DaimlerChrysler recorded an operating profit of €1.7 billion in the second quarter of 2005, compared with €2.1 billion in the same period of last year, a result the company said was "significantly" above analysts' estimates.

Excluding expenses due to the new Smart business model incurred in the second quarter, the group's second-quarter operating profit amounted to €2.0 billion, which was close to the level recorded in Q2 2004.

Group operating profit increased significantly from €628 million in the first quarter of this year to €1.7 billion in Q2.

Net income of €737 million for the second quarter was €160 million or 28% higher than a year ago. The decrease in operating profit was more than offset by the improved financial income (expense), net, and lower income taxes. Earnings per share was €0.73, compared with €0.57 in the second quarter of 2004.

In the second quarter of this year, DaimlerChrysler increased worldwide unit sales by 4% to 1.3 million vehicles, year on year. Second-quarter revenues also increased by 4% to €38.4 billion.

The Mercedes Car Group's second-quarter unit sales decreased 4% to 308,100 vehicles due to lower sales at Smart; revenues were also down by 4%.

After an operating loss in the first quarter of this year, Mercedes recorded slightly positive earnings in this quarter (Q2 2004: €703 million), thereby achieving the turning point in operating performance. The division's operating profit of €12 million includes further expenses of €311 million for the new Smart business model. Excluding these expenses for Smart, the division's result would have been an operating loss of €154 million in the first quarter of this year and an operating profit of €323 million in the second quarter. This significant increase in earnings is primarily due to new models and the efficiency-improving actions taken through the CORE programme.

There were offsetting effects at Mercedes-Benz passenger cars due to lower unit sales of the S-Class and M-Class for model-cycle reasons, a less favourable model mix and the continued strength of the euro. In addition, increased raw material prices and the launch costs for the new M-Class reduced earnings.

Unit sales by the Mercedes-Benz brand of 273,400 vehicles were at the same level as in Q2 2004. Increases over the prior-year period were particularly strong for the A-Class and the SLK roadster. The new M-Class, which was launched in the United States in April, and the B-class, newly launched in June, both had very successful starts. In the run up to the model changeover, S-class sales did not reach last year's levels.

Within the framework of the CORE program, by the end of June a large number of ideas had been developed to reduce costs and increase revenues in the Mercedes Car Group, and a high proportion of the total volume of profitability improvements targeted for the year 2005 had already been identified. By the year 2007, the Mercedes Car Group intends to improve its earnings by up to €3.5 billion and to achieve a return on sales of 7%.

Due to the continuation of difficult conditions in the market for small cars and inventory reductions, shipments to dealers by the Smart brand fell to 34,700 vehicles in the second quarter (Q2 2004: 45,100). However, retail sales increased by 2% to 38,700 cars.

Chrysler Group increased its second-quarter worldwide retail sales by 3% to 783,000 vehicles. This increase was primarily due to the market success of new products launched in 2004 such as the Chrysler 300 (+18%), the Dodge Magnum (+133%), the Jeep Grand Cherokee (+26%) and new minivans featuring the innovative Stow'n Go seating system (+6%). Unit sales (factory shipments) increased by 4% to 812,200 vehicles.

As a result, in particular, of the appreciation of the euro against the US dollar, revenues decreased by 1% to €13.0 billion. Measured in US dollars, revenues rose by 3%.

Chrysler Group posted an operating profit in a difficult market environment of €544 million in the second quarter of 2005, compared with an operating profit of €521 million in the second quarter of 2004. The increase in operating profit, resulting from increased shipments and cost reductions, was partially offset by negative net pricing, shifts in product and market mix and the appreciation of the euro against the US dollar.

To be able to react quickly to fluctuations in demand, the Chrysler Group will, over the coming years, further improve its manufacturing flexibility and modernise its production equipment. In the second quarter, the division therefore announced major investments at some plants.

The Commercial Vehicles Division increased its unit sales by 20% to 221,600 vehicles in the second quarter, while revenues increased by 19% to €10.6 billion. Adjusted for changes in the consolidated Group - Mitsubishi Fuso Truck and Bus Corporation (MFTBC) was only consolidated for two months in the second quarter of 2004 - unit sales rose by 8% and revenues by 12%.

