also so in the future. So, we will not take special measures in terms of our natural hedging, we will go further on to reduce this stuff which is always the case when you launch, for example, a new product if you try to look at the different streams from different currencies in this aspect.

Christopher Havel - Dow Jones

Perfect, thank you.

Friedrich Lauer

Our next question from Paul Griffiths, please.

Paul Griffiths

Yes, thank you. You've paid about 120 million to suppliers in this quarter alone. Those are payments to support financially distressed suppliers. So, can you talk about trends there? What do you think you are going to pay for the year? Is it a broad group that you are paying to or is it big payments to a few? And if it's big payments to a few, who? Are you cutting business with those suppliers, how critical are they to you?

And lastly, does the fact that you are doing it mean that cost cutting from suppliers is getting harder and harder and we shouldn't be able to expect kind of 2% to 3% reduction that we've grown to expect?

Bodo Uebber

Very good question Paul. Actually you are understanding that I do not want to mention these kind of suppliers here. I do think even they are not in a good situation then they get again pressure for my conference call.

Paul Griffiths

Right.

Bodo Uebber

Which I do think is not the right way to do.

Paul Griffiths

No, I suggested that.

Bodo Uebber

But again, what you have seen here, I do think we have stated that, for example, in the U.S. it's quite clear who it is. We have last year disclosed it, and of course it's not an easy situation. In Europe I do assume we will see somewhat more suppliers getting into distressed situation. Of course, we have coped with this in the past very well. Now, we have one here or two in Germany, and Europe, which we have to take care of.

I do assume now for, I don't know it's difficult to put a time check on this, how long it will take. Of course, we would like to avoid this stuff. For the current year we will have to take care of them and we will see some burdens of that, as we have shown now in this quarter, we will see some of that also during the next quarters of course in the U.S. and also here.

Paul Griffiths

So what is your communications? What's your line of communication to suppliers in terms of expected cost cuts or let's say the course of the year?

Bodo Uebber

I do think these are single examples where we have to take care of. Of course, this is not the whole supplier base that we do have. So, that was a normal supplier so to say we will work as we did before and I do think we can get together with the suppliers. Especially working together we get, again, cost savings over the time. I do not want now to make assessment from one example or two examples to the whole supplier base.

Paul Griffiths

Okay. And just lastly, I mean should we expect about a 120 per quarter over the course of this year?

Bodo Uebber

No, I do not want to make now a target here. Of course, my job is to avoid these payments, of course, and hopefully I will be lucky to do so.

Paul Griffiths

Okay, thank you.

Friedrich Lauer

Next question from [Douglas Carlson], please.

Douglas Carlson

Great, thanks guys. It's a question on smart. I think your planning on launching in the U.S. in '08 with Roger Penske. Are you still on plan for that? Is it an exclusive deal still? And than on the C-Class sedan, I think you launched at the end of March in Europe, and how has that launch been so far?

Bodo Uebber

So Douglas, both questions looks very good, so, in the SMART, SMART we are on track. We are on track with our dealer network in the US and even with this excess energy, Roger Penske is doing fine. We have even, let's say, positive measure in the US. We have a kind of Internet prepayment launched in the US where you can prepay with $99 a SMART, kind of not an order intake, but is the reservation, so to say. And we've got 10,000 people getting this of course, $99 is not something, but okay who pays $99 having got an interest in the SMART.

So that development looks pretty good. In the C-Class, there is no -- everything is fine. We have order intakes. So from the customer point of view, we are better than planned with the C-Class. We are very positive also with the production ramp up. There are no issues here to report which are not according to plan, and, of course, you know how serious we take quality issues and this is also doing well. So that's the only good news from what I can tell you.

Douglas Carlson

Changing gears to your Truck business, it looks like Europe has been a lot stronger than most of you saw. I think Eastern Europe was up 28% and Germany up 16% when you reported. What's driving the demand specifically this quarter, and could '07 potentially offset what we will see as a decline in NAFTA?

Bodo Uebber

To your question in Europe, it's clearly Eastern Europe, and it is especially also the construction business which puts us more order intakes and more sales into the business. So this looks very good. The transportation volume, also on top of this, does increase, so all these developments at all are leading into a good situation here in Europe. And can you repeat again your question referring to the NAFTA to Freightliner?

Douglas Carlson

Is the European increase in demand could have potentially offset the volume decline that we could see in North America in '07?

Bodo Uebber

No, not fully, that is an impossible. The decrease we have there about 40% in Class-8 and 25% in Class 5-7, they cannot fully offset this. But, okay, what is important to know right now is that we are at plan with Freightliner, at plan with Fuso and we are doing better with the European business.

Douglas Carlson

Great. Thanks. That's it for me.

Friedrich Lauer

Okay. Next question from (inaudible) please.

Unidentified Analyst

Yes. Hi, this is (inaudible). I have just one, two quick questions. The first one is, Mr. Bodo you mentioned yesterday, or it was mentioned yesterday that there is a net profit of this year will fall by EUR3 to EUR4 billion because of the transaction with Cerberus and Chrysler. I was wondering if we will see any effect on that in the '08 P&L, is the first question? And the second question is, can you give us an idea what the trend is whether your Return on Equity on financial services because of the NAFTA Chrysler portfolio is not going out of financial services? And the third question is, can you give us a hint if the extraordinary general meeting will take place behind or before the closing of the transaction?

