New model Mercedes is make or break for Daimler

by on 05/16/2013

The German carmaker drove the next version of its flagship Mercedes off the forecourt on May 15. Much depends on the success of the new S class. The luxury sedan might be an amazing car, but shifts in market tastes and sales problems in China may undermine its success.

Daimler launched its new Mercedes S class on Wednesday. Much depends on the luxury sedan. Its predecessor generated 5.6 percent of car sales but – according to a Breakingviews estimate – created at least twice as much in terms of operating profit. If the new S class is as successful as earlier versions, Daimler’s profit could be boosted by several hundred million euros in 2014. Continue reading →

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Evonik’s fundamental strengths come at a full price

by on 04/29/2013

The listing of the speciality chemicals company marks the largest German IPO since 2007. Evonik supplies compounds for an array of uses from biodiesel and chicken feed to Plexiglas. It has a solid sales and profit record – but a share price at the rich end of fair value.

For once, Evonik was favoured by fortune. On the eve of its fourth attempt to list on the German stock exchange, Borussia Dortmund, the soccer club sponsored by the speciality chemical group, thrashed Real Madrid 4-1 in the Champions League semi-final. The morning after, Evonik’s stock market debut was also successful, if less demonstrable.

With annual sales of 13.6 billion euros, Evonik is one of the world’s leading companies in the sector. Its diverse product range encompasses additives that go into coatings for pills to compounds deployed in car tyres, batteries and wind turbines. Every fourth nappy in the world uses Evonik’s super-absorbent material, while its amino-acids help feed 45 billion chickens a year. Continue reading →

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German push to green power is brave but risky

by on 04/26/2013

Europe’s industrial leader wants to wean itself off nuclear power and fossil fuels, so Germany will become the world’s test laboratory for renewable energy. The policy is farsighted, but in urgent need of more German efficiency to keep costs under control.

When Germans embark on an engineering project, they usually get it done properly. The country must hope that this proves true for the biggest technical challenge the nation has taken on in generations: revamping the entire energy system. Phasing out nuclear power by 2022 is the relatively easy part. The real challenge is to get rid of fossil fuels almost completely by 2050.

“Energiewende” (energy transition) enjoys broad support in Germany. Despite some pitfalls, it is a brave and farsighted endeavour that the world should watch closely. So far, it seems to be on track. In 2012 the share of power generation from renewable sources jumped to 23 percent, from 20 percent in 2011. The government’s intermediate goal of at least 35 percent by 2020 may even be met prematurely. Continue reading →

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German women lose board battle. Maybe not the war

by on 04/24/2013

Angela Merkel narrowly stifled a mutiny among MPs who wanted to force women quotas on corporate boards. She had to promise a softer reform in return. The fight against quotas is as desperate in Germany as it is in the rest of Europe. Companies should adjust to that reality.

In the banking industry, the Basel III requirements are to be fully implemented in 2018, yet investors and banks seem to behave as if they are already in full swing. Listed European companies would be well advised to do the same regarding the presence of women on their boards – and act before pan-European quotas come into effect, which is only a matter of time. Continue reading →

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RTL is a gamble on the future of old-fashioned TV

by on 04/22/2013

Bertelsmann is reducing its exposure to TV by selling a chunk of RTL. The German broadcaster seems well-placed to deal with the status quo, but the longer term prospects are less clear. Internet distribution channels present free-to-air terrestrial TV huge headaches.

The rise of the Internet has already forced change in the way the music industry and the print media do business. Television could be next in line. New media consumption patterns, as well as fierce competition for advertising revenue from Google, among others, are likely to shake up traditional business models. Continue reading →

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BMW, VW and Daimler: similar and unequal

by on 04/17/2013

The leading German carmakers have ignored the most severe crisis of the European auto market in decades. After record results, they reckon they can cope with a worsening environment. Yet there are differences between them – which markets only partly appreciate.

At 383 billion euros, the joint annual revenue of Volkswagen, Daimler and BMW is equivalent to the gross domestic product of Belgium. The three German carmakers have defied the European automobile crisis, dubbed “carmageddon” by JP Morgan. The big three booked record revenues in 2012, increased their sales in the first quarter and reckon they can cope with a worsening environment. They are in a league of their own. Continue reading →

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German caution will make banking union stronger

by on 04/17/2013

 Germany’s finance minister says that a pan-European bank resolution scheme requires changing the EU treaty. This is less an attempt to delay the banking union than a statement of fact. It does not impact the common bank supervisor, nor direct recapitalisation through the ESM.

 German Finance Minister Wolfgang Schaeuble is Europe’s leading doom monger, regularly throwing cold water on ideas or suggestions to amend the way the euro zone does business. He seemed to live up to his reputation over the weekend by pointing out that full European banking union, including a resolution scheme, would necessitate changes in the EU’s founding treaties. Continue reading →

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Inflation fear shouldn’t constrain monetary policy

by on 04/11/2013

Central banks have more room to manoeuvre than inflation hawks think. Even temporarily excessive economic stimulus is unlikely to derail price stability, as a new IMF analysis suggests. Monetary policymakers should use this leeway – especially in the euro zone.

A nagging fear of out-of-control inflation is deeply engrained in the psyche of any proper central banker. For the time being though, they can relax. Current monetary policymakers enjoy more room to manoeuvre than past experiences – and today’s inflation hawks – suggest. Continue reading →

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German eurosceptics strong enough to nudge Merkel

by on 04/05/2013

A new anti-euro party is unlikely to make it into parliament in the 2013 elections, but its appeal will make it harder for the chancellor to appear too generous to troubled periphery nations, despite her popularity. The rest of the euro zone should understand her predicament.

The biggest surprise about Germany’s fledgling anti-euro party is that it took so long to emerge. Many Germans object to the bailouts for stricken euro zone members, are haunted by fears of inflation and just don’t trust the euro. But unlike in Finland and the Netherlands, German eurosceptic voters have had no place to turn to, as all the respectable parties are staunchly pro-European. Continue reading →

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German minimum wage talk mostly symbolic for now

by on 04/04/2013

The country is one of the few in the EU without a minimum wage. Political parties agree it’s time to end that anomaly. The macroeconomic impact of the reform will be muted. Yet the debate suggests there’s a limit to Berlin’s appetite for deregulated labour markets.

Germany has been urging southern European countries to deregulate their labour markets. Meanwhile, it seems to be headed in the opposite direction. While the technical details are still up for debate, there is a consensus among all political parties that Germany needs a minimum wage at last.

Such a move would break a longstanding policy of keeping the government out of wage setting. The right to free collective bargaining is enshrined in the constitution. Even the social democrats of the SPD party and union leaders opposed government intervention in matters related to wages and pay. Continue reading →

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