With a second-quarter operating profit of €524 million, the Commercial Vehicles Division once again increased its earnings compared with the prior-year period (+12%). The continuing positive development of unit sales in nearly all of the division's business units, particularly for trucks, and the successful continuation of the efficiency improvement programmes were the primary factors behind the increase in operating profit. These factors more than compensated for charges on earnings resulting primarily from more expensive raw materials and exchange rate effects.

The positive development of the truck business continued in the second quarter of 2005. The Trucks NAFTA business unit (Freightliner, Sterling, Thomas Built Buses, Western Star) improved its unit sales by 32% to 48,700 vehicles, primarily as a result of the continuing strong demand for heavy trucks in the North American market. Unit sales by the Trucks Europe/Latin America business unit (Mercedes-Benz) increased by 14% to 40,100 trucks, mainly due to the market success of the Axor and Actros models. MFTBC's second-quarter unit sales decreased by 11% to 45,900 trucks and 2,100 buses. Sales of 72,300 vehicles by the Vans business unit were close to the number sold in Q2 2004. The DaimlerChrysler Buses business unit sold 9,500 buses and chassis, 11% more than in the second quarter of last year.

The operating profit of the Financial Services division remained at a high level of €385 million (Q2 2004: €472 million). The negative impact on profits resulting from the strength of the euro against the US dollar and rising interest rates, particularly in the United States, was partially offset by a lower cost of risk.

Contract volume increased by 9% to €114.2 billion; after adjusting for exchange-rate effects the increase amounted to 8%. At the end of the second quarter, the portfolio comprised a total of 6.5 million vehicles (+3%). New business decreased by 4% compared with last year's second quarter to €12.9 billion.

Other Activities' operating profit of €144 million represented an improvement of €59 million compared with the second quarter of 2004. This improvement was mainly the result of an increased operating profit at the European Aeronautic Defence and Space Company (EADS) due to higher deliveries of Airbus aircraft. EADS performed extremely well in the first half of 2005.

Outlook for full-year 2005

Demand in the automotive industry is likely to remain rather moderate in the second half of the year. Whereas demand for passenger cars will go on rising in most of the emerging markets, DaimlerChrysler expects unit sales at last year's levels in the world's three major markets of North America, the European Union and Japan, although there may be very strong seasonal fluctuations from one quarter to the next.

Demand for commercial vehicles should remain at its present high level. In view of further reductions in model lifecycles and ongoing over-capacity, the company expects a continuation of the intensely competitive pressure in the automobile industry.

DaimlerChrysler anticipates a slight increase in unit sales in full-year 2005 compared with 2004.

At the Mercedes Car Group, the general availability of numerous new models and engines should stimulate unit sales in the second half of the year. This will be boosted by the extremely positive response to the new S-Class, with the first cars being delivered to customers in September. In addition, the new R-Class will be launched in the United States this fall. For the full year, the division expects a slight increase in unit sales compared with 2004. The Mercedes Car Group anticipates continuous earnings improvements following the turning point in the second quarter.

The Chrysler Group anticipates a continuation of the tough competition in the North American market during the rest of this year. Total market volume in the United States is likely to be around 17.2 million vehicles. In particular, the success of the new models should help the division to increase its unit sales compared with the year 2004.

In the second half of 2005, the Commercial Vehicles Division expects unit sales to continue the pleasing development shown in the first half, so that a significant increase should be achieved for the full year. There will be a positive impetus in particular from the strong demand (evident since last year) for Freightliner's heavy-duty trucks in the NAFTA region, as well as for Mercedes-Benz trucks.

The Financial Services division assumes that levels of new business and contract volume will be stable during the rest of the year.

The DaimlerChrysler Group continues to expect higher revenues in 2005 than in 2004. The development of revenues remains highly dependent on changes in the exchange rate between the euro and the US dollar.

Despite the recent rise of the US dollar against the euro, operating profit for full-year 2005 will be impacted by the less favourable dollar-euro exchange rate compared to the prior year. In addition, the development of earnings will continue to be impacted by increases in raw material prices during the rest of this year.

After increasing Group earnings in the second quarter by more than originally anticipated and achieving the turning point at the Mercedes Car Group, for full-year 2005 DaimlerChrysler continues to expect a slight increase in operating profit compared with the prior year, excluding the charges related to the Smart business model.