Bodo Uebber

Thanks for your questions, the 3 billion to 4 billion are clearly related to '07, and as we said, that we have a clear deal, there should not be anything in '08. So there is not anything in '08. Your question regarding the Return on Equity of financial services, we have already stated that our strategic corridor of the financial services business is between is between 14% and 20%, and you can now put any number in between as the right number, but this number also reflects the total portfolio of the Chrysler, Mercedes and Truck portfolio.

Your third question was whether the annual meeting is before or after closing; clearly it will be after the closing roughly 2 to 3 months, but after closing definitely.

Unidentified Analyst

Thank you.

Friedrich Lauer

Okay, next will be Robert [Haybager] please.

Robert Haybager

Yes. Hello gentlemen (inaudible) I have two questions. First of all is there any chance to get quarterly figures for 2006 on the IFRS basis in advance before you publish any new figures for 2007? And the second question is, if one wants to calculate a kind of pro forma or future P&L of Daimler, AG, can you give us some hints there, I am particularly thinking about financial services. So last year you had revenues, say of roughly 16 billion and roughly 10% EBIT margin. So, what was the revenue split between the business, which is leaving Daimler AG, namely Chrysler and what's the portion of the business remaining on the P&L of Daimler AG?

And also, can you give an idea about the margin splits, as the assumption (inaudible) as the Mercedes business has a higher margin, let's say 11%, and the Chrysler business has a margin of 9% or something like that? And the same, maybe also, can you give some hint regarding the future consolidation line and also the financial result, because in the first quarter you had a positive financial result. Is it fair to assume that this will remain positive for the new Daimler AG excluding any extraordinaries, of course, and may be also the tax rate for the future company? Thanks.

Bodo Uebber

Robert, I think, you are very much -- for this many questions, and I am pretty much ask for your understanding. Right now, I cannot develop to you a total balance sheet with and without and any of those stuff. There we ask for your understanding that we can do so at closing. At closing you will see, of course, the new balance sheet. You will see all this percentages and we have given some directions of equity, industrial. We have given some other aspects of the business, so I ask for your understanding that I cannot do that immediately hereafter. I need to have the closing and a clear picture there of the balance sheet and all that stuff.

You asked, and yesterday also answered this question roughly from the financial services business, there you can take for your own calculation, 50% to 55% as a rough estimate, being a portfolio of profits, which is related to the Chrysler Financial NAFTA business, in the future, which is headed by the new entity of Chrysler.

You asked, one answer I can give very quick, it's a very positive one. You asked for the quarterly development of the IFRS number, and we have put that into the fact sheet, which is available on the internet, and there you can see the quarterly development of IFRS for last year, as we said, we will disclose these numbers today.

Robert Haybager

Okay. Thank you.

Bodo Uebber

Please.

Friedrich Lauer

We'll take next question from Michael Shields please.

Michael Shields - Reuters

Michael shields from Reuters. I just wanted to ask about, given the fact that net profit is expected to go down by EUR3 billion to EUR4 billion this year as a result of the Chrysler transaction, of the fact that you do have all the effects that it could have on your books. What impact will this have on your dividend policy? I mean, would you cut the dividend because net profit goes down or that's not the way to look at it exactly? Thank you very much.

Bodo Uebber

That was music for all. Michael, of course, when we do decide on our dividends with our annual statements of the year, and as we always said we take into the account the current business development but also the future one. And from today's point of view, I'm very bullish on all developments so far and also for the next year. The final call on this one will be taken as I said roughly in February '08. Okay, but I've also clearly, hello.

Unidentified Analyst

Okay thank you very much.

Bodo Uebber

Okay.

Friedrich Lauer

Okay next question from Stuart Hosansky, please.

Stuart Hosansky - Vanguard Management

Yes thank you very much and good afternoon. My question goes back to Chrysler and the financial liabilities. I'm just trying to understand this and sorry having to ask this again. Looking at your 2006 20-F, when you have the condensed consolidated financial statements. It indicates that DaimlerChrysler North America holdings has about EUR44.5 billion investments in long-term financial assets and about EUR38.6 billion in financial liabilities. Would it be fair to say that the new Daimler is going to be assuming and taking on to your books, both the financial assets there and the financial liabilities, and as those financial assets pay down mature those sources of funds are going to be used to pay down the financial liabilities?

Bodo Uebber

Again I ask for your understanding, we will come up with all the stuff at closing, I have made all the statements you need to know in terms of cash out flows out of the company which is limited. I've elaborated on the net liquidity which is also stable in this regard and all the other details you will get then at the closing when we come up with these numbers, as for your understanding there. But I do think there is nothing more to say right now. Okay. Sorry for that answer.

Stuart Hosansky - Vanguard Management

Yeah. Okay.

Bodo Uebber

Sorry.

Friedrich Lauer

Okay. We do not have any further people on the list. So, therefore ladies and gentlemen thank you very much for your questions and for being with us here today on the phone or on the internet. Corporate communications and investor relations remain at your disposal to answer any questions you may have. Okay. We hope to see you again soon good bye.

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Source: DaimlerChrysler Q1 2007 Earnings Call Transcript
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