Mercedes & Brawn GP: Odd investment?


Mercedes, who posted a large loss in the second quarter, is rumored to be buying in to Brawn GP. While the story broke at the Telegraph, and Autosport seconded it, it strikes me as an odd move for a company bent on cost-cutting and avoiding more losses. If automotive journalist Neil Winton is correct, Mercedes could struggle in 2010 as well:

Daimler, which owns Mercedes, generated a huge second-quarter loss as expected, but investor opinion is divided about whether 2010 will bring a return to profit.
Morgan Stanley analyst Adam Jonas expects the Mercedes cars subsidiary will make a profit in the second half, as the new E-class hits markets, with the profit margin creeping up to nearly 2 percent.

In the second quarter, Daimler managed a loss before interest and tax of 1 billion euros, compared with a profit of 2 billion euros in the same period of 2008. Revenues fell over 30 percent to 19.6 billion euros ($27.7 billion) as car sales dropped by almost one fifth and truck sales halved.

Mercedes isn’t going to be in the fast lane next year either.
“For 2010, we expect group (Daimler) profit before interest and tax to just about break even — and even that won’t be easy,” said Jonas.

But Commerzbank’s Daniel Schwarz expects Daimler to make money in 2010.
Nomura International analyst Dorothee Cresswell said Daimler has improved its cost-cutting and stocks position, but plans to do more.

The Telegraph’s take on it the story is unique as they present the McLaren involvement (40% ownership from Mercedes) as a counter investment. Almost as if it would be one or the other but Mercedes itself was quick to point out their continued long-term investment in the F1 team when asked about a potential Brawn GP buy-in. The Telegraph does state that Mercedes was not ruling out a parallel investment to McLaren with a percentage ownership in both teams.

Mercedes also supplies engines for Force India as well as Brawn GP and Mercedes. There is significant talk of a deal with Red Bull as an engine supplier for 2010 as well. Red Bull currently uses Renault engines which has placed the team in a tenuous position as two engines failed on Sebastian Vettel’s car at Valencia.

Does this make sense for Mercedes? As Brawn GP are leading the championship battle, Mercedes would find the attached brand management of Brawn GP and Mercedes clinching another championship a real benefit. Especially since McLaren are effectively out of the race. Earlier this year Daimler boss Helmut Lense said:

Helmut Lense, chairman of the workers council and a member
of the managing board of Daimler AG, which owns Mercedes-Benz,
had urged the Stuttgart manufacturer to pull out as part of a 2
billion euro ($2.63 billion) cost-cutting plan.
“The reaction of the staff at works council meetings in
April at all Daimler plants showed: Formula One is not accepted
by staff. That has to be accepted,” he told the Stuttgarter
Zeitung newspaper on Wednesday.
“Daimler has the goal of being a leader in ‘green
technology,” Lense added.
“Does Formula One match up with that? Wouldn’t it be the
right signal now to exit Formula One and instead of that
concentrate on environmentally friendly technologies?”

That doesn’t sound like the voice of confidence to me and makes me wonder if Mercedes are struggling to define their investment as a positive thing in their BMW-esque march toward all things “green” then what in the world would a Brawn GP investment say to Mr. Lense and the “staff”?

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