DaimlerChrysler’s first quarter net income fell 30% as profits at its most important division – Mercedes Car Group – evaporated amid falling sales, quality problems and a huge restructuring of its tiny-car unit, Smart, the Wall Street Journal (WSJ) reported.

The paper said the €954 million ($US1.23 billion) operating loss by Mercedes – compared with a €639 million operating profit a year ago – marks the first time in years that the luxury-car maker has posted a quarterly loss and highlights the steep challenge facing DaimlerChrysler CEO Juergen Schrempp.

Schrempp has called Mercedes’ profit slide unacceptable, and the division has launched a wide-ranging programme, involving some cost cuts, that is intended to restore Mercedes to its old levels of profitability, the WSJ added.

DaimlerChrysler reportedly said net income fell from €412 million a year ago to €288 million euros in the first quarter of 2005 – the company cited the “exceptional impact” of a previously announced restructuring of Smart that reduced net income by €512 million.

According to the Wall Street Journal, the company also reported a 17% decrease in operating profit at its US arm, which it attributed to lower factory unit sales and the appreciation of the euro against the US dollar.

The WSJ said the Chrysler Group posted an operating profit of €252 million in the first quarter of 2005 compared with an operating profit of €303 million in the first quarter of 2004 – the company’s commercial vehicles division increased its first-quarter operating profit from €268 million to €714 million.

In a rare victory for Germany’s manufacturing competitiveness, DaimlerChrysler also announced Thursday that it would build a new sport-utility vehicle at its plant in Bremen, Germany, rather than at its plant in Juiz de Fora, Brazil, which the company had also considered as a possible production location for the SUV, the Wall Street Journal said.

DaimlerChrysler reportedly didn’t specify its reasons for picking the German plant, which followed lengthy negotiations with labour over reducing production costs, though some industry analysts told the Wall Street Journal the Brazil plant was hampered by its distance from the company’s key Western European markets.