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Whizzy roadster or solid sedan? Buyers of luxury cars are wooed by a mixture of performance, comfort and finish. Investors in their makers' shares have much the same criteria. For years, BMW has outgunned German rival Daimler (which also takes in a large heavy truck business). On a five-year basis, BMW shares have generated a total return of 200 per cent; Daimler's, just 70 per cent. At the turn of the year, though, activist shareholders pushed for a gear change at the latter group: chief executive Dieter Zetsche saw his contract renewed, but delivery was demanded. And, in 2013, it is Daimler's shares that have moved into the fast lane, rising almost one-third. BMW's stock has stalled.
Results from both companies, out this week, went partway to justifying this turnround. Daimler is finally reaping rewards from an extensive product overhaul. Its Mercedes car division saw second-quarter revenues rise 6 per cent to more than €16-billion ($22-billion). With a new S-Class sedan launched in May and more models to come, momentum should build as 2013 wears on. For once, too, Daimler's car and truck units are firing together as a new heavy truck platform also rolls out. Operating margins in the car division were affected by the changing model mix, but, at more than 6 per cent, bettered market expectations. Mr. Zetsche also promised significantly better earnings in the current second half.
BMW, by contrast, clocked up a fatter 9.6 per cent second quarter margin in its auto business and forecasts 8-10 per cent for the full year. But the second quarter figure was a tad down on the first three months, usually seasonally weaker. Moreover, second-quarter automotive revenues were just 2 per cent higher year on year. That said, free cash flow looks very solid at BMW: at Daimler, it could be thin this year once one-off items, such as the sale of the EADS stake, are stripped out. And Daimler's price surge means some of the discount surrounding the stock has eroded. On a simple price/earnings basis, Daimler shares trade on 10 times the 2014 consensus number; BMW's are on 9 times. New models always grab attention. Even so, investors would be foolish to forget the tried and tested ones.