Daimler R&D escapes cuts, earmarks $5.5 billion

Daimler AG, the world’s second- biggest maker of luxury cars, said it will maintain spending on new models and technology at ¤4.4 billion ($5.5 billion) after ring fencing its research budget from a wave of cost cuts as the global recession wipes out auto sales.

“Without new products an automaker is nothing,” Thomas Weber, Daimler’s head of development, said last night in an interview at the Geneva International Motor Show. “We came to the clear commitment to keep all product-related spending.”

Daimler is focusing its research budget on leaner engines, fuel cells and safety technology such as a system in the new Mercedes E-Class model that automatically applies the brakes to avoid accidents. While continuing to fund new projects, the R&D department will seek to save money by putting off office renovations, reducing spending on computers and delaying the opening of a test facility in South Africa, Weber said.

Under pressure from Bayerische Motoren Werke AG, Stuttgart, Germany-based Daimler last year increased research spending by ¤1 billion to ¤4.4 billion.

Daimler rose as much as 8 per cent to ¤19.31, the most since February 6, and was trading at ¤19.21 as of 1.07 pm in Frankfurt. The nine-member Bloomberg Europe Autos Index was up 4.5 per cent, also the biggest gain since February 6.

Weber argues that his company has caught up with BMW in terms of technology but still lags behind in public perception. The E-Class, which emits 23 per cent less carbon dioxide than the predecessor, will make it “relatively easy” to convince people of the merits of Mercedes’ fuel-saving technology, he said.

Like other carmakers, Daimler said it needs new models to be better positioned for a market rebound. The company says a recovery is possible in the second half. Toyota Motor Co has predicted a 30 per cent drop in European sales this year and no turnaround until the second half of 2010.

Daimler may make a decision on expanding its Smart mini- car brand this year, Weber said. The 10-year-old unit turned a profit for the first time in 2008 after a previous expansion failed to increase volumes.

The company can afford to invest in new engines despite a relatively small volume of car sales because advances feed across to its buses, trucks and vans, where pressure for cleaner motors is greatest. Daimler makes Freightliner trucks in North America and owns the Fuso brand in Asia.

Weber said the company is bundling its electric motor technology into a single group that encompasses truck, bus and car divisions to streamline development and lower costs.