German car boss warns of China

"There are some clouds in the blue sky," Daimler CEO Dieter Zetsche told journalists recently in New York.

Emerging markets have generated almost three-quarters of world growth through the past two years but there is rising concern that inflation in China - the world's No.2 economy - could prompt a slowdown in emerging markets across the board.

Zetsche told Reuters Insider that a number of "difficult events" over recent months - including the earthquakes in Japan, unrest across the Arab world and still-anaemic growth in the US - meant the risks to global growth had increased.

CHINA SLOWDOWN EXPECTED

"I would see a very small likelihood for a storm coming. It's not impossible... but our main and most likely scenario is a continuation of the positive development of the world economy," he added in the interview.

China's consumer inflation hit a 34-month high of 5.5 percent in the year to May, 2011. Analysts forecast it would peak in June or July before easing.

Premium and mass-market automakers have looked to fast-growing markets such as China to make up for sluggish sales growth in more mature markets, particularly Europe, but China's car market - the world's biggest ahead of the US - is expected to cool by the end of 2011, partly due to rising fuel prices and tighter rules on car registrations after sales there surged by a third to a record in 2010.

BRAKES ON GROWTH

Daimler, which makes Mercedes-Benz and Smart, sold 82 percent more cars in China in the first three months of 2011 than in the year-earlier period but that growth rate slowed to 43 percent in May, dragging monthly total group sales growth to a single-digit percentage from more than 10 percent over the first four months of the year.

But Zetsche said Daimler's business was diverse enough - with operations in North America and Europe as well as emerging markets selling cars, trucks, vans and buses - to balance volatility in emerging markets.

His comments come as Daimler unveiled its revamped flagship Actros truck. It hopes this will improve profitability for its trucks business, which generated 45 percent of group revenue in the first quarter, to take on top rival Volvo.

MARGINS GAME

Daimler has also been eager to expand into higher-margin industrial diesel engines and has teamed up with Rolls-Royce to bid for German engine maker Tognum, which Daimler owned before selling the unit in 2005. 

"Our offer was very successful," Zetsche said. "We're at about 85 percent ownership now. We are very satisfied with this development."

Daimler was due to announce the final acceptance quota on June 24.

With its offer for Tognum, which makes military and ship engines, Daimler and Rolls-Royce hope to tap in to a global growth market worth more than $40-billion a year that offers better margins than the automotive sector.