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Daimler said to target $1.3 billion in cuts to boost profit

FRANKFURT (Bloomberg) — Daimler is planning to cut annual costs by at least 1 billion euros ($1.31 billion) in response to Europe’s deteriorating auto market, a person familiar with the matter said.

The spending reductions are aimed at boosting the German automaker’s profitability, said the person, who asked not to be identified discussing internal plans that are not yet public.

Florian Martens, a Daimler spokesman, declined to comment.

CEO Dieter Zetsche announced a “Fit for Leadership” efficiency program on Sept. 20 and said he will outline details on savings at a later date.

Zetsche, who also heads Daimler’s premium brand Mercedes-Benz, said last month the company’s passenger cars business in 2012 will not reach last year’s operating profit of 5.2 billion euros, lowering an earlier forecast. He declined three weeks ago to reiterate the unit’s goal of reaching a 10 percent margin by 2013.

“We remain convinced that there is a significant risk that Mercedes earnings before interest and tax (EBIT) will decline next year,” Arndt Ellinghorst, a London-based Credit Suisse analyst, said in an e-mail. He estimates an EBIT margin on the earnings of 8.3 percent for the brand next year.

The automaker’s stock has gained 16 percent this year, valuing the company at 42.1 billion euros.

Plunging market

Daimler is reducing spending as the European car market is posed for its steepest decline in 19 years. Industrywide deliveries in 2012 will drop 8 percent to 10 percent, according to a forecast by industry group ACEA.

Daimler reached an agreement with its works council on Wednesday to cut production of the flagship S-class model at its biggest plant in Sindelfingen, Germany, to one shift from two before the new generation goes into production next year.

Mercedes rival BMW, the world’s biggest maker of luxury autos, has shifted “tens of thousands” of vehicles from Europe to the United States and Asia in reaction to slowing demand on the debt-ridden continent, Ian Robertson, BMW’s sales chief, said on Wednesday.

The sales gap between Mercedes and its competitors is widening. The brand’s nine-month deliveries increased 5 percent to 964,926 vehicles. That compares with a 13 percent jump to 1.1 million cars at Audi, and a rise of 8.6 percent to 1.11 million vehicles at BMW.

Daimler’s cost reductions are focused on increasing profit by about 3 billion euros, Manager Magazin reported today, citing unidentified company executives. The exact sum is still being calculated, the German magazine added.