Mercedes-Benz is recalling 310,667 vehicles in the United States because of a safety issue involving the driver’s door lock, the U.S. National Highway Traffic Safety Administration (NHTSA) said on Thursday. The recall covers several Mercedes models, including the CLA, A-Class, C-Class, CLE, GLA, GLB and GLC. According to the NHTSA, a corroded micro-switch inside the driver’s door lock may fail to detect when the driver’s door is open.
If the system cannot detect that the driver’s door is open, the automatic park brake may not engage as designed, as reported by Reuters. This could allow the vehicle to roll away and increase the risk of a crash, the agency said. Mercedes dealers will replace the driver’s door lock free of charge to fix the problem, the NHTSA said.
China sales hit Mercedes
The recall announcement came as Mercedes also lowered its sales expectations for the full year after facing growing pressure in China’s auto market. The German luxury carmaker now expects to sell slightly fewer vehicles this year than it sold last year. It also expects group revenue to be slightly lower than last year. Earlier, the company had expected sales and revenue to remain flat.
Mercedes blamed the weaker outlook mainly on China, where competition has become much tougher for foreign luxury carmakers. The company said, “In the Chinese premium and luxury segment, the ongoing intense price competition, especially by local manufacturers, is expected to lead to significantly weaker development of unit sales for many foreign manufacturers”, as noted by The Wall Street Journal.
Mercedes recorded a 704 million euro ($800.3 million) impairment related to its business in China during the second quarter. The company said this impairment did not result in any cash leaving the business. Mercedes’ earnings before interest and tax (EBIT) in its core car business dropped sharply to 49 million euros from 783 million euros a year earlier because of the China-related impairment.
China slowdown hurts profits
Car sales in China fell 30% during the quarter. Mercedes said the decline was caused by intense competition, cautious consumer spending and ongoing model changes, according to The Wall Street Journal. The company added that growth in other regions was not enough to offset the sharp fall in Chinese sales.
Mercedes also warned that geopolitical tensions and trade barriers continue to create uncertainty for its business. The company said the conflict in the Middle East is adding to existing uncertainty and that its financial guidance assumes the war will not fully reignite during the second half of the year.
Mercedes is not the only automaker facing problems in China. Volkswagen and its Audi brand have also lowered their sales forecasts and announced stronger cost-cutting plans because of weak demand and fierce competition from Chinese carmakers. BMW also reduced its sales expectations for the year last month, showing that pressure is affecting several global automakers, according to The Wall Street Journal.
Despite the weaker sales outlook, Mercedes said it now expects electric vehicles to make up a larger share of its sales this year than it had previously forecast. The company kept its other financial targets unchanged, including expectations for significantly higher group EBIT and an adjusted return on sales of 3% to 5% for its car business.
Mercedes plans new models
Mercedes said it expects future growth from the launch of more than 40 new vehicle models between 2025 and 2027. The automaker also plans to improve profits by increasing productivity across its global operations, with a focus on its factories in Germany. Last year, Mercedes announced a broad cost-cutting strategy that includes reducing jobs, shifting some production from Germany to lower-cost countries such as Hungary, lowering energy costs, increasing automation and cutting logistics expenses.
Chief Executive Ola Kallenius said, “Customer response to our new models is strong. In the second half, we will focus on bringing more new models to customers while further improving our cost position and productivity”, according to The Wall Street Journal.
Mercedes reported second-quarter EBIT of 1.55 billion euros, compared with 1.27 billion euros a year earlier. Quarterly revenue fell 3.3% to 32.06 billion euros. Analysts surveyed by FactSet had expected EBIT of 1.51 billion euros on revenue of 31.88 billion euros, meaning Mercedes slightly beat market expectations.
The adjusted return on sales in Mercedes’ car business fell to 4% from 5.1% a year earlier, showing profitability remained under pressure despite stronger-than-expected quarterly earnings